Implications of compensatory transportation rates on grains and oilseeds for diversification of the prairie provinces in Canada

Abstract.

In Canada, freight rates on exports of grains and oilseeds from the prairie region have been regulated since 1897. Until the 1960s, the stability and assurance of these rates contributed to development of the prairie-based grains economy. However, in recent years, these regulated rates have become a significant subsidy for prairie farmers due to inflated costs of transportation. As a result, the issue of regulated freight rates for prairie grains and oilseeds has become a matter of intense debate, since they have the effect of raising the on-farm price of export grains. Crities of the regulated freight rates claim that they have actually inhibited diversification of economic activities in the prairie region because they increase the price of feed grain, a key input for the livestock industry. In this analysis, two quantitative models were used to estimate the farm and secondary level impacts of changing from subsidized to full compensatory rates for various grains. The analysis showed that loss of the subsidy would result in much reduced levels of farm income and consequent loss of secondary economic activities unless the subsidy was provided in some other form. Indexes of diversification were not significantly affected by changes in the freight rate structure. Thus, the hypothesis that statutory grain freight rates are the primary factor responsible for lack of diversification in the prairie economy is not supported. There exists a need for identifying factors that may impede the process of diversification of the regional economies.