Farmers Reap $35 Million in Transportation Savings
Winnipeg - Western Canadian farmers saved $35 million in grain transportation savings during the previous crop year, through CWB programs designed to reduce producers' costs for moving their grain to port.
"Farmers bear all the costs of grain transportation, so the CWB is constantly looking for ways to keep those costs down," said Bill Woods, a CWB farmer-elected director from Eston, Saskatchewan. "We are the largest shipper in Western Canada. This gives us negotiating power with grain handlers and railways."
Farmers in Western Canada must transport their grain farther to port than any other producers in the world - about 1,400 kilometres from the centre of the Prairie growing region. Eighty per cent of western Canadian wheat is exported overseas.
Transportation is the single largest marketing cost faced by Prairie farmers. Every year, 17 to 20 million tonnes of wheat, worth between $5 billion and $8 billion, is shipped to Canadian ports and markets - dwarfing export volumes of all other agricultural commodities.
Because farmers ultimately bear the transportation costs, Woods said they have a far greater stake in keeping those costs low than other players in the grain industry, who can simply pass their costs along to farmers as the purchasers of their handling and freight services.
"The CWB is the sole entity focused entirely on farmers' bottom line," said Woods. "Our business model is to maximize producers' returns, which we do in two ways - by maximizing revenue from grain sales, but also by keeping costs as low as possible. Grain companies have a different business model."
The CWB generates transportation savings by negotiating volume- and performance-related agreements with grain companies, railways and port terminal owners, keeping additional money in farmers' revenue pool. It also issues tenders for grain exports through the ports at Thunder Bay, Churchill, Vancouver and Prince Rupert. Grain companies bid on the right to deliver a given quality and quantity of grain to a specific port. Tender revenue is distributed to famers through the pool accounts.
Transportation savings for the 2010-11 crop year were in line with the five-year average of $35.2 million. In addition to these annual savings, farmers also save between $8 million and $12 million a year through the CWB's use of the Port of Churchill, which avoids the extra costs of the Great Lakes-St. Lawrence Seaway system. Farmers also saved about $14 million last year by loading their own producer cars and saving elevator charges. In February, the CWB announced its decision to buy two laker vessels, as another way to reduce farmers' transportation costs.
Woods said farmers are unlikely to achieve these benefits in an open-market system, which would shift the focus from cost-savings for farmers to maximizing corporate margins.
"There is little incentive for grain companies or railways to offer these kinds of programs. The business case from their perspective is difficult to see. For the CWB, it makes complete sense because it helps us maximize farmer returns."
The CWB also works to achieve better transportation rates and service for farmers through advocacy intended to influence policy at the government and industry level. This has included launching complaints about railway service with the Canadian Transportation Agency and legal cases in the courts.
Controlled by western Canadian farmers, the CWB is the largest wheat and barley marketer in the world. One of Canada's biggest exporters, the Winnipeg-based organization sells grain to more than 70 countries and returns all revenue, less marketing costs, to Prairie farmers.
Source: Canadian Wheat Board