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Canada Legislates Rail Shipments to Alleviate Grain Backlog

Bloomberg logoBloomberg 26-03-2014 Jen Skerritt and Theophilos Argitis

(Updates with minister comment in third paragraph.)

March 26 (Bloomberg) -- Canada wants to set minimum requirements for the movement of grain by the nation’s two major railways to help ease a backlog that has left as much as C$20 billion ($18 billion) of grain stuck on prairie farms.

Agriculture Minister Gerry Ritz and Transport Minister Lisa Raitt introduced the Fair Rail for Grain Farmers Act today to respond to challenges currently facing Canada’s rail shipping system. Proposed amendments to the Canada Transportation Act will give the government the authority to set minimum volume requirements for the movement of grain by Canadian National Railway Co. and Canadian Pacific Railway Ltd. and impose penalties of C$100,000 per day for non-compliance.

“Over the past months, a significant backlog of grain and other commodities has impacted not only on our grain farms but Canada’s overall economy,” Ritz told reporters in Ottawa. “In order to get the largest crop yield in Canadian history moving, our government took decisive action.”

The Canadian Transportation Agency will be responsible for recommending minimum volumes to the minister of transport over the course of the summer and early fall, as the harvest yield becomes clearer, according to technical briefing documents.

Falling Volumes

The federal government’s efforts to roughly double grain transport by rail should put the distribution of wheat and canola back on track by mid-summer and free-up space in farmers’ bins just in time for this year’s harvest, according to a BMO Capital Markets economic research report. The country’s rail transport volumes were down 12 percent year over year in January despite the bumper crop waiting in storage on farms, the report said.

The proposed changes will help get grain moving and ensure railways have enough power and locomotives if Canadian farmers harvest another good crop in 2014, Allan Johnston, president of Johnston’s grain brokerage, said in a telephone interview from Welwyn, Saskatchewan. “Everything is full” of grain, and there is not enough capacity to move last year’s crop quickly, he said.

Canadian National spokesman Mark Hallman and Canadian Pacific spokesman Ed Greenberg said in e-mails the companies are reviewing the legislation before they comment further.

Record Harvests

The move comes as record harvests and railroad logjams across Canada’s prairie provinces make shipments difficult for grain companies and farmers. The rail-car backlog has risen to 71,500, according to Quorum Corp., the Edmonton-based company appointed by the federal government to monitor Canada’s grain transportation system.

Canadian Pacific, based in Calgary and Montreal-based Canadian National will be required to increase the volumes carried each week to clear a backlog of crop stuck on the prairies. Railways will each be required to ship a minimum of 500,000 metric tons of grain each week beginning April 7 and Aug. 3, according to government documents.

Canadian National began ramping up grain loadings as soon as “we got a meaningful break from this harsh winter’s extreme cold temperatures,” Claude Mongeau, president and chief executive officer, said in a March 24 statement. The railway has delivered an average of 4,366 grain cars to prairie elevators three weeks in a row, according to the statement.

“As I have said before, blaming railways alone - or even worse, threatening to punish them with re-regulation for an outsized crop and winter conditions beyond their control - will not help to move any more grain, now or over the longer term,” Mongeau said in the statement.



Top Commodities Stories: CTOP


--With assistance from Frederic Tomesco in Montreal.


To contact the reporters on this story: Jen Skerritt in Winnipeg at jskerritt1@bloomberg.net; Theophilos Argitis in Ottawa at targitis@bloomberg.net To contact the editors responsible for this story: Millie Munshi at mmunshi@bloomberg.net; Paul Badertscher at pbadertscher@bloomberg.net Chris Fournier, David Scanlan

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