US Canada Rail Wheat Export Rents:
A review of US-Canada wheat export rent comparison Policy Paper.
Hua, Li
Embry Riddle Aeronautical University Student
LGMT 636 Transportation Management
William (Bill) Christensen, Ph. D.
February 06, 2022
The Journal Article “Congestion and Distribution of Rents in Wheat Export Sector: A Canada-US Cross-Border Comparison” compares the locational rent or “profit” of three components to wheat shipment in the US and Canada. The farmer, the grain handling firm and the railway shipping the goods (Serfas, 2018). Abundance of wheat created congestion periods affecting the US and Canada between 2012 and 2016. Both countries had differing policies in place which impacted the profit ratio amongst three components. The compared parties were Canadian Rail Lines which were bound by Maximum Revenue Entitlements (MRE) and several US western rail lines which had deregulated in large part thanks to the Rail Staggers Act (Serfas, 2018).
Despite the removal of the Canadian Wheat Board (CWB) sole selling authority in Canada the article found that rail Canadian rail margins did not spike, but also that grain handlers had the ratio of profit margins. When assessing the overproduction period of American and Canadian wheat in their western regions, it was noted that the largest profit margin beneficiary were the grain handlers compared to the farmers or the rail lines despite differing controls emplaced on either country (Serfas, 2018).
The article does not focus its energy on addressing the oligopoly formed by the observed Canadian and US rail lines. This system is prone to issues, the article states that both nations governments had to intervene and either directly task or through a regulatory agency force rail lines to increase grain shipments (Serfas, 2018). The article sheds a positive note in that the observed rail lines are enhancing their capacity, without addressing in great detail that they retain the ability to, at their discretion, choose to prioritize other products such as Oil if another oversupply occurs (Serfas, 2018).
Another approach or recommendation for study, could have been to identify US Class III or any Canadian Class III rail road candidates for potential investments to both shield against congestion and pricing collusion. Richard Gray and Peter Slade in a separate article looked at pricing collusion. The “Wheat Stock and cointegration of wheat prices” article lands more solidly on the collusive practices of these few rail lines and how they press to increase margins. It is observed that the Canadian rail lines are already slightly exceeding MRE limits after the CWBs loss of power (Slade, 2019).
Both articles in which Peter Slagle and Richard Grey are involved determined that a way to control rail and grain handler rents, while reducing congestion, is waterway development. This was observed in the Montana study results of the US-Canada comparisons where water ports offered competition (Serfas, 2018). Water transport competition is a price control in the absence of regulating grain handlers or breaking oligopolist control by both US and Canadian rail lines. Identifying water port and Class III rail lines development opportunities could be a focus of a future study aimed at controlling rent ratios in both countries.
WORKS CITED
Serfas, D., Gray, R., & Slade, P. (2018). Congestion and distribution of rents in wheat export sector: A Canada-U.S. cross-border comparison. Canadian Journal of Agricultural Economics, 66(2), 187-207. https://doi.org/10.1111/cjag.12171
Slade P., Gray, R. (2019). Wheat stocks and the cointegration of wheat prices. Canadian Journal of Agricultural Economics. 67(1), 103-114. https://doi-org.ezproxy.libproxy.db.erau.edu/10.1111/cjag.12181
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