March 25, 2008 / 4:05 PM / in 10 years

Canadian farmers complain rail profits excessive

LILYFIELD, Manitoba (Reuters) - Canadian railways are reaping unreasonable profits, farm groups said on Tuesday, releasing a study they said should nudge the federal government to investigate what it costs rail carriers to ship grain.

<p>Rail cars sit in the CN MacMillan Yard in Toronto February 10, 2007. REUTERS/J.P. Moczulski</p>

Canadian National Railway (CNR.TO) and Canadian Pacific Railway (CP.TO) get a 50 percent return on their variable costs, according to estimates by rail analyst John Edsforth.

That’s more than double what they were allowed to earn before rail laws were overhauled in 2000, and twice what they would earn if there was more competition, Edsforth said in a study commissioned by the Canadian Wheat Board.

Farm groups said railways make at least C$100 million ($98 million) a year in excessive profits, or about C$9,000 from an average farmer’s annual C$50,000 freight bill.

“We’re paying an extra $9,000 (per farm) that currently has been going toward CN and CP shareholders,” Manitoba farmer Ian Wishart told reporters at an elevator northwest of Winnipeg where tractor-trailers unloaded wheat and canola.

“We see that as unfair,” Wishart said, adding that rail service has declined as freight rates have climbed.

A spokesman for Canadian National, the country’s largest railway, which has complained it was being hurt financially by “creeping re-regulation” of its grain transportation business, dismissed the complaints.

“The wheat board is trying to turn back the clock and turn back the clock to something that didn’t work,” CN spokesman Jim Feeny said.

Canadian Pacific also dismissed the report, saying rail rates increased less than farmers’ other costs such as fuel.

“Paradoxically, you’re dealing with a period when grain prices have tripled but the CWB is now attacking one of its lowest input costs,” spokeswoman Breanne Feigel said.

A LONG-RUNNING ARGUMENT

Regulators used to review rail costs every four years before grain transportation laws were overhauled in 2000. But the federal transport department does not support the idea of reintroducing those reviews, said Maryse Durette, a Transport Canada spokeswoman.

The government has recently moved to give shippers more remedies for complaints about rail rates and service, and will soon conduct a broad review of rail service, she noted.

Durette declined to comment on the CWB’s study, saying the department has not yet reviewed it.

Rail service and rates have always been a thorn in the side of landlocked Prairie farmers, who ship their grain an average 1,500 km (940 miles) to port.

That’s more than twice the distance that competitors in Kansas or Russia face, the farm groups said on Tuesday.

Farm groups argue that the railways’ costs have plunged in recent years as the number of grain elevators on the Prairies has shrunk and with most grain shipped in more efficient trains of at least 50 cars.

In January, the transportation regulator reduced the revenue cap by about C$72 million after examining the railways’ car maintenance costs. The railways are appealing.

CN generated C$1.3 billion in revenue from hauling grain and fertilizers in Canada and the United States in 2007. CP said its revenue was nearly C$940 million last year from Canadian and U.S. shipments.

($1=$1.02 Canadian)

Reporting by Roberta Rampton, Allan Dowd and Louise Egan; Editing by Rob Wilson

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