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The Crowsnest Pass rates: an evaluation of policy alternatives Watson, Karen Gail 1978

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THE AN  CROWS NEST  E V A L U A T I O N OF  PASS  POLICY  RATES: ALTERNATIVES  by KAREN B.A.,  University  A THESIS THE  GAIL  of  SUBMITTED  WATSON  British  IN  Columbia,  PARTIAL  REQUIREMENTS  FOR  FULFILLMENT  THE DEGREE  OF  MASTER OF S C I E N C E i n Business A d m i n i s t r a t i o n in THE  FACULTY in  OF G R A D U A T E the  STUDIES  Faculty of  Commerce  We  accept to  THE  and  Business  this  the  reguired  UNIVERSITY  '©  Karen  Administration  thesis  OF  as  conforming  standard  BRITISH  April,  1978  Gail  Watson,  1976  COLUMBIA  1978  OF  In  presenting  an  advanced degree  the I  Library  further  for  shall  agree  scholarly  by  his  of  this  written  this  thesis  in p a r t i a l  fulfilment  of  at  University  of  Columbia,  the  make  that  it  permission  for  for  It  is  financial  extensive by  the  understood  gain  for  shall  not  reference copying  Head o f  that  requirements I  agree  and  of  this  be a l l o w e d  or  that  study. thesis  my D e p a r t m e n t  copying  for  or  publication  w i t h o u t my  permission.  M^TOfteWW The U n i v e r s i t y  Faculty of  British  of  d^aAd. / ? S  Commerce  Columbia  2075 Wesbrook Place Vancouver, Canada V6T 1W5  D a t e  available  p u r p o s e s may be g r a n t e d  representatives. thesis  freely  British  the  /??8  and B u s i n e s s  Administration  ii  Abstract  The apply  Crowsnest  on  the  originally Federal  established  lower  Government  the  policy with  rate  current  recover  system  plus  are  levels. the the  to  In  given  to  the  both  of  them.  to  for  the  objectives  objectives the Both  of  are  to  rate a  their  the  the  in  rates  have  costs.  With  decrease  tc  to  Federal  that  The  even  objectives  freight  subsidies, of  rates  favour to  however, minimizing  a  the  range  price  used  the  the  and  pricing  grain-producer  each  subsidy subsidies  must  thesis  Two to  Prairie  alternative  For  there  issue.  the  rail-grain  neither  this  is  railways  level,  in  efficiency in  herein  of  producers,  rail.  different  the  of  compensatory  this  by  alternatives,  industry  by  costs.  a  grain  to  secondary  grain  which  costs  criteria  relate  cf  the  considered  at  are  policy  of  objective--that  embodied  the  constant  the  development  producer  been  will  level  particular  improve economic  grain  were  primarily  level  to  raising  They  available  there  evaluation.  these  grain.  transportation  are  of  that  rail-grain  variable  railways,  evaluate  criteria major  is  long-run  a contribution  order  rates  years,  proportion  the  highest  D e p e n d i n g on  or  recent  The lowest  alternatives.  these,  freight  have  characterized  alternative,  be  and  percent  price-level  could  In  rail  Canadian  1897,  alternatives  respect  one;  would  most  in  40  fixed  time.  alternatives  freight  are  inflation, this  over  Several  of  1925.  than  cost  levels  These  since  less  continuing  rates  carriage  statute  covered  Pass  of  of  be are the  facilitate provinces.  alternative level.  violates  of  Without a  third  transportation  Xll  costs. In  addition  objectives They  that  are  these  minimizing  votes, total  variable-cost  consideration  that  i s not  quantitative  railways rail  and  of  on  the  thirds  Canadian in  Prairie  1976.  grain  Two  Crowsnest larger be  difference immediate subsequent pricing to  the  The  rates,  by  of  policy  long-run  15  costs to  rate  and  be  increase.  assisting A  R a i l by the  chosen is  over  major of  on  the  time  This  covering  costs net  at  as  of  revenue  least  net  that  two-  income  of  same y e a r . the  better  of  initial  to a larger  p r i c i n g scheme  subsidies  adjust  rates  combined  r e v e n u e s . The  to  pay"  resistance  percent i n the  costs.  rates  would  CP  selected  railway  increases  p o l i c y , there  and  variable  the  are  increasing  constant  annual  "user  s u b s t a n t i a l . Implementing  decreased  rail-grain  increase  the  the  four  Government.  transport.  is  R a i l w a y s and  (at most)  first  between  initial  the  have  are  indirect, subsidies.  alternatives  proportion  accompanied  to  would  f a r m s by  Pass  objective  producers are  National  policy  alternatives.  grain  would have i n c r e a s e d  It  Federal  payments,  in  than  there  impacts of r a i s i n g r a i l - g r a i n  grain  grain  the  subsidy  an  f r e i g h t rates equal  transporting  objectives,  implementing  recovery  producers to d i r e c t , r a t h e r The  three  r e f e r p a r t i c u l a r l y to  maximizing  philosophy, railway  to  to  second  variable  and  would  reflect  the  policy i s costs,  for inflation.  an  with  With t h i s  constant producer s u b s i d i e s  equal  iv  Table  I  II  III  of  Contents  INTRODUCTION Thesis Objective S o u r c e s Of I n f o r m a t i o n L i m i t a t i o n s And A s s u m p t i o n s . . . . . . . . . . . . . . . . . . . . . . . O u t l i n e Of Remaining C h a p t e r s  1 1 2 2 3  HISTOBY  4  OP T H E CROWSNEST PASS  T H E POLICY I S S U E S Introduction Thesis Approach The I s s u e s Group Rates Pricing Subsidization Summary O f P o l i c y  RATES  Alternatives  23 23 25 25 26 26 27 28  IV  C O N S I D E R A T I O N S R E L E V A N T TO T H E E V A L U A T I O N OF T H E P O L I C Y A L T E R N A T I V E S Introduction Objectives . . Economic O b j e c t i v e Social Objective Development O b j e c t i v e Political Objectives . . . Other Considerations . . . . . . . . . . . . . . . . . . . . . . . . . . Summary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  29 29 30 30 40 43 4 5 48 51  V  Q U A N T I T A T I V E IMPACTS OF THE P O L I C Y A L T E R N A T I V E S . . . Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1974 C o s t s A n d R e v e n u e s The I m p a c t s Railway Impacts v . Grain-Producer Impacts Secondary-Industry Impacts P r a i r i e - P r o v i n c e Impacts F e d e r a l Government Impacts . . . . Conclusion  53 53 54 58 58 62 69 72 7 5 76  V VI  VII  EVALUATION OF THE POLICY ALTERNATIVES Introduction The E v a l u a t i o n s C r o w s n e s t P a s s R a t e s With R a i l w a y S u b s i d i e s .... Compensatory Rates ............................. No S u b s i d i e s . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Producer S u b s i d i e s .......................... Railway S u b s i d i e s .......................... . R a i l w a y And P r o d u c e r S u b s i d i e s .. R a t e s G r e a t e r Than The Compensatory L e v e l No S u b s i d i e s Producer S u b s i d i e s Non-Compensatory R a t e s G r e a t e r Than the Crowsnest Pass Rates ....................... No S u b s i d i e s Producer S u b s i d i e s .......................... Railway S u b s i d i e s P r o d u c e r And R a i l w a y S u b s i d i e s Summary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Conclusion SUMMARY  . . . . . . . . . . . . . . . . . . . . . . . . ....  Bibliography  78 78 81 82 84 86 86 88 88 89 90 90 90 91 92 93 94 94 96 100  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 104  Appendix - D e t e r m i n a t i o n Of G r a i n - F a r m E x p e n s e s , 1970  108  vi  list  1  2  of  Exhibits  1974 C o s t s , R e v e n u e s , and S u b s i d y Payments i n The T r a n s p o r t a t i o n Of S t a t u t o r y G r a i n By R a i l G r o s s R a i l Revenues, Net R a i l and S t a t u t o r y - G r a i n C o s t s And  3  R a i l w a y Met 1974-77  4  G r a i n - F a r m Net Income,  5  P r o v i n c i a l Personal Additional  Revenue  Under  Revenues, Revenues, 1974-76  .... 57  .....  varying Assumptions,  1970-76 . . . . . . . . . . . . . . . . . . . . . .  Income And  Summary Of P o l i c y  Evaluations  7  G r a i n - F a r m E x p e n s e s , 1970  61 67  The  C o s t Of C o m p e n s a t o r y  6  59  Rates,  1975  .........  74  .......................  95  . . . . . . . . . . . . . . . . . . . . . . . . . . . 110  Acknowledgements  I w o u l d l i k e t o t h a n k t h e members o f my Thesis Committee, Professor B . G . Haters I I , Professor T.p. Heaver, and Professor J.P. Claxton, who assisted and encouraged me throughout the p r e p a r a t i o n o f t h i s t h e s i s . I would a l s o l i k e to thank P r o f e s s o r F.w. Anderson of the University of Begina, who p r o v i d e d v a l u a b l e e a r l y i n s i g h t i n t o t h e t h e s i s t o p i c . To E r i c , whose patience and support carried me through these arduous m o n t h s , my d e e p e s t l o v e a n d a p p r e c i a t i o n .  1  Chapter  I  Introduction  Thesis  Objective  There are  few  issues  i n Canadian  that  spark  more  the Crowsnest Pass r a t e s .  These  rates  heated  debate than t h a t  of  apply  on  of g r a i n  the  carriage  were o r i g i n a l l y Government  legislation  post-World railway  War  generally  people  those  reported  Grain  in  traffic  1977,  the  rates  should  H a n d l i n g and concluded  that  discussion  the  impacts of  moneys i n v o l v e d , The  objective  alternatives to  the  represent  of  various a closer of  this  a v a i l a b l e to the  Crowsnest  Pass  a v a r i e t y of  rates the  of  at t h e i r  e x a m i n a t i o n of t h e s i s , then,  which  Pass r a t e s  should  the  possible rate  a very  the  factors. issue,  the  magnitude  of  i s to evaluate with  alternatives levels  brief  i t i s warranted.  C a n a d i a n Government The  involved  relevant  a l t e r n a t i v e s , and  current  cost-recovery  i s b a s e d on many  are  Commission,  p u b l i c c o n c e r n about  rates.  producers  raised to a  conclusion  with  substantial  railways  the Crowsnest  which  amount  be  grain  Transportation  analysis  omits  with  in  in  years.  keeping r a i l - g r a i n lie  embodied  r a t e s , combined  with P r a i r i e  This  potential  The  i n recent  indefinitely.  the  have b e e n  have r e s u l t e d  continue  Considering  i n W e s t e r n C a n a d a . They  and  1925.  affiliated of  rail  1897,  increases,  whose i n t e r e s t s  that  The  in  since  grain  i n favour  maintain level.  II cost  l o s s e s on  Those  level;  established  by  transport  and  policy respect  considered  subsidization  2  schemes.  S o u r c e s of  Information  Information following  f o r the  t h e s i s was  Transporting II  Canadian  (3)  1971  <4)  Statistics Income and  (5)  Rep_ort t o t h e G r a i n Handling and Transportation Committee bj the Railway Compensation Subc o m m i t t e e (Canada G r a i n s C o u n c i l )  (6)  Various and t h e  Transport  Census o f  addition  Commission  p u b l i c a t i o n s by C a n a d i a n Pacific P r o v i n c e of Saskatchewan. to  and  There  these  sources,  papers,  and  a variety  according  to  g r a i n by  system  alternatives operation  two the  main  references  end  limitations  policy  of  the  the  research  are  used.  thesis.  considered  physical structure of  considered  the  alternatives.  involve  rail-grain  analysis i n vary  this only  arrangements f o r the t r a n s p o r t a t i o n  same f o r a l l t h e  of t h e  t o the  alternatives  the f i n a n c i a l  rail;  i s the  Limited  of speeches,  statistical at the  Net  Assumptions  are  First,  Analyses  Canada annual p u b l i c a t i o n s : Farm Farm Cash R e c e i p j t s  published  =iliH£iPJis  Waybill  Canada  A complete b i b l i o g r a p h y i s given  thesis.  the  Grain  (2)  reports,  of  p r i m a r i l y from  sources:  (1) The C o m m i s s i o n on t h e C o s t s o f hi R a i l - - R e p o r t . Volumes I and  In  obtained  leaving  grain-handling  Second, a l l p o l i c y  the  ownership  system p r i m a r i l y i n the  and  hands o f  the  made by  the  railways. The  main  assumptions  of the t h e s i s are  those  3 Commission 1977), based The  on t h e C o s t s  since  the c a l c u l a t i o n  on the c o s t s costs  according  used to  of Transporting Grain  and revenues are  the  those  Commission  Outline  Remaining  Chapter rates,  II  and  Commissions Chapter IV to  III  are  the  policy  Chapter result which  cf  of policy of  more  history  t h e major  evaluation  "best"  with  VII summarizes  herein  is  Commission.  system  modified  Handling  and  the Crowsnest  Pass  the  topic  evaluation  various are  are  relevant  considerations the  different  The  parties  are estimated  evaluated  the objectives  are  of  described  analysis.  impacts  i n Chapter two  In  Chapter  detail.  the selection  the entire  that  The  Royal  the rates.  i s generated.  rates.  i n some  various of  consideratons  for  on  is  of  the  Pass  discussed  alternatives  that  Grain  of  alternatives  useful  are  the  findings  the Crowsnest  these  of this  Chapter  the  addressed  some  by  rail-grain of  that  have  impacts  and  Chapters  V, and the a l t e r n a t i v e s  comply  a  the  the  objectives;  of  summarizes  discusses  that  determined  (1976  (1977).  presents  a list  the issue  guantitative  recommendations  Transportation  of the  of  by B a i l  of in  V I . The  alternatives i n Chapter IV.  4  Chapter History  The was  Crowsnest  signed  in  Government Dominion to  it  the  Crowsnest  CPR  received  the  Province  financial on  the  were  be  British  effect  William this  in  between the  items  acres  second  group  of  the  of  percent  freight,  of  According to Paragraph 15 o f t h e million acres were c o n v e y e d t o s e c u r i n g a s u p p l y of c o a l to the  3 3 1/3  Alberta  through  addition,  grain  and  lower the  class  points  east  be r e d u c e d  of  new  rates  that  of  things  as  paints,  reductions  second  by a  on  total  these  and were class  moving t o  thereof.  the rates  was  percent,  of  its  glass,  flour  the  Government  and  The  189 8.  the  million  In  window  the  $3.4  i n c l u d e d such  The r a t e  and  and  consideration  The f i r s t  furniture.  to  of  to  which  Agreement,  from the  In  twine,  were  this  subsidy  land  binder  all  of  Agreement  Railway  Columbia.  which  and  an  CPR a g r e e d  classes  eastbound  Arthur  in  from L e t h b r i d g e ,  effects",  10  and P o r t  cash  British  beginning  was  terms  perpetuity.  o i l ,  Bates  Pacific  Columbia.*  two  household  by  line  received,  of  coal  and  a  the  CPR a  Nelson,  "settlers*  varied  affected  on  of  Under the  Pass  originated  Canadian  million  3.8  fruits,  items  to  effective  livestock,  take  Pass  movement  to  fresh  building  assistance  westbound  1  in  gave  Crowsnest  rates  the  Canada.,  Government  assist  the  Pass by  1897  of  of  II  The cf  to of  Fort rates  3  cents  A g r e e m e n t , 50,000 of the 3.8 the Dominion f o r the purpose of p u b l i c at reasonable prices.  5  per  hundredweight  and  September  percent  of  The  1,  the  the  events  CPS  had  completed  route route  from  installments:  This  decrease  Pass  a  Agreement  line  It  the  the  Great  Minnesota..Following the  the  CPfi  advantage  grain  freight  traffic  from the  objectionable 1881  which  pressure the  interest  the was  $15  were of  Manitoba  from  In Western  of  reduce  s t i l l the  this  Canada  population  of  new  to  Duluth,  the  12  of  to  to  Pass the  late  lagging was  enough  indirect through  this by  to  line,  charging  divert  was  made  monopoly  power.  it  rates  to  many,  more Act  eliminate the also  considerably for  Agreement, construction the  Century,  behind  that  Prior  the of  a  of  The  tc  the  Province  of  direct  CPS r e d u c e d the  line rates.  development the  The world p r i c e  by  example,  hundredweight. however.  of  Public  pressure  Lakehead,  per  the  guaranteed  Western  19th  sparse.  of  government  unless  railway  passed  position  which  the  William/Port  Railway  the  cents  1883,  Pacific  freight  Minnesota  the  West  the  In  context  previous  situation  CPS b o n d s .  29  aid  low  for  grain  Crowsnest  was  1898  roughly  all-Canadian  which had  company  unsatisfactory  period  1,  the  it.  completion  The  led  in  Fort  the  Canadian  from C a l g a r y  to  first  just  return  the  cents  threatened  Winnepeg t o  producers  million  rate  the  the  in  60  were  in  1883,  CPS t o  reduced  clause  to  near-monopoly  Vincent route.  granted  in  on  signing  a  that  Prairie  1890*3; t h e  rates  from  by  from  the  St,  had  clause  caused  rates  its  viewed  preceded  Lakes  Vincent,  of  be  replacing  St.  took  represented  Winnipeg was  points,  Winnipeg to  must which  from  Superior.  these  September  rate.  and c i r c u m s t a n c e s  Lake  between  equal  1899.  Crowsnest  on  two  average  of  Arthur  in  East. of  grain  of The was  6 relatively  depressed,  by  and  drought  of  low  uncertain  relatively The  short  recession. a  grain  year  concluding  first  which,  it  was  to  the  yields  that  in  the  the  reduced  Prairies  lacked  per  would  low  loss  of  England, States  year  in  rule,  and  laws  they  felt,  high  and  faced  United  tariff  give  Canada  resources  Conservative  addition,  being  acre  with  the  in  the  mature  season.  found  the  restrictive  In  would  growing  their  C a n a d i a n y i e l d s were  rainfall,  The c o u n t r y  penetrating  of  that  1897  supplier of  the  grasshoppers.  varieties and  and  had  benefitted  and  after  was  a  status  trouble were  twenty  years  opposition tc  during  that at  as  liberals  nearly  industrialists  severe  having  The  experiencing passed  of  preferential  market.  power  were  point  the  year—laws  the  expense  of  consumers. Politically, would  bring  Under  the  would  be  market  its  were  Dominion  rail  line  the  extended  not  Pass incomes  sole  into  the  general  a  the  leading  increased  ran  branch  to  East and  of  reasons  would  for  anxious  There but  south. line  In to  already  the  Nelson,  an  an  the  of  West and  Canada  in  however.  building  of  a  in  south-  Canadian  lines  the  rich  United  action  the  resources.  Nelson  two  country.  expanded  and o f  near  1895,  to  Agreement,  promote  north  the  which  settlement  of  Prairies  ran  of  acquire  inflow  area  action  benefits  the  to  were  one  an  the  mineral-rich  area,  an  Agreement,  goods  was  for  sections  positions  the  was r i g h t  geographic  while the  Government  other  time  both  B r i t i s h Columbia.  the  while  the  manufactured  economic  The  in  real  development,  The  eastern  to  Crowsnest  for  general  benefits  higher  resource  then,  which  deposits  States was  had  viewed  7  with  alarm  by t h e  Government  was  proprieters with  the  the  of  further  the  financially Kootenays  of  (who  Globe  Southern  the  Carrie to  British  i n the  to  of  looked forward  to  benefit  of  a  2  rail  the  by  the  influential  materially  from  Others  who  were  into  the  line  B r i t i s h Columbia the  that  action  who w e r e  Columbia."  building  Province  asserts  take  and M a i l ,  a n d who " s t o o d  interested were  A.¥.  persuaded  Toronto  Government  development  ranchers  Government.  and  development  the  Alberta  a  nearby  of  market). The  CPR,  Agreement. least  more  real  Eastern  month rates  the  Western  manufactured and c o s t the  enabled had  the  Crowsnest  after on  the  Pass  and  however,  the  about  seven  years  were  either  A.W. Currie, University of  3 1 b i d . ,  p.  88.  railway  Agreement  flour  were  agreed-upon of  higher  the or  would  1897, not  a  build time.  was  made rates  line  were  in  with  purchasing  was  s t i l l to  for  into  June  relaxed.  statutory. were  than  at  in  the  on  be  a  the  Nelson  3  signed  twenty-six;  since  anticipated  to  Pass  would  be  Canada  provided  laws  lower  volumes  subsidy  some  unpopular t a r i f f  grain  producers In  Crowsnest  reductions,  i n f l a t i o n was  federal  by t h e  freight  price  goods.  planned f o r  1925,  rates  2  incomes  Finally,  The  higher  per-unit  problem.  which i t  that  profit  the  standard  area  to  offset  gold  Agreement  expected  anticipated  partially  increased  the  It  too,  the the  in  of In  Between effect  rest  of  Crowsnest  Canadian Transportation Economics, Toronto Press, 1967), p. 88.  1897, 1925,  the  1899  and  for  the  a  only  time  Pass  the  level.  {Toronto:  8  The  rates  Northern  were  Railway,  Agreement,  railway  of  of  applying  in  Crowsnest  Pass  the  large  volumes in  lower  lines,  1903, its  Wage  and  revenue,  all  the  had  15  taken  commodities  Agreement,  whose  the  of  of  office  rates  the  of  the  at  the  those  The  increased  rates  the  higher  facilities  CPR;  handle  pressure  was  exerted  until be  the  CPR  to  19,17, when  the  felt  strongly.  increases for  a  in early  railway rate  Commissioners  was the  in  general  Railway  increase  in  CPR  to  apply  covered  level  necessary  to  of  a  former  existed  to  to  the  the  public  began  Pass  provincial  Northern's  those  Board  190 4) .  were  first,  surpassing  railways  in  except  I  were  to  At  Canadian  contract,  Manitoba persuaded  w o r l d War  percent  this  elevators  situation  the  the  commodities  Canadian  However,  increases  with  all  the  Crowsnest  maintained  with  Government This  on  year,  the  of  rates.*  and  grain.  impact  of  since  in  terms  were  compete  which caused  increase (which  of  price  Pass  eguipment,  rates.  inflationary  rates  area  that  contract  its  same  to  a the  Crowsnest  level,  part  Under  the  In  1902.  no  into  reduce  inadequate  in  had  to  the  lacked  and,  which  Manitoba.  was  that  were  lowered  entered  government  below  first  granted  Crowsnest  1918  to  a  on Pass  level  f slightly  below  Agreement  was  railways The  to  that  of  suspended  raise  Board  a l l of  the  under  their  Railway  Agreement. the  War  Later  Measures  Act  in to  v  1918>  (  allow  the the  rates. Commissioners  was  reguired  by  law  to  *In return for this rate reduction, the Manitoba Government leased 355 miles of lines to the Canadian Northern and guaranteed the bonds on lines built by the railway to c o n s o l i d a t e and extend i t s r a i l network.  9  prevent  unjust  although by  this  special  The  stipulated by  required  by  the  Bill  be  by  the the  the  after was  flour;  the  end o f  restored to  in  those  the  the  its  entirety, lines  had  satisfactory,  and  In  October  Board  in  early  the 1925 to  that  been  the  Supreme  override  the  of  in  was  the  1922  further to  form  1922). whether  (July  of  lower been  rates  were  in  unjust  Court  Crowsnest  Pass the  or  In  .the  years,--—with rates  1924)  on  grain  level.  At  Agreement  was  applied  existence  This  rates  two  Crowsnest  of  power  1  to  the  or  opposition  s h o u l d be r e i n s t a t e d . a  be  justified  Board s  of  as  could  final  on t h e  in July  in  signed).  raised  the  is,  the  the  however,  discrimination  pertaining to  of  1919,  Prairie  for  had  protests  of  covered  Agreement).  Because  Agreement  but  Pass  it  debate  period  localities,  ground that  (that  returned  two-year  Bill  restrictions  portion  and  arrangements  accompanied  suspended  the  Agreement  authority  years  Pass  were  railway  the  political  was  of  these  that  was  tc  Crowsnest  unjust the  clause  Crowsnest Agreement  of on  three  some  the  agreement.  a proviso  exception  and  Board  this  as  apply  Consolidation  case  a special  Senate,  There  end  the  restored  not  no  did not  (such  Railway  that  excused  the  reguireraent  agreements  proposed  in  d i s c r i m i n a t i o n among c o m m o d i t i e s  in  only  1897  situation  (when  was  not  d i s c r i m i n a t i o n were on w e s t b o u n d  made.,  traffic,  ruled  that  the  Board  Pass  Agreement.  had  Later  but no in /  1925,  Parliament  Crowsnest the These lines  Pass  Agreement  Crowsnest rates of  passed  Pass  were  railway  i n d e f i n i t e l y but  rates  extended west  of  legislation  on to the  grain apply Great  which which  moving e a s t to  grain  Lakes  suspended made to  the  originating  under  the  the  statutory f Lakehead. on  all  jurisdiction  10  of  Parliament,  later  restored have  the  i n 1922,  traffic  destined  made  made  applied  were  Pacific, Railways.  The  Royal  prepared  a  Background  grain  directions  5  the  or  for  that  to  this  the p o s i t i o n  the  Crowsnest  role  of Western-produced  Currie,  Pass  eastbound  when t h e r a t e s  1931,  miles  miles  Order  similar  rates  the p e r t  which  on  Rupert  by an  through  National,  on  of  originally  o f CPR t r a c k ,  of track and  of  the  the  Northern  Dominion-Provincial  reported Commission  thesis  of those  Pass  19th C e n t u r y ,  p.  101.  because  who h a v e  rates.  importance—a  op., e x t . ,  as  and Prince  rates,  17,000  applications  traffic  moving on 3,000 over  made  were  ^  into  the l a t e  Vancouver  in  1939.  it  i n the Canadian  widely he s a i d  accepted that  Economic  Mackintosh's  and  Mackintosh considered  grain  "The  provides  supported  Relations  w,A. M a c k i n t o s h  entitled  of Dominion-Provincial Relations.''  pertinent  paramount  1927,  In  and f l o u r  well  exported  Canadian  Commission)  study  as  on eastbound  grain  Commission  {Rowell-Sirois  s  existing  on g r a i n  until  through  Crowsnest  westbound  Canadian  rates  Commissioners. to  the  i n both  to  currently  westbound  to those  apply  now a p p l y  Alberta  to  f o r export  Thus,  to  Pass  unsuccessful  of Railway to  Churchill.  is  were  Columbia and A l b e r t a  apply  eguivalent  the Board  were  British  the rates They  of  lines  Crowsnest  traffic.  were  the  constructed. After  to  whether  some  insight  s t i l l  defend  the  economy  belief.  study  With  historical to  be  of  reference  11 . . . t h e d r i v i n g f o r c e behind the new period was wheat and the wheat-growing r e g i o n . I t gave an economic unity to the country not hitherto experienced and built up a degree of interd e p e n d e n c e b e t w e e n i t s d i f f e r e n t r e g i o n s w h i c h was in sharp contrast to the i s o l a t i o n of the separate e c o n o m i c r e g i o n s w h i c h had u n i t e d i n 1 8 6 7 . *  In  the period  1901-1920  The P r a i r i e s s t o o d o u t as t h e g r e a t e x p o r t region, which provided an e x p a n d i n g home m a r k e t f o r t h e o t h e r r e g i o n s . . . . The dominance o f one exporting region had given the Canadian economy f o r t h e f i r s t t i m e a m a r k e d i n t e r d e p e n d e n c e . W h e a t was n o t m e r e l y t h e l a r g e s t e x p o r t a n d t h e p r o d u c t o f a new r e g i o n , i t was t h e c e n t r a l dynamic and unifying force of the expansion. The fortunes o f regions w i t h d e c l i n i n g e x p o r t s depended on their ability to share in the home market, to integrate themselves with the expanding export regions. 7  according direct  to  effects  period  1887-1930,  items  resulted  rather  than  the  on the P r a i r i e he a s s e r t e d i n people  1  offset  8  However,  he  20th  rates  Century,  With  rates  1930,  more  than  on wheat, States  increases  even  had  at  no  were  were  the  imported goods  purchases  costs  which  on  had  to  Canadian  these  the higher  had  reference  buying  "Unfortunately,  Provinces  policy  Canadian t a r i f f s  the Prairies  i n the United after  tariff  provinces.  that  said,  by t h e low f r e i g h t  comparable  of  American goods.  people o f the P r a i r i e  existed. ?  the  Mackintosh, Canada's  cost tariff  partially  lower  than  the beginning of  in tariffs  combined  with  * W . a . M a c k i n t o s h , "The Economic Background of D o m i n i o n - P r o v i n c i a l Relations", Report of the Royal Commission on DominionP r o v i n c i a l R e l a t i o n s , appendix 3 (Ottawa: K i n g ' s P r i n t e r , 1939), p. 23. "'Ibid. ,  p.  28.  12  falling  price  incomes. "  the  by t h e  increasing however,  "differential  volumes  in  of  removal  The  not  period  railways  the  escalate. could  had  effects  on  real  regional  9  During faced  levels  before the  from  other  Mar I I , of  increasing  grain  were  price  losses  controls  on  traffic  its  caused  grain  because  of  costs  offset  and i m p r o v e d t e c h n o l o g y .  wartime  CPR c l a i m e d  recoup  transport  freight  of  World  by  In  1946,  costs  traffic  to  which  increasing  it  truck  competition. The  Royal  Chairman) current  was  to  the  Crowsnest  had  done  and  had  and  appointed  situation  submission the  $17  r\  Commission  a  1948,  in  part  estimated  statute  study the The  of  in  its  annual  company  the  CPR  Railway  grain losses  traffic to  (W.F.A.  to  Crowsnest  Turgeon C o m m i s s i o n , the  Pass  1 0  Transportation  surrounding the  costing  million.  in  on  be  Turgeon,  investigate Pass  rates.  In  recommended Act  be  for  repealed.  the  between  year $14  the its that It 1948  million  maintained  That i t i s d e s i r a b l e that freight rates without e x c e p t i o n s h o u l d i n a l l r e s p e c t s be s u b j e c t t o the jurisdiction of the Board of Transport \\commissioners [rather than subject to the ^ j u r i s d i c t i o n of P a r l i a m e n t ] , and,  (2)  That, while the national policy may require special assistance to producers of grain in Western Canada, such assistance should n o t be given at the cost of other users of railway s e r v i c e s or at t h e c o s t of the railways."* 1  9  Ibid.,  p.  96.  QReport of the Royal Commission on Transportation, W.F.A. Turgeon, Chairman (Ottawa: King's Printer and C o n t r o l l e r of Stationery, 1951), p . 244.  13 The carriage  statement of  grain  artificially  low  artificially  high  The grain be  under  were the  interests  in  than  the  other  refers grain  rates  position  rates  to  that  a  to  the  rates on o t h e r  of  the  matter  direct  general  railway  favoured  producers,  were  to  a  "assisting"  assertion  compensated  that for  the the by  commodities. representatives  public  control  were  railways'  Western  of  users  of  p o l i c y and  cover  any  to  Also,  the  losses  that  therefore  government.  subsidy  was  the  should  the  Western  railways,  rather  on t h e  carriage  of  grain. With sided  respect  with  the  to  the  jurisdictional  Prairie  interests.  issue,  the  Commission  The Commission r e p o r t  states  that  . . . t h e t i m e h a s n o t come f o r P a r l i a m e n t t o divest itself of the immediate c o n t r o l of these rates which i t assumed i n 1 8 9 7 . . . . I t would be against the national interest a t t h i s moment, i n v i e w o f the u n c e r t a i n t i e s which e x i s t in world affairs, and consequently in world market p r o s p e c t s , to subject this great export industry to the disturbance which the abandonment of statutory protection would undoubtedly cause. This abandonment would mean t h a t P a r l i a m e n t no l o n g e r l o o k s upon Western C a n a d a ' s production of grain for export as an indistry requiring special c o n s i d e r a t i o n i n the n a t i o n a l interest.» z  The concluded  C o m m i s s i o n was that  careful  Parliament  Crowsnest  Pass  rates,  constant  over  time.  these It  to  point  should rates  recommended  out  that,  maintain need only  while i t  control  not that  of  necessarily  had the be  "...Parliament  14  itself  should  downward,  on.V  it  was  recommended under  concluded  that  no  argument  Commission  these  lower  had  than  shippers  Pass  by  rates there  rates, to  made  not  railways*  railway  the  i«Ibid.,  p.  252.  the  not  make  upward as  or  time  goes  subsidization,  the  be  costs  the  general  level  of Hallway Commissioners  its  absence  said  the  shippers. of  hardship.  truck much  thus  these  Second,  the  since  the  Crowsnest  1922  against  The  rates  and  of  on  implied  these  rates  railways.'K^)  Turgeon  Commission r e p o r t e d , to  1957  forced of  However,  freight  continued  factors  Act.  railway  be  and  railways  existence  suffering  the  the  based  other  shippers  These  155  by  other  1954  Transport  given,  burden  upon  to  Sates  greater  by  when  in  paid  the  in  much t o  effect  totalling  250.  to  borne  1951,  of  p.  *5The Board Transport functions.  said  "really  the  Board  increases  r ^ b i d . ,  be  operating  in  shippers'  be  recessions  increases  first,  been  their  be  should  w o u l d have  been  revenues.  subsidy  other  had  Following  subsidy  Maritime Freight  that,  CPR t h a t  of  of  cross-subsidization  the  was  respect  business  of  they  could  statement  such  guestion  any  the  reasoned  competition  r  in  and r e a s o n a b l e  the  that  case  that  changes  just  to  the  railways'  in  appear  respect  Commission  it  may  whatever  1 3  With  as  make  led  the  rates.  rise.  In  the 1  Commissioners in 1938 to  The  to  addition,  reductions  railways  Commissioners s percent.  In  to  years approved  actual  was r e n a m e d t h e reflect its  the  apply  in for  1948-58, general increases  Board of expanded  15  implemented not of  apply truck  these  borne  by  12  decreasing  percent  Commission  was  who  became  soon  HacPherson  the  of  submitted CPR h a d however; form  directly In the  to  (rather  the  to  to  op.  of  of  this  the  and  the  cit.»  p.  grain  17.  the  costs  were  Commission railways in  Hon. C P . was  to  of  an to  The  by  M.&. \  rates,  Western  groups had  to  been  Commission.  to  The  subsidization,  indirect  subsidy  compensate  it  for  Failing  be  and  subsidies  the  a  McTague,j  those—thaf  respect  raised  for  replaced  Turgeon  on  195S.  grain.  thej  in  losses  this, be  it given  grain.  their  the  of  statutory  Canadian  CPR o n  because  the ,Crowsnes"t"-Pass  the  accept  from  presentations  kind);  of  to  departure  of  the  of  because  rates  he  to  with  to  should  their  transportation  Currie.  the  freight  concessions  producers  in  sophisticated, support  rates  addition  than  tax  carriage  the  railways  in  previously  however,  Royal  by  resigned;  now w i l l i n g  the the  second  chairmanship and  could  traffic.  application  position  corporate  that  a  railways  increasing  6f • t h e „ , r a i l . « a y j s _ . a n d / t h o s e  its  was  on  of  With respect  years  changed  of  suffered held  i l l  and  railways*  base  The  1 6  traffic,  CommissaTb'n—were s i m i l a r  ten  it  the  Regina.  MacPherson  an  their  the  of  percent.  movements  increase  under  submissions  all  Thus,  followed  55  many  appointment  further  to  for  rates. a  Transportation  1 6  increases  grain  The  the  approximately  competition  statutory being  were  need by  their  made  two  costing National for  rail  previous changes  technigues Railways  some f o r m  i n the  West.  of  position, of  degree  were gave  more full  assistance  The  latter  in was  16  in  contrast  problem  had  become  there It  to  is  receive  involve  obligation  of  rates.  $2  for  the  as  annual  at  the  end  1958.  constant  costs  For  the of be  various  In  $9  to  shortfall each  year,  reasons,  Currie,  op_.  that  the  cit.,  excess  time,  the  Crowsnest  p.  was  should  of  the  the  that  figure  was  this  the  CNR  costs  Volume I ,  p.  for  that  the  the  CPR  respectively, The  be  Commission  re-calculated  annual c o n t r i b u t i o n  the  end  of  based  five on  introduced  years.* the in  were  not  to  9  MacPherson Parliament  pursued  with on  the  106.  !°.X§I Commission on Transportation. (MacPherson Report), Volume I, March, 1961 (Ottawa: Queen's Controller of Stationery, 1966), p . 22. Ibid.,  variable  the  rates  s  each  that  not  l  Crowsnest  Commission's recommendations Pass  law,  under  costs.  at  by  received  constant  and  the  recommended  variable  those  Parliament'.  to  million,  legislation  At  railways  CNR  for  it  the  with  " . . . f o r  and $7.3  on  re-evaluated  until  to  the  the  serious  of  the  million  million  recommendations  respect  upon  revenues  addition,  Commission 1966.  the  $4  contributions that  that  part  and  equal to  CPF and  CNR r e c e i v e  suggested  CPE  of  1 7  recommendation  the  over  was  the  time  recommendation  imposed on  this  amount  main  the  more  years.  The C o m m i s s i o n d e t e r m i n e d  the  year  and  assist"  at  much  general  losses  that  grain  statutory  operating  in  applied  annual  moving  million  to  concluding  an  how  Commission's  which  an  support  intervening  rates  rates,  cost  the  statutory  specifically  Pass  in  lukewarm  suggested  MacPherson  obligations  1 9  CNR's  Commission and  respect  J 8  the  Turgeon  The  l 7  to  30.  Commission P r i n t e r and  17  basis as  that  was  the  cost  pointed  remarkable  was  out  by t h e  technological  grain-handling that  estimates  a new  and  study  were  badly out  Minister  improvements  transportation  be  of  undertaken  to  of  date.  Transport  were  at  being  system.  that  made  Hence  determine  Further,  what  he  time,  in  the  suggested  aid  (if  any)  required. The  1967  National  National  Transportation  Transportation  significantly  Policy  reduced, take  over  it  Commission  to  Transport  Commissioners,  and  the  Canadian  duties  made  of  several  except  that  i t  made  statutory  the  Orders  given  Railway  Commissioners  extending  equivalent  rates  export.  It  Canada.  to  British given  however,  affect  First,  (CTC),  Vancouver,  did,  potentially  it  branch  undertake  power  lines  to  by  of  a  authorized  to  order  subsidize traffic^  the  The  the  railway  two  of  the  consumption. applications  was  in  If  it  the  "public  continuation  of  concerned  for  on  line.  that  totalled of  $82.5  westbound  a l l  by  and  by  which in  in  of  for  could Western  Commission moving  the  CTC  that  interest", thereon incurred  to was  abandonment  The s u b s i d y  the  and  Churchill  determined  losses  Board  grain  grain  the  service  million  the  rail  on  to  of  untouched,J  to  Second, for  Board  rates  Transport  rates  Transport  the  clauses  grain  Canadian  study  line  Pass  Rupert,  of  railways.  the  study  the  domestic  branch  section  CTC's  carriage  consider  -originating  this  a  Prince include  instructed  retention  under  the  Columbia f o r the  Crowsnest  new was  amendments  The  to  the  it  the  a  regulation  Act.  moving  left  which  created  extend  introduced  Railway  flour  Act  and  in  Act  of the  it  was  and  to  on  grain  paymentsTiale  1975.  domestic-grain  rates  resulted  18 in  these  Current of  rates  being  independent o f the Crowsnest Pass  comparable r a t e s  January,  1978, t h e c a r l o a d  V a n c o u v e r was 35 c e n t s  (and  order  to carry  services),  to carry  the  Act  determination  to  CTC  the  f o r domestic  isued  a  prescribed items  and  f o r export  early  as a b a s i s  The l o s s e s  Order  f o r a l l the  costs."  grain-transportation line the  subsidies period.  use with  another  that  2  system.  cars.)  the railways* the losses  t o that  of  the  the  ° T h e T h i r d Annual Report of the 1969~lottawa: Queen's P r i n t e r ,  i n f l a t i o n of  Canadian 1970), p.  them  unable  assist  this 1  railways.  were l a r g e l y c o m p e n s a t e d  branch-  the  2000 h o p p e r c a r s f o r  provinces  l o s s e s were n o t a s g r e a t  i n the  on t h e e n t i r e  (To  supplemented  The P r a i r i e  payable  lines  were r e n d e r i n g  f o r the  i t has s i n c e  6000  i n the  t h e CTC u s e d i t s  by t h e r a i l w a y s  i n 1972 t h e Government p u r c h a s e d  predictably, contrary that  Act,  o f uneconomic b r a n c h  The l o s s e s , t h e y c l a i m e d ,  by t h e r a i l w a y s ;  of the  2 0  e s p e c i a l l y with the high  to p u r c h a s e equipment needed railways,  purposes  n e t w o r k , however, f a r e x c e e d e d  received,  above  i n a u g u s t o f 1969  f o r determining the subsidies  claimed  and  t o passenger  f a c t o r s which a r e r e l e v a n t  f o r the o p e r a t i o n  1970»s.  wheat  wheat.  Costing  operating  as  Winnipeg t o  out t h e second o b l i g a t i o n mentioned  o f railway  Order  railways  example,  r a t e on t h e CPE f r o m  I n a c c o r d a n c e w i h t h e amended R a i l w a y Costing  For  out a s i m i l a r o b l i g a t i o n with respect  ( O r d e r R-6313). I t Eai.lw.ay  disparate.  per hundredweight  $2.92 p e r h u n d r e d w e i g h t In  are widely  rates.  eguicment  p o s i t i o n was, They  asserted  a s was c l a i m e d , a n d  f o r by t h e  Transport 2.  branch-line  Commission—  19  subsidies. Because grain of  of  transportation  1975  the  of  Transporting Grain  Hall,  The  Volume states  by  importance  the  Rail  and  costs  of  that  (Carl  its the  w h i c h was  parties  involved  proportions:  by r a i l  Users  contributed  of  Federal  since costs  paid  grain  over  grain  1974  The of  covered  cost  their  the  issue,  in  on  the  in  April  appointment  of  two  Costs  of  Commissioner)  the  and  and  (Emmett  M.  for  in to  Hall  the  which by  October  rail.  of  1976,  transportation  costs  involved  to  in  of the  38.38 23.6%  railways"  considerations  has  With  the  is  the  received inflation  statutory  rates,  excess by that the  of  the has  long-run railways occurred  proportion  of  declined.  C o m m i s s i o n was t o  transportation  in  look the  *The Commission on the Costs of Report (Snavely Commission Report),  1976)7 P . 2 0 7 .  for  grain  in  the the  Service  unchanged  by u s e r s  year  38.  operations. the  the  released  Government  by a l l  as  Western  Railways  for  the  involved  Commission  1974  transporting  report,  following  variable  parties  M. S n a v e l y ,  Transportation  of  grain  "cost  of  Commission  Commission chose  statutory  The  the  Commissioner).  the  I  of  Government announced  Grain  Snavely  determine  the  Inguiry:  Handling  Chief  dissatisfaction and  Federal  Commissions  the  the  into West  a l l  economic  (except  aspects  costing),  and  T r a n s p o r t i n g G r a i n by B a i l — Volume I (Ottawa, October  20  particularly  to  branch-line  abandonment  the  total  mileage  abandonment percent use,  percent  report.  April  of  1977.  examined  be  percent  It  basis  to  of  rates  their  Government  sees  Hall  basic  a new b o d y t o  As  the  side.  the  position that  f i t .  lines  rail  decision.  in The  Commission  completion  of  was r e l e a s e d  in  of year  the  mileage  19 8 1 ,  network  37 p e r c e n t  have  no l o n g e r  by t h e H a l l  the  that  and  29  thus  be p l a c e d  i t s status  with  that  of  on t h e  subsidies  part  grain  should  under  determined  on  of  the,  railways,  pay c o m p e n i a t o f y  a n d be s u b s i d i z e d a s t h e  interests  also  maintained  should  be  their  subsidized  and M a c P h e r s o n C o m m i s s i o n s , need  for  subsidization,  s h o u l d be g i v e n t o t h e  The arguments  Commission form  Commission,  the railways  the Turgeon agreed  Hall  the users  The P r a i r i e  saying  i n the debate  opposing  Three  percent to  of  Government.  pending the  34  percent  from  abandonment  and t h a t  transportation  position,  that  that  64  to  protected  Commission Report  the  submissions to  the  directly.  for  stages  2000,  was  respect  need.  for  former  in of  t h e year  their  reiterated  Hall  1975,  representing  be e x a m i n e d  recommended  j u r i s d i c t i o n of  In  held  the  part  lines  abandonment  abandoned  become  guaranteed the  of  In  with  by t h e F e d e r a l  CTC  was t o  Commission's I  2000  the  from  Volume  side  to  rail  mileage,  t o be p r o t e c t e d  that  the  Prairie  total  was r e f e r r e d  recommendations  i n the P r a i r i e s .  t h e year  the  33  specific  of  until  of  remaining and  make  put forward the analysis  by t h e s e  each but  parties  on the  parties  to  i n Chapter  IV of  the this  thesis. The  Hall  Commission  recommended  the  retention  of  the  21  Crowsnest  Pass  rates  and t h e  direct  government  r the  railways  for  losses of  else  v i o l a t i o n of  would  Western  be a  Canada."  It  stated  ; The  2 2  subsidization  2 3  of  \  incurred.  recommendation  subsidization  on  Commission  the  promises  premise  made t o  further  based  that  the  its  "anything  producers  of  that  The contribution W e s t e r n g r a i n makes t o C a n a d a ' s b a l a n c e o f payments demands that a substantial part of any increase be borne by t h e f e d e r a l government. * 2  The  justification  recommendation than  to  the  cheques  to  160  its  reference, rail  rate  was  thousand of  the  early  in  1978,  with  comments the  that  farmers  II  recommendations that  subsidies  producers,  Volume released  that  given  by be  the  given to  "the is  Snavely  very  c o u l d be  to  as  idea 1 2  the  on  construed  to  be  its rather  sending  out  ^) Report,  the  Crowsnest  for  railways, of  Commission  Commission nevertheless  structure  the  appallingi^  commented  respect  Commission  Hall Pass  outside  criticized  which  was  Commission  rates. its  Noting  terms  the  of  present  being  ...virtually devoid of monetary e f f i c i e n t use of the t r a n s p o r t a t i o n perhaps even worse, monetary  incentives for resource and, penalties for  2ZGrai.n and Rail in Western Canada—The Report of the Grain H a n d l i n g and T r a n s p o r t a t i o n Commission ( H a l l Commission R e p o r t ) , V o l u m e ~ I " ( O t t a w a , 1977)"7 P . 54 5 . zaibid., 2  Volume I ,  p.  336.  *Ibid.,  Volume  I,  p.  336.  Ibid.,  Volume  I,  p.  337.  2 S  2  *Snavely  Commission Report,  op.  cit.,  Volume  II,  p.  156.  inefficient  use  of  that  resource. * 2  23  Chapter The  Policy  III Issues  Jhiiodjjction The with  history  of  political  opposing  the  controversy.  groups,  each  railways,  caught  portion  lucrative  of  themselves  of  statutory,  in  producers, operating the  became  to  other  that  earned The  grain  and Pass  dates  1975,  Crowsnest  by t h e i r  have  world  commitment the  19th  the  low  to  Century, freight The  which  Pass  rates.  made The  Grain  grain  grain. by  They  the  when  rates  rising  Federal  the  and  a  see  West  the  East  have  come  right  they  economic  welfare. Canadian  Commissions of  Inguiry  Handling  at  more  of  recommended  remain  much  between  transportation two  relieve  The  "right",  recommendations  Commission) by r a i l  of  tc  producers  Canada's  appointment  declining  become  them  to the  a  The  non-compensatory,  for  contribution with  and  caught  prices  dominant  issue.  decades.  their  of  grain  been  protection.  associated  the  i m p o s e d by  fraught  two  anxious  as  both  transporting  in  rates  the  (Hall  a  of  Pass  in  Commission  have  to  tariff  Crowsnest  resulted  as  back  been  inflationary  hand,  been  been  costs  complaints  two  beneficiary  problems  have  burden  Their  rates  has  have  increasing  fluctuating  increasing  view the  have  in  on t h e  the  received  rates.  rates  f i n a n c i a l stake  financial  last  Crowsnest  a  Pass  There  traffic,  the  costs  Government  with  between  the  grain  intense  Crowsnest  their  with  respect  and  Transportation  that current  the  to  rates  level,  the  for and  24 that  the  railways  suffered  in  the  of T r a n s p o r t i n g Grain  Costs  responded monetary  the  be s u b s i d i z e d t o  to  provision of this  this  incentive  transportation The  contradicting indicates determine  recommendation  that views  the  with respect  the "best"  of  course  to  made  guo,  but i t  has been  experiencing  provided  branch-line eight  of  Commission the  purpose  actions to  of  rather, some  i n 1977  the actions  are  of the short-term  p r o v i d e d no  of  the  grain-  i t  use  it  parts  that with  made  Pass  complex  Federal  the  a grant  the  pressure  issue  1967,  a total  railways  stop-gap  $100  designed  of of the  the  Hall  million  for  of  system.  the Crowsnest  measures  the  in  t h e Government has c o m m i t t e d to  take  i n the form  of the r a i l - g r a i n  respect  to  status  to  Act of  release of  rates  the  has purchased  by  held  Government  maintaining  compensation  following  upgrading  policy  1970*s  for  and  do n o t i n d i c a t e  a particular  of  increasing  railway  In the  hopper c a r s  Report  this  The  the decision  f o r some  grain,  i t  Crowsnest  National Transportation  subsidies.  thousand  carriage  the  the  of action.  recently  Government  that  Commission)  Commissions o f I n q u i r y  analyzing  until  In  losses  The C o m m i s s i o n on  (Snavely  by n o t i n g  t h e two r e c e n t  difficulty  action.  Rail  for  2  has  some  service.*  them  f o r improving the e f f i c i e n c y  service.  fact  by  compensate  Pass to  These itself rates; relieve  problems.  *Grain  and R a i l in Western Canada--The Report of the Grain and T r a n s p o r t a t i o n Commission (Hall Commission Report) , V o l u m e I ( O t t a w a , ~ 1 9 7 7 ) 7 p . 545.  llsIiliLS  2  The Commission on the Costs of 'Transporting Grain R e p o r t ( S n a v e l y C o m m i s s i o n R e p o r t ) , Volume I I ( O t t a w a , 1977) , p . 157.  by. J a i l - November  25  Thesis  some  Approach  Given  public  action  with  pertinent which the  of  to  primary  are  the  The  is  most of  are  in  evaluated  VI.  Chapter  VII  summarizes  The  Issues  by  group  Parliamentary  the  according  to  of  a  and  Each  of  these  described  Once t h e  policy  characteristics different "packages".  are  Each  such  existence  or  absence  subject  or  not  to  subsidization  of  a  of  the  to  policy  the a  the  to  "better"  impacts  uajor "short-  of  these  alternatives  criteria  grain price  in  degree  three  important  will  a be  rates,  of  relating  choices  can  set  of  by level  some  the  group to  set  derives  and  is  herein  discusses  specified  yield  package  subject  scheme.  to  is  adopted  and  choices  established,  configurations  determination  the  transporting  subsidization. below.  and  Chapter  analysis.  rates,  statute,  available  are  cf  The V,  is  each  IV  take  it  purpose  chapter,  issue,  rates,  secondary  is  Chapter  the  system  by  in  Chapter  to  Pass  Such  a  alternatives.,  are  characterized  thesis;  this  Government t c  options  approach  In  assessed  current  Crowsnest  involved  salient  Federal  policy  this  themselves  The  the  attractive.,  generated.  feasible  alternatives  the  following  which are of  for  what  objectives.  alternatives  list"  to  trade-offs  these  criteria  the  purpose  alternatives. achieve  respect  determine  these  indicate  pressure  governed  features to  be  each  is  cf  the  combined  in  distinct  general  Parliamentary  is  (railway)  characterized a  rail  policy by  price  control,  the level  and  a  26  Group  J§i®§«  transporting all  points  frequently  Under  freight within  in  individual  is  structure  or  considered and  given  explicit  depend  on  Therefore,  pricing  is  regulation of  by t h e profit  the  Under  the  the  same  for occur  administer  than  do  not  allow  locations of  choice  reasons  for  a  then,  group-rate  is it  rate  within  grain,  existing  transport,  The  for  rates  carriage  this  grain  a  levels  existence first  or  not  control  level  for  not is  its  usually  important importance  carriage  absence  policy  choice  have  the  Government. it  is  there  providing  variable  the  or  to  maximization,  long-run  transporting  four  about  Federal  rate  level:  than  Although  price  the  whether  government  price  the  retaining  attention.  The p o s s i b l e  control.  of  but  the  Group  to  lower-cost  to  is  rate  in Chapter TV.  rail  goal  either  in discussions  Pricing. by  of  respect  area.  simpler  and  the  destination  location,  higher-  With  system,  geographic  They are  eliminating it.  warrants  are  specified  each  bet-ween  choice  group-rate  specific  for  "group".  the  a  transport.  discrimination  there  a  rates  geographic  to  a  of  Because assumed  would gross  costs  be  of  of  the  that  in  only  rate  respect  subject  revenues  grain  government  with  rates  of  to  direct  railways' the  one  absence possible  somewhat  providing  to  greater  the  grain-  service. the  possible  government-controlled  price  levels  a)  Crowsnest  Pass  rate  b)  non-compensatory Pass l e v e l  for  the  pricing  carriage  of  option, grain  by  there rail:  level  level  greater  than  the  Crowsnest  are  27  c)  compensatory  d)  compensatory level constant costs  "Compensatory"  as  used  long-run  variable  accordinq  to  assumed over  that  time;  would, Option  the  cost  (b)  also  provide  The  for  subsidies.  producer  the  government  is  possibility  under  any  retaining  the  Crowsnest the  non-compensatory  or  (alternative  (c)  subsidy  (if  it  constant  costs  unregulated takes  place  provision  of  of  existed)  In  in grain  is  the  case  of  in  been  of  cars  no  expected  to  except  the  exactly  of  the by  railway  branch-line federal  absence  the  Third,  provided  by t h e  or  of  pricing is  that  a of  Government rates  are  compensatory  compensatory  lieu  Currently,  form  hopper  be  are  may  producers  possibility if  they  would have  the  a  1978  rates.  the  of  of  rates.  if  could  circumstances.  any  policies  Pass  railways  above).  that  pricing  in  policy  be  First,  under  variable  subsidies,  reasonably adopted.  is  non-compensatory.  changing  subsidization  the  even  become  the  It  w o u l d be  compensatory  railway  can  to  (calculated  subsidization  possible  direct  equal  Commission).  rates  was  to  service  p o s s i b i l i t y of  policy  Second,  of  that  scheme  policies.  subsidization  the  subsidies,  pricing  subsidies  (d)  eventually the  the  Snavely  government's  The s u b s i d y  on  approximately  the  and  rate  includes  Subsidization.  by  (c)  inflation,  contribution  providing  used  a  some  means  of  options  otherwise,  plus  here  method  in  with  depend  level  rates,  contribution grain  traffic  the to in  subsidization  subsidies government.  and  the  28  Summary that  of  Policy, A l t e r n a t i v e s .  exist  following  Group  with  set  Sates  of  respect policy  to  the  Combining three  the  various  characteristics  choices  yields  the  alternatives:  Subsidy  Pricing -non-govt.  controlled  Recipient*  -none -producers  -govt, controlled: Crowsnest Pass  -none -railways  •govt, controlled: non-compensatory  -none -producers -railways -producers and r a i l w a y s  •govt, controlled: compensatory  -none -producers -railways -producers and r a i l w a y s  •govt, controlled: compensatory plus  -none -producers  with or without  •These s u b s i d i z a t i o n p o s s i b i l i t i e s subsidies t o be g i v e n . T h i s w i l l VI.  do n o t i n d i c a t e be d i s c u s s e d i n  the level cf C h a p t e r s V and  29  Chapter Considerations of  the  IV  Relevant Policjr  to  the  Evaluation  alternatives  Introduction The t e r m is  a  "considerations"  desirable  characteristic  considerations Pass  rates  economics, social  realities.  of These  inter-related  and  is  of  both  primarily  Provinces,  specification alternatives.  of In  is  to  in  the the  of  relevant it  not  be  or  order  the  and t h e  the  and  wealth, history,  and  complex  political mosaic  of  financial interests grain  of  producers,  Canadian  various  the  taxpayers.  The  considerations  academics.  considerations surprising that  III,  one  attractive  Crowsnest one  the  of of  today,  a  applied  In  and the  view  are  of  the  the  diverse  grain  freight-  unresolved.,  Chapter  more  perceptions  The  Crowsnest  theory,  distribution  from  politicians  the  stated  to  the  of  economic  comprise  They d e r i v e  continues  determine  respect  role  vagueness  issue  transportation  involved,  issue  as  its  context.  the  groups,  of  things  the  development,  significance  complexity  to  such  to  but  present  facts,  Prairie  by  interests  relevant  the  one,  historical  parts.  the  discussed  As  on  a vague in  considerations  different  railways,  rate  based  eguity,  nature  are  industrial  perceptions  many  that  are  is  Pass  purpose policy  rates.  more  criteria  to  achieve  such  this  thesis  alternatives  This  by  of  task  which a  to  reguires judge  specification,  is  with the the the  30  author  has  those  extracted  which  from the  appear  considerations  are  objectives;  economic,  social,  termed  relevant  be  of  major  into  these  are  develepmental,  simply  classifiable  of  categorized  contains  is  to  mass  "other  nature  of  two in  or  importance.  groups. turn  political.  These  The f i r s t  classified  considerations"  its  "considerations"  group  as  either  The s e c o n d  group  to  reflect  the  non-  components.  Objectives Economic major  economic  improve  the  From  the  objective economic  in  in  economic  productivity  of  a  resource  are to  export  scheme  Thus,  for  positions  would  be  set for  of  that  of  fewer  whole,  grain In  either  is  given for  general,  of  when  output  the  than  the  or  transporting  efficient  to  when  level  than  the  is  increased  resources  economically  a  activity.  resources  a scheme  as  of  occur  producing a  which used  Canada  transportation  example,  more  of  efficiency  given  requirements  reduced.  the  efficiency  improvements  the  viewpoint  grain current  the  current  scheme. To  provide  different are  resources,  measured.  the  cost",  value  of  that  resource. is  other  the  its  production.  of  individuals  By  of  the  The r e a l  "opportunity  service  a basis  dollar  cost  that  of  is,  products  a  "real  the  that  Assuming  real free  maximize  for  projects  costs"  resource  is  resource's could  implication,  combined  to  comparison  costs  have  the of  individual their  net  those  defined  resources  to  be  contribution been  real the  of  utilizing  produced  cost  resources choice  and  income,  of  a  its  to  using good  required the the  the  or for  desire economic  31 efficiency  of  a  services  which  services;  with  choose If  the  prices  income  system reflect  do  not  of  efficiency  rail  policy  the  lines  trucking  and  on  are  the  This  with  a  of  is  low  lower  goods  and  motivated  to  below  not  the  promote  evident in  in  some  when  the cases  the  use  cost.  ignores  d i s t r i b u t i o n of  activities. net  rates  real  and  maximizing  producers  objective  discussed  are  which do  artificially have  goal  goods  those  pursuing their  system.  would  the  of  choices  today,  at  costs  of  the  income.  under  effects  These  the  of  effects  heading  of  Objective".  Adopting objective  has  improved definite  decisions  economic  efficiency  implications  described  in  with  Chapter  as  the  sole  policy  respect  to  the  three  III.  1)  Group r a t e s s h o u l d be m o d i f i e d t o a l l o w t h e rates on b r a n c h l i n e s t o r e f l e c t the a d d i t i o n a l c o s t s o f operating such l i n e s ,  2)  The g e n e r a l p r i c e l e v e l f o r t r a n s p o r t i n g g r a i n rail should be r a i s e d to a l e v e l r e f l e c t i n g r e a l o v e r a l l c o s t s of p r o v i d i n g t h i s service.  3)  If subsidization of grain producers is deemed appropriate, it s h o u l d be g i v e n t o t h e m d i r e c t l y by t h e F e d e r a l G o v e r n m e n t , r a t h e r t h a n indirectly by the r a i l w a y s v i a n o n - c o m p e n s a t o r y g r a i n freight rates.  There The  of  prices  of  costs,  individual  grain  alternatives  "Social  real  by  individuals  means  economic-efficiency  important  policy  of  branch  short-haul The  are  reflect in  real  pricing,  least-real-cost  transportation using  enhanced the  real-cost  results  economic  is  real  is  cost  opportunity  a of  cost,  practical a  good that  or is,  problem i n service the  is  value  determining  "real  d e f i n e d above of  by the  opportunities  to  costs". be  forgone  its to  32  produce useful  that but  must  practical of  a  cost (the  or  be  service.  made  applicability.  unit  of  plus size  output some  of  Commission V is  good  more For  the  (on  defines  explicit  defined to  contribution  be  to is  which the  the  definition is  practical  contribution  Report  based)  is  This  the  in  its  constant  of  a  to  the  be  real  (long-run) costs  below).  guantitative cost  order  purposes,  discussed  variable  theoretically  1  cost  variable  of  the  The  analysis  movement  of  Snavely  in  to  firm  Chapter  be  . . . t h e l o n g - r u n m a r g i n a l c o s t o f o u t p u t , b e i n g the cost of p r o d u c i n g a permanent and q u a n t i t a t i v e l y s m a l l change i n the t r a f f i c f l o w of output, when a l l resource cost i n p u t s are o p t i m a l l y adjusted to change. 2  The  Snavely of  variable  determining  the  contribution,  constant  costs  circumstances, elasticity on  of  this  and  of  for  from on  cost,  the  which i s  leaves  if  the  any,  based  unresolved that  railways.  contribution  demand  competition  competition)  2  approach,  definition  the  1  costing  would  grain In  be  which  other  carriers  (intramodal  Canada*s  the  problem  should  above  make  determined  service,  of  the  unimpeded  the  nature  on  would  in  position  in  to  market by  turn  and  of  the  depend  intermodal the  world  C o n s t a n t c o s t s a r e c o s t s w h i c h a r e i n c u r r e d by a f i r m b u t which cannot be a t t r i b u t e d t o s p e c i f i c g o o d s o r s e r v i c e s p r o d u c e d by the f i r m at i t s e x i s t i n g l e v e l s of output. (The Commission on the Costs of Transporting Grain by. Bail—Report (Snavely Commission Report), Volume I ( O t t a w a , O c t o b e r 1 9 7 6 ) , p . 30) Ibid., Volume I, p. 29; taken from C o m m i s s i o n , Reasons f o r O r d e r No. R - 6 3 1 3 , p.  Canadian 337,  Transport  33  market  for grain  In  order  efficiency of  to  that  real-cost  impacts  Crowsnest  Pass  for  producers  one  to of  development  in  the  grain  to a  Provinces  low r a t e s  Third,  t h e non-compensatory  allocation Fourth, rates  near  to  of  There  has been  investment  the continued inhibits  capital  existence  t h e development  i n  is  no  than  use  incentive branch  and l i t t l e -  to  a  processing  distant 4  Second,/  industries  by t h e e x i s t e n c e  with  relatively  (such  rates  p r o f i t a b i l i t y of the railways, of  the  efficient  differentials.  commodities freight  Jtajor  First,  groupings,  hindered  combined  the  grain-related  rather  rate  economic  implementation  structure.  rate  port  in  describe  system.  agricultural  grain  the  incentive''for  absolute  highly-processed  livestock).  have  diminished  of alternate  distorting  Canadian  of a r t i f i c i a l l y  high  as  thus  the  of  low  forms  economy.  grain of  the 5  rail  long-haul  F o r a d i s c u s s i o n of the three types of competition affecting railway pricing, see T . D . Heaver and James C . N e l s o n , S a i l w a y Pricing under Commercial Freedomi The C a n a d i a n Experience (Vancouver: The C e n t r e f o r T r a n s p o r t a t i o n S t u d i e s , U n i v e r s i t y o f B r i t i s h Columbia, 1977).  •Snavely Commission Beport, ^ 1 9 7 7 ) , p . 156. 5  from  rate  little  on g r a i n  o n more  overall  useful  existence  rates  the  result  high-unit-cost  of secondary  Prairie  artificially  the  3  improvements  current  provide  of the small  the  is  the  abandon  ship  because  the  grain-transporting  because to  it  of  rates  the current  incentive  perceive  pricing,  of  competition).  would p o t e n t i a l l y  economic  lines  3  ("market"  op. c i t . ,  Volume I I  (Ottawa,  November  I t would be d i f f i c u l t , however, t o d i s t i n g u i s h the d i s t o r t i o n i n r a i l w a y i n v e s t m e n t c a u s e d by t h e Crowsnest Pass r a t e s from that caused by other f a c t o r s . One s u c h f a c t o r i s t h a t b o t h CP R a i l a n d t h e CNR a r e s o m e w h a t r e m o v e d f r o m f i n a n c i a l m a r k e t s because of their respective o w n e r s h i p s : CP R a i l i s c o m p l e t e l y o w n e d b y t h e l a r g e CP L i m i t e d c o n g l o m e r a t e , a n d t h e CNR i s o w n e d by the F e d e r a l Government.  34  grain  transportation,  such  as  trucking  and  commodity-pipeline  transportation. Adopting entail  prices  single  principle  that  exactly  movement;  example,  it  reflecting the  the  same  some  w o u l d be a  (if  longer  haul  pricing  w o u l d be  degree  distance  such  a  would be  pair  administrative  costs  outweighed  benefits  practical against  the  current  degree  of  aggregation.  need  not  find  it  freight bear  be  on  avoid  a  the  justification The  position  compensatory rate  level  increase  the  merely  their  from  structure,  to  have  branch on grain  lines.*  a  given  to  the  there the  that  freight  is  would  supported alleviate  economic  the  existing  the  the  branch  nearest  this argument a  large  structure  railways  surcharge If  detail  involves  for  line,  might  picking  market  would that  main l i n e  w o u l d be e c o n o m i c  abandoning grain  a  additional  However,  which  example,  the  real-cost  greater  therefrom.  on  though  the  having  For  points  Rather,  undermine the  For  even  where  every  differential  originating  costly.  extent  of  not  desirable.  rate  exists),  Modifications to  surcharge, for  more  would  cost is  a  two  points  not  group-rate  surcharge  trucked  have  derived  does  grain-related  such  to  complicated.  suitable  producers to  very  to  b«tween of  real  grouping  resulting  qualification  the  pricing  of  marginally  implemented  the  real-cost  reflected  impractical  50-metre  line  of  and  up not  is,  in  if  order  business  line. rates  by t h e the  should  observation problems  be r a i s e d that  mentioned  to  such  a / a  above.  * G r a i n - r e l a t e d b r a n c h l i n e s a r e t h o s e b r a n c h l i n e s on which g r a i n c o n s t i t u t e s a m a j o r i t y o f t h e o r i g i n a t e d and t e r m i n a t e d traffic.  35  thereby  improving  "economic" rates,  grain  of  which  first  of  traffic  traffic. grain  In  than  examined  in  profits.  grain  in be  they  would  be  have  the  be  the  if  railway  that  rates  of  traffic other  may b e  other  that  on  on  the  the  is,  they  attempt  the  as  high  the  as  then,  freight  less  lower  result  rates, level  The in  be  must  be  operated their  rates  on  competitive  and  the  rates  imposed  statutory  grain  transporting  other  proposition  the  railways  characteristic than  it  could  losses  would  is,  be  sustained  the be  is  would  risk-taking in  although that  tc  maximize  this  of  this  traffic.  thus  of  to  are  charge the  for  management  level  to  the  rates  of  non-compensatory  statement  to  regardless  fact  rail-freight  railways  expected  a result rate  ether  commodities  that  on  put  the  fact  keeping  were  Pass  otherwisei^This  are  could  Crowsnest  other  rates  simply the  argument  by  counter-argument  that  the  based  that  theory,  general  management  second  is  asserted  permit,  /in  are  here.,  c o u l d be  no e f f e c t  certain  raising  these  that  risk-averse,  form of  the  they  assertion  grain  of  of  a possible  statutory  A  7  light  statute,  rates  to  been  There  raising  arguments  the  maintain  order  has  traffic  general, to  it  circumstances  by  on  two  enterprises,  commodities. based  examined  of  "cross-subsidized"  Therefore,  regulatory  freight  is  forward  force  non-statutory  on  are  efficiency.(  rates  the  business  put  these  fact,  freight  higher  as  arguments  two  The  economic  in on the  higher  level  in  effect  risk-averse.  forward  in  favour  of  raising  grain  Por example, see H.L. P u r d y , T r a n s p o r t C o m p e t i t i o n and P u b l i c P o l i c y i n Canada (Vancouver: University of British Columbia Press, 1972) , p . 180.  /  36 freight  rates  is  assert  that  the  resulted of  a  in  lack  this  an  expected  the  often  non-compensatory  argument,  we n o t e  return on  investment.  on  investment These  grain-transporting  they  can  the  be  competition as  from  possible  investment  would  On t h e  reducing  costs  positive  return  the  return  rate  structure  the  freight  other  is,  of  would  this  are  two  is  rate  not  be  (where  neither  and  thus  hand,  (the even  the  (where  incentive  under  would it is  to  in  the  would  return  are  that  such  with  is  as  no  high  permitted  by  Increased rates  in  nor  increased  purpose would  situation.  have  of a  However,  non-compensatory  as  well  profits).  independent of  fts  grain,  investment)  increase  railways  the  current  and,  the  higher  for  of  of  grain.,  result  losses)  nature  investment  grain).  charge  of  the  level  c o u l d not  reduce  forms  the  level  monopolistic  realized  general  a  the  highest  type  this  it  rate  investment  second in  a  a l l  competition  them  other  at  merely  revenue  have  of  because  evaluation  level,  because  have  is  increased  the  transport  at  the  d e p e n d i n g on  first,  carriers,  allow  rates  There  system  market  would  financial  are,  to  in  They  rates  "financial incentive"  take,  revenue);  new t r a f f i c ,  revenue.  compensatory  grain  long-haul transportation  (that and  generate  representatives.  g r a i n - h a n d l i n g system  Regardless  expected  regulation  to  cost.  (increased in  a  can  forms  in  monopolists  the  investment.  decreased  type  of  that  second,  first  by r a i l w a y  f i n a n c i a l i n c e n t i v e s . */ T o a s s i s t  return  the  made  deterioration  of  of  that  a  one  the  rate  « F o r e x a m p l e , see " T h e R a i l w a y and G r a i n " , a b o o k l e t C P R a i l ( r e p r i n t e d f r o m CP R a i l N e w s . 1 9 7 5 ) .  as  under  Here  again  level.  In  published  by  37  summary, there  then,  is  excepting  no  increased  economic  grain  the  circumstances  justification  freight  rates  would  for  result  described the  in  below,  statement  increased  that  railway  investment. There would  are  lead  to  two  situations  improvements  The  first  situation  high  enough  to  competition effective  be  is  a  form  but  and of  in  could  return  plant  other  incentive  situation modes,  occur  equipment  projects  are  investment  or  net  it  projects  undertaken  more  is  with  improving revenues  point  for  projects,  losses  to  of  the  that those  the  the  providing  circumstances.  There  rates,  these  of  those  railway  in  could  the  investment implications  be  as  the  of  system. grain  lowered  rail  on  railway  limits  return  funds caused  are  return  funds  a l l  (in  increased  Thus,  the with  rates, to  by  the  than  the  include  grain-transporting  for  the  investment  levels  greater  in  projects  (such  from compensatory  selection  or  such  current  a  second other  Several  scarcity  an  from  grain-transportation  project  have  With  The  transportation  criterion  be  service  investment  railways;  value).  implement  with  grain  was  attract  would  system.  of  level  to  competition  set  rates).  resulting  could  for  some  including of  to  non-compensatory  to  possible  A scarcity grain  absence  and  rates  reasons.  rate  competition  railways  required  to  such  grain  economic  railways  associated  present  revenue,  the  the  for  i n which the  a particular  available  according  cut-off  to  compensatory  evaluated  system  be t h a t  the  investment  with  increased  in  on  savings  which i n c r e a s e d  grain-transporting  requires  cost  of  for  the  the  modes;  it  profit  project  would  profitable  from  improvements  in  in  system.  statutory-  shippers.  It  38  is  possible  that  postponement  of  improvements, related the  If  costs  general There  losses  grain-handling  lack  of  financial  However,  of  1973,  the  total) to  a  of  result lines  been  reluctant  the  they  uneconomic subsidy  will  branch  rather  the  invest  this in  system, branch  to  being  possible  branch-line  Under  be  system  the  bear  or  grain-  reductions  in  of no  525  permitted the  the  used  miles  to  has  of  these  keep to  current  for as  railway  branch  lines.  use;  the  C T C was  lines  in  1975.  have and  As  not  known  thus  have  network. the  a  suspended percent  Further,  operation  general lines  the  deterioration  system  of  no i n c e n t i v e  for  the  lines;  if  a  were  to  of  commodity  the  is  line  the  (3  there  branch  II,  on  lines  abandon,  used  the  Canadian  been  railways  branch-line  to  the  judgments  in  the  been  the  of  than  i n Chapter  specific  of  contributor is  make  railways  have  other  instructed  longer  delay,  in  deterioration  abandonment  abandonment  lines  than  r e pa i r i ^ ) A n o t h e r  permit  invest  paid  1967  of  regulatory  to  subsidies  of  were  the  indicated  abandonment  the  shippers  for  and  which  in  main-rail-line  shipments  receive  to  in  undisputed fact)  As i s  exception  permit  which  (an  Act  authority  with the  authorized  the  the  resulted  service.  explanations  to  have  a l l  delayed  incentives.  for  the  of  system  Commission  applications  case,  rail  Transportation  Transport  since  of  traffic  investment  the  form  possible  the  National  is  the  quality are  grain  capital  such  in  cn  in  group  proper of  rates.  railways deteriorate  to to  Grain and Rail in Western Canada--The Report of the Grain<j and T r a n s p o r t a t i o n C o m m i s s i o n ( H a l l C o m m i s s i o n R e p o r t ) , Volume I (Ottawa; 1977), p. 59. 9  39  the  point  line the of  cf  would  inoperability, instead  railway  concerned  maintenance  the  railways  freight  be  of  designed  preceding  economic-theory railways  system  Federal  in  lead  to  the  railways  on  with l e s s Finally,  system  for  that  cost  the  may b e  support  is  be  a  problem  an  to  lack act  higher  of  grain  that  is  of  view,  an  not  aspect  of  the  mentioned  in  the  analysis.  From  is  very  efficient  economically  deterioration  if  there  is  possibility  in  would subject of  step  major  the  no  i n and  to  public  have  on t h e  efficient,  in  the  Therefore,  the  hereafter  incorporated economic  help  (as  it  system,  an  Government  excuse  has  rates merely  for  assistance.  not  the to that  done may  in well  because investing  there  would  Regardless  be of  of  the  system  for  transporting  problem i n  its  own r i g h t .  A rail-grain  is  economically  point  long  objective  large  pressure. /Further,  deterioration economic  a  compensatory  rail-grain  longer  future  the  which i s  improving  introduces  The i m p l e m e n t a t i o n of  causes,  system  line  revenue.  elicit  received  it  expectation  grain  to  discussion  improvements  would  its  part  Government w i l l  1970's).  no  in  {financial-incentive)  point  1  the  and  no, l o s s  main  grain-transporting  system-deterioration  the  on a  formerly  rates.  The  allow  grain  received but  the  the  of  run, of  collapse as  a  improving  into  efficiency.  the  not  as  well-maintained the  more  rail-grain general  system.  system  is  objective  of  40 Social  Objective.  objective  of  statutory  grain  rates,  current the of  social income  Canada.  is  not  individual  and  to  In  Prairie  increases  that  the  would  resulting  increase  in  producers,  since  from  payment  the  elevator. alleviated  freight  Although by  l 0  therefore  of  the  considerations  an  to  is  distribution  equitable  depends  a  income  large  judgment  of  extent Prairie a  unfair  to  producers.  The  cost  [cf  grain  to  the  Prairie  compensatory such  an  rates]  argument  producers  would  would  would  is  be  be  when  the  subsidization, seems  this  to such  stem  is  that  option  is  rates is  the  subsidies.  In  the the  efficiency, Any by  deducted  delivered  higher  from  just  immediately  transportation  burden of  is  unreasonable.  felt  grain  economy  outweigh  rail  v u l n e r a b i l i t y , of  the  to  financial  resistance  of  Crowsnest  continuing  from improved economic  rates  price  the  ether  rates  costs  received  direct  producers./Their and  the  are  of  freight  grain  net  of  the  grain  "...the  receive  of  that removal  "eguitable"  the  producers  by  issue  support  it  i m p l i c a t i o n of  borne  they  be  that  grain The  benefits and  would  the  there__  these  nature  judgment.  argue  too rate  The  increasing  representatives  in  m a i n t a i n i n g an  defined;  level  the  among  clearly  representatives, compensatory  of  supports  to  given  Primary  indicated  However,  relevant  which are  st^jicturje.  in  rates.  are  objective  dstribution on  of  section  efficiency  freight that  many  rate  previous  economic  considerations Pass  The  to  an  could  be  opposed  by  "visibility", the  "Why the Crow Can't Go", a brochure published T r a n s p o r t a t i o n Agency o f Saskatchewan (1977),  words  by  of  the  41 the  Transportation  that  such  later,  aid  the  Agency o f  would  Saskatchewan,  gradually  Prairie  be  farmers  " . . . i t  phased  would  end  out  appears  and,  likely  sooner  up a b s o r b i n g  all  or  cf  the  loss."i» There the  are  general  policy  rate  policy  with  respect  For  example,  combined  reduced  by of  social-eguity the  role  particular the  of  their  policy  alternative  alternative  the  of  current  and of  an  this  the  importance  an of  the  implicit  income of  requires  a  the  that  an  income  is  approach,  specification defensible  then,  of  to  embodies  judgment  costs  approach, with  each  respect  to  predetermined  social-equity  For  if  with  example, no  subsidies  is  the  policy  adopted,  * T h e Crow R a t e a n d N a t i o n a l T r a n s p o r t a t i o n Policy (Regina: T r a n s p o r t a t i o n Agency o f Saskatchewan, 1977) , p . 8. 1  the that  transportation this  the  approach  representatives,  producers*  implicit  rates  associated  be  objective  According  rates  this  equally  by P r a i r i e  judgment  compensatory  i n which producer Under  with  distribution.  would  objectives.  compensatory  approach,  alternative  raising  level.  the  associated  an  of  of  judgment  one  rcle  evaluation  entail  social-eguity  not  the  The i m p l i c i t  The s e c o n d ,  suggested  to  first  equitable  amount.  involves  other  the  alternative  alternative  objective.  objective  objective  the  of  objective  relative  of  implied  above  the  nature  distribution is  each  in  to  together  subsidization.  the  approaches  and s u b s i d i z a t i o n scheme  consider  income  evaluation  is,  the  selection  equitable  objective  alternative to  possible  According  level  w i t h no  the  two  social-eguity  each  to  least  alternatives.  particular  with  at  The  42  the  economic-efficiency  more  important  producer  because  it  the  objective  objective  costs.  involves  difficult  the of  transportation  costs  of  between  clarified  in  different  rate  of  efficiency  levels  thesis  be  of  defining  judged  of  adopts  the  as  minimum  the  second  the  tradeoffs  first  perception  the  implies  dictates  that  not  be  general for  is  current  level  subsidies). is  objective 7,  dealt  social-equity  the  Crowsnest  Pass  that  group  rates  producers  whose  farms  principle applies example,  in  in  the  because  many r a i l movement  be  on  are  of  separately.  The  objectives  are  impacts  only but  to  also  indicated,  should  equity,  discriminated against  visibility  not  rates,  previously  the  of  estimated.  applies  As i s  Social  The  are  as  grain-producer  guantitative  rates.  extent.  of  other  incomes  equity  defined  with  and t h e  where  social  the  group  objective  on p r o d u c e r  of  of  practical  British  this  Chapter  level  existence  (net  subsidies  objective  Canada,  to  objective  contrast,  of  the  tradeoffs  should  task  said  determination  In  maintaining  producer  largest  This  a  social-equity  possible  general  be  itself.  Thus,  The  could  social-equity  well-defined objectives.  involves  This  the  transportation  perception among  than  objective  to  to  other  the  hand,  far  from  of  their  location,  movements  throughout  of  lumber  a  the  economic  abolished the  the  main  line  by r a i l  in  Columbia.  The  author  structure  of  believes  the  Crowsnest  warranted  in the  long  This  run).  that  short  belief  run is  the  Pass  abolishment of  rates  is  neither  (although  it  may b e  based  on  two  the  group-rate  forthcoming warranted  observations,  in  nor the  first.  group  rates  Second,  are  justified  the  role of  replaced,  run,  such  the  lines  upgraded,  the  short  are  based  development  on  reliance  therefore mercy"  of  The  of  not  of  1 2  It  on  grain  the  Federal  are  a  on  Prairies. Government  grain,  to  the  is  See, for example, Economic A n a l y s i s of of the Industrial Special Reference to Research P u b l i c a t i o n  the  Hall  are  (such locating Pass  provinces, This  are  in  the  social  costs.  in  relative  as  livestock  of  processing only  this  j  efforts  that  to  and  with  the  accepted  are  the  concern  factor  rates  about  "at  industries  low  of  being  incomes,  important  contributing  are  particularly  resulted  which are  been  Commission.  transportation  an  has  concerned  implicit  has  the  miles  others  are  secondary  The Crowsnest policies  and  prices.  commonly  products  deterrent  Prairie  producer  rates  Many  economy,  grain  of  action.  Grain-producer  revenues  is  rates  processed  the  development  transportation  on  grain  Transportation  development.  meat),  world  increasing  the  Prairies.  grain. of  lines  people  Prairie  on  of  in  branch  abandoned  Prairie  vulnerability  exposure  encourage  Many  economies  producer-income objective  by g o v e r n m e n t being  objective.  pricing  grain-related  the  fluctuating  social-eguity  recommendations  economy,  the  of  the  the  real-cost  currently  Objective.  Saskatchewan  1 2  of  abandonment/retention in  by  to  in  the  in  this  the  rail-  to  those  and  dressed  industries one  of  two  freight-rate  W.D. G a i n e r , S . E . D r u g g e , and R . A . K n c w l e s , t h e e f f e c t s o f T r a n s p o r t R a t e s on Products Chemical and Meat Packing Industry with Edmonton, a Canadian Transport Commission (June 1973).  44  difference; program. on  which  grain Canada,  is  close  comparative there  "processing" to  and  the  the  of  feed  and  federal  is  the  with  of  grains. weight  feed  Freight  to  gain  livestock  Eastern  5.25  reduce  1 in  Cor  production, enjoy  production the  the  beef  reverse)  a  because  livestock  ratio  of  4.5  1 in  approximately to  Columbia,  should  with  example, is  subsidies  British  supply,  to  assistance  transportation  associated  For  approximately  of  Western  respect loss  Peed  Prairies  Maritimes.  source  policies  the  consists  from  weight  animal  production two  moving  to  a  one  policy  advantage  is  weight  other  The l a t t e r  feed  Central  the  to  feed  production. this  hog The  1 3  comparative  advantage. There affect labour  are  and c a p i t a l  the  and  effect  of  current  industrial  improve  maintaining  costs,  rates  lMd.»  play  p.  the  last  an  than  Some o f  returns  transportation these  are  on i n v e s t m e n t  in  characteristics  historical  location  item  is  structure;  to  encourage  the  may  be  original system. * 1  important  role  economic greater  of a  the  that  location, existing (such  as  development.  The  perpetuation  cost  of  than  Nevertheless, in  rates  market  product  efficiency the  other  location.  industries,  perishability),  to  factors  industrial  local  l 3  many  of  the  reorganizing the  cost  of  transportation  determining the  location  of  82.  i*Carol D. Nachtigall, George F. Skinner, and Edward W. Tyrchniewicz, "Crowsnest Pass G r a i n B a t e s : Time f o r a C h a n g e ? " , Procee^ngs-^Sixteenth Annual Meeting i n J o i n t Session of the Canadian Transportation Research Forum and t h e Transjsortatxan R e s e a r c h F o r u m , Volume X V I , No. 1 (1975), p. 275.  45  industry.  In the  Prairie  groups  commodities  to  case  a  level  parties,  grain.  With reference  the  rates  manner  grain  advocate  Other  recommends  of  "...that  to  The  effects  the  industries  taken  consideration  processing,  rates  the statutory  the Crowsnest  rates  many  on  processed  grain  rates.  the statutory  Pass  concerned  on o t h e r of  the  raising  the statutory  processing into  with  favour  on t h e c o m m o d i t i e s  as t h e r a t e s  grain  lowering  in line  however,  and  rates,  rates  one  be p h a s e d  1 5  on  report  out and that  be d e t e r m i n e d  i n the  same  commodities."** policy  alternatives  are discussed  further  i n the evaluation  on  agricultural  i n Chapter of  V and a r e  alternatives  in  Chapter V I .  Political  Objectives.,  The  objectives  described  above  Government  to  people.  There  objectives someone of of  of  outside  the extent  economic, are  that  other  the  Government  the  Crowsnest  per  decision-making  Pass  body  rates.  that  and  developmental  of  the  represents  objectives,  the " p o l i t i c a l " objectives the  objectives  that  are  social,  the Canadian  however, se.  body have  However,  It to  a  is  which  are  not possible  be f a m i l i a r  bearing  four  Federal  on  possible  for  with a l l  the  issue  objectives  * F o r example, see T h e Crow Hate and National Transportation Policy,, op. e x t . . C h a p t e r 5 ; a n d J . D . Wahn, T r a n s p o r t a t i o n - a n d Industrial Development in Manitoba, a Canadian Transport R e s e a r c h P u b l i c a t i o n (May 1 9 7 3 ) , p p . 2 4 - 2 5 . s  * * D . L . McLachlan and C . O z o l , T r a n s p o r t a t i o n Problems .Relating to JSSliJacturing Industry i n the Calgary Area, a Canadian Transport C o m m i s s i o n R e s e a r c h P u b l i c a t i o n (May 1 9 7 3 ) , p . 5 6 .  46  of  this  type  The the  are  first  and p r i m a r y  maximization  model  of  Joseph  Schumpeter  issue  Many  Pass  rates.  they  would  indirect  rates  is  faced,  These  These  benefit  people  rates  in  Crowsnest  Pass  whose  other  as  i t  impact  is  than  indicate  vote  are  Downs,  perceive  most  that  of those  legislative  who action  incomes  The issue  maximization  to  be cne of  would  would  The  of  of the Crowsnest  favours  not  be  grain  increased  former  political issues  that  potential  of statutory  viewed  lose  Crowsnest  are  the "losers".  when  The  1 7  perceive  to  that,  by  Canadian  of t h e  the " b e n e f i c i a r i e s "  that  a  of  they  to  many  with  statutory-grain-rate  the i s s u e  personal  with  group  of equal Pass  rates.  in isolation,  retention  or  the  of  the  here  are  rates. political  on v o t e - m a x i m i z a t i o n ,  objectives  perceive  be  originated  characteristics  by t h e c h a n g e .  general,  observations of  such  as i m p o r t a n t  was  the  to  consistent  by t h e a b o l i s h m e n t  hand,  by  affected  objective  based  voters  assumed  Anthony  for  the  substantially  personal  The  on  is  is  which by  objective  depend  not  assumption  developed  On t h e o t h e r  freight  greater  and  beneficiaries  immediately  This  objective  decision-making  Prairie  and  political  votes.  this  importance.  directly  grain  of  objective  voters. major  of  political  consequences  is  apparent.  so  based.  objectives to  to  the extent  However,  their  be mentioned that  a l l  Government  i m p l i c a t i o n s f o r the  ' J o s e p h A . S c h u m p e t e r , S o c i a l i s m a n d D e m o c r a c y (New Y o r k : H a r p e r , 1 9 5 0 , p . 2 8 2 ; a n d A n t h o n y D o w n s , An E c o n o m i c T h e o r y o f D e m o c r a c y (New Y o r k : H a r p e r & H o w , 1 9 5 6 ) . R e f e r e n c e s o b t a i n e d f r o m R i c h a r d A. Musgrave and Peggy B. M u s g r a v e , P u b l i c F i n a n c e i n T h e o r y and P r a c t i c e (New Y o r k : M c G r a w - H i l l , 1 9 7 3 ) , p . 9 3 . "  47  Crowsnest  Pass  rates  vote-maximization derives 1967  from  the  different  objective "user-pay"  from  the  intention  is  costs  that  the  users  p r o v i d i n g and  third  National  per  Act.  achievement  of  an  transportation  system  occur  under  transport,  the  conditions  so  far  as  facilities  provide  an  continued National Session then,  section  Parliament.  can  reduce  or  grain.  This  be  eliminate inference  railway  annually  since  keeping  the  dropped  from  railway is  In  fourth  to  losses  were  the  in  in  of  rates  its  should  bear  National Act,  it  "each  is  This  the  mode  Act  to  in  in  these without  Amend  the  objective  fact  to is the  rates, is  to  statutory  that  grain-  1967  and  have  facts,  the  option  railway  of  1976-77  Pass  of  to  the  philosophy  carriage  the  for  reguired  Crowsnest  the  modes  likely  compensation  an  the  adeguate  most  introduced  by  in  above;  available  part,  C-33,  initiated  light  Pass  is  Government  supported  Crowsnest further  one  all  that  was  With respect  subsidies  then.  which  that  of  cost"  Bill  derived  the  and  duty...."  of  Act,  inferred  related  The  2(h)  in  efficient  services  the  Canada's  that  that,  in  of  of  receives  public  Transportation of  it  and  goal  3  use  total  ensuring  imposed  in  best  practicable,  resources, as  section  the  lowest  a  expressed  "economic, making  given  the  facilities.  is  as  embodied  facilities  those  of  objective  philosophy i s  transport  Policy  According to  at  second  argument  objective  Act.  transportation  implications  The  This  operating  political  Transportation  of  Transportation  of  se..  economic-efficiency  of  The  from the  p h i l o s o p h y which i s  National Transportation  part  the  are  grown  subsidies  of is  consideration.  political  objective  is  that  of  minimizing  the  U8 funds  paid  by  transportation. Government general of  the  of  its  that  the  second  there  vote-maximization  that  are  is  are  fact  fourth in  on the  the  of  federal  the  budget  in Chapter  V.  objectives  a  rates.  The  contradictory  evaluating  respect  the  restrain  statutory has  grain  that  political  objective  with  to  assessed  difficulty  proposed  are  indicated  many,  issue.  political  objectives  section  describes  which the  may  policy  The  in  the  interrelated  grain-rate  from  The impacts  the  the  the  commitment  modification  to  from  with  to  the  policy  Crowsnest  Considerations As  of  a  connection  rates.  Other  but  made  and  a  adds  alternatives  arises  spending.  indicate  implication  Pass  objective  in  s u b s i d i z a t i o n schemes  the  described  Government  recently  various  Both  fact  This  has  level  the  The  main  are  those  be  Canadian  economic,  social,  in  the  consideratons  perceived  to  be  of  of  chapter,  relevance  tc  the  developmental,  previous  which are  significant  this  section,  not in  and  the  This  objectives evaluation  alternatives.  first  such  consideration  producers economy  significant  paragraph  considerations  discussed  Mackintosh's report  Prairie  opening  which  assert since  portion  of  the  indicated  are  that the  is  quoted  they  19th  national  have  Century export  by in  the  excerpts  Chapter  contributed by trade.  Ilf to  supplying They  1 8  J  the a  maintain  **w.A. M a c k i n t o s h , "The E c o n o m i c B a c k g r o u n d o f D o m i n i o n - P r o v i n c i a l Relations", R e p o r t o f t h e R o y a l C o m m i s s i o n on Domi on-P r ov i nc j a 1 R e l a t i o n s , Appendix 3 (Ottawa: K i n g ' s P r i n t e r , 1 9 3 9 ) ,  49  that  the  they  statutory  receive  benefit  in  calculations  Eastern  Canada  are  Railway  signed  the  about  a  Agreement  was  original  intention  with  to.  It  grant  is  largely  did  as  not  general,  to  the  n£!i§ C l o w —^25.  is  the  to  fact  in  rates true  of  line  for  lowering the  to  benefit  the  latter  lower  often  to  the it  on westbound  asserted  that  the  Canadian public  received  however,  pricing  rates  that  decisions.  the  these  up  19th  grants  The g r a n t s the  when  Rate  National Transportation  land  Columbia  in  given  country;  was  which  was B.C.  it  did  effects).  1  make  the  In some  grants  The  as  op.  of  author  irrelevant  we w i l l  Policy,  given  rates;  should  be  the  adhered  (although  should  fact  the  Century.  were  to  of  grain  for  it  the  be  Nelson,  return  no  Canadian  1925,  grant  settlers CPR  railway  and  open  in  in  the  view  action  policy  1 9  in  the  into  tariff  although  should  in  the  estimates  1897  British  However, the  of  Notwithstanding  grain  Province  from  that  Parliament  especially  build  year,  that to  tariff  estimate,  commitment  Agreement. to  each  this  Agreement.  them  form  Canada»s  the  by  benefits  Saskatchewan  compensation  a n d money  current  is  the  as  is  concessions  maintains,  this  the  from t h e it  support  respect  an i n c e n t i v e  stand  to  few  comparing in  million  suspended  from  with  and not  benefit  land  that  received  connection  done,  held  that  $200  Pass  the  the  Agency o f  perpetual  Crowsnest  of  manufacturers  consideration made  one  government,  booklet  presented  second  Pacific  that  by  are  federal  published  Western  The  the  rates  The T r a n s p o r t a t i o n  a recently  costs  l  from  received  protection.  grain  to  incentives never  c i t . .  know  p.  50  whether  they  whether "sunk and the  were  they  costs"  were,  be  irrelevance Pass  financial grain  the  as  by  the  view  of  view  such.  grants  as  achieving  excessive. of  Agreement,  burden  borne  point  treated of  for  indeed,  from t h e  should  Crowsnest  necessary  is  but  CP R a i l .  CNR a r e  this  Regardless,  of  the  reason  that  CNR h a d  the  forced  Further,  indirectly  they  Canadian  A second  is  objective  to  part  bear  borne  by  now  maintaining  no  losses  are  Government,  for  the  or  in  the  the same  on  statutory  the  Canadian  public. The  consideration Crowsnest played  that  Pass  sometimes  rates.  In  transportation  This  national  candidates  transport Prairie  for  the areas  networks  export  grain,  their  location  This position l£ansportation  in  the  producers of  the  w h i c h must far  for  in  is  of  the  role  the  time  of  public-utility  role  of  use  of  of  railways' are  singled  the  railways  many  market  is implied in The P o l i c y , i b i d . . Chapter  and  out  as  ideal  geographically  shippers  suitability  because  western  the  disparities.  The e x t e n s i v e n e s s  especially  to  at  include  "egualizing"  reliance  move  the  are  ;  third  with  overcoming r e g i o n a l  2 0  a  the  to  country^.  is  of  consistent  the some  utility  discussions  Canada  particular,  from both  public  uniting  by  task of  a  raised  present,  and t h e  indicate  power  in  tool  railways,  grain  monopoly  a  as  concept  extended  as  disadvantaged rail  the  is  transportation  two  is  by t r a n s p o r t a t i o n  Confederation.  The  transportation  their  by w a t e r , eastern  Rate  the  on  rail  this  role.  susceptible of  Crow 4.  to  of  tc  dependence and  because  the on of  ports.  and  National  51 Many  Canadians  do  transportation  as  agreed  railways  that  the  a  control.  1967,  established  promoted  the  for  some  railways.  sensitive  one,  future,  in  will  this  involving  no  further  this  in  Another  Many rail  of  these  traffic, result  and in  freight  be  in  the is  of  that  services, of  a  particularly  the  foreseeable of  government  policy  pricing  Act  activities  removal  the  from  Policy  transport  in  a  taken  would r e s u l t  consideration"  shippers  believe  less  of  free  is  alternative  not  considered  into  account  is  from  a sudden,  the  drastic  rates.  continued  transportation  to  that  freight  "other the  of  rates  for  generally  Transportation  that,  control  consideration  grain  to  is  rail  thesis.  change  shippers  freight  reason,  of  completely  responsibility  this  it  Transportation  much s u p p o r t  government  dislocation  A final  be  unlikely  area.,For  use  However,  provision  grain  is be  economic in  the  of  the  National  National  in  it  not  the  regulatory  and  there  control  a  The i s s u e  utility.  should  Even  competition  provided  advocate  public  government which  not  are  existence resent  being  that  railway  is of  the  used  the  for  that  grain  rate  of  Crowsnest their  subsidize  compensatory  pressure  the  fact to  reaction  non-grain Pass  rates.  payments  statutory  freight  increases  grain  rates on  for  vould  non-grain  traffic.  Summary The that, issue  in of  considerations the the  described  author's  Crowsnest  opinion,  Pass  rates.  in  this  are  of  chapter  major  The l i s t  of  are  relevance  those tc  the  consideratins  is  52  not  exhaustive,  encountered The has  examination  reduced the  at  the to  it  does  policy-makers  justified  listed  and  by  but  the end  the  of  various  deletion  of  Chapter  following  government  in  rates  some  III.  The all  price  with  some  with  of  of  problems  issue.  in  this  policy  feasible which  the  railway  2.  Non-compensatory r a t e s greater Pass rates a) w i t h no s u b s i d i e s b) w i t h p r o d u c e r s u b s i d i e s c) w i t h r a i l w a y s u b s i d i e s d) w i t h p r o d u c e r a n d r a i l w a y  alternatives  involve  group  Compensatory rates a) w i t h no s u b s i d i e s b) w i t h p r o d u c e r s u b s i d i e s c) with railway s u b s i d i e s d) w i t h p r o d u c e r a n d r a i l w a y  subsidies  than  the  subsidies  subsidies  chapter  alternatives  levels.  Crowsnest  Compensatory-plus rates a) w i t h no s u b s i d i e s b) w i t h p r o d u c e r s u b s i d i e s .  the  of  that  considerations  1.  3.  Pass  of  dealing  of  ones,  control  indicate  Crowsnest  are rates  53  Chapter V  Quantitative  Impacts  of  the  Policy  alternatives  Introduction The rates  policy alternatives  which are  Chapter price  IV.  level  the  The for  indicated relieving  "feasible"  with respect  are  those  alternatives  the  vary  transportation  recipient  (if  any)  of of  by t h e  current,  non-compensatory  rate  be  the  of  them.  the  railways.  railways,  Each Chapter involved;  of  the  IV,  in  this  the  At  higher  grain  policy  listed  grain  Crowsnest  at to by  specified  level,  rate  producers,  alternatives  levels  end  rail  the  subsidies  for  level.  indicates  nature  of  recipient these,  chapter  provides  quantitative  impacts  of  the  At  recipient could  or  many d i f f e r e n t  part,  of  and  subsidy  of  Pass  particular  price  the  neither  has  the  the  the the  Government  " b u r d e n " imposed  be  the  according  the  would  to  both  impacts.  major  impacts  estimates  where  possible. Estimating individually necessary four as  a  basis  alternatives. (1)  would  to  policy  the  make  be  a  tedious  complete  alternatives for  whose  estimating  The f o u r  "basic"  every  task.  alternative  Fortunately,  individual  it  calculations;  quantitative the  policy  impacts  impacts  of  alternatives  are  as  not  there  can  a l l  is  be  the  follows:  Crowsnest Pass rate l e v e l with the current level railway subsidies (excluding branch-line subsidies l i n e s t o be abandoned)  cf for  are used  other  54  (2)  Crowsnest Pass rate railway subsidies  (3)  Compensatory  <4)  Compensatory rate producer s u b s i d i e s .  rate  "Fully-compensating difference service  between  and t h e  subsidies" rates  and t h e To  that  Following each  party  impacts This  on  is  impacts in  the  the  the  "Fully-compensating  difference  of  chapter  the  four  policy  alternatives  specification,  the  are  railways  f o l l o w e d by a n  the  impacts  four  estimation  producers, on  a  estimated.  of  each  producer  compensatory  basis  involved  the  between  as  be  to  rates.  impacts  to  equal  grain-transporting  used  Prairies,  for the  First,  of  the  costs  the  analysis.  the are  policies*  as  a  on  quantitative assessed. quantitative  agricultural  province  and  alternatives  alternatives  on s e c o n d a r y  Prairie  of  the  whole,  industries and  on  the  Government.  Costs The  and  Revenues  Report Rail  of  Grain  by  for  determining  (the  the  the  Volume I  revenues  the  railways  of in  and  1974.  C o m m i s s i o n on t h e  Snavely  alternatives.  costs  providing  are  specifies  are  the  subsidies" of  Pass  fully-compensating  first  on g r a i n  Federal  1974  the this  this  with  received, to  fully-compensating  no s u b s i d i z a t i o n  level  costs  Crowsnest  above,  revenues  the  with  with  railway  equal  estimate  listed  level  revenues  are  level  Commission Report) quantitative  of  that  Report  grain-transporting Vollume  revenues  of  Costs  II  the  of  the  of is  impacts  Report  used of  determines system  Transporting  the  as  a  the  grain-transporting  system  policy  costs  experienced develops  basis  and  by  the  the  1974  that  would  55  have  been  Handling fully  experienced  i f  and T r a n s p o r t a t i n implemented  recommendations  in  referred  the  recommendations  Commission that  to  {Hall  year.  of  the  Commission)  The  Hall  Grain  had been  Commission  are:  (1)  t h e removal from t h e owning r a i l w a y o f 2,473 l i n e t h r o u g h abandonment or t r a n s f e r , and  miles  of  (2)  t h e assignment o f 2,344 m i l e s o f l i n e r e m a i n i n g i n t h e railway system t o a new F e d e r a l G o v e r n m e n t a g e n c y t o be c a l l e d t h e P r a i r i e S a i l A u t h o r i t y ( P S A ) . 1  According  to t h e H a l l  designated per  lines  year)  National  from  at  on  including  a nominal fee  the railways.  a n d CP R a i l  functions  Commission Report,  these  to  authority  fee...."  t o determine  extent  of r e h a b i l i t a t i o n to the railways  of  the Hall  thesis  employs  modified basis  ^Snavely 2. Hall  system,  for  author  Commission  its  believes  2  T h e PRA  it  perform  termed  than  quantitative that  the  Commission Report,  Commission Beport,  those  is  Volume  Volume I  II  to  is  to  line  with Canadian and  related  be  basis,  given  lines  the  under  its  determine  o u t on t h e l i n e s ,  the above "modified  the  and t o  This system  (Ottawa,  (Ottawa,  recommendations system".  and revenues  the a c t u a l  analysis. modified  branch  the  such r e h a b i l i t a t i o n .  a  of  lease  reimbursement  the Snavely Commission c o s t s rather  per  the branch  be c a r r i e d  to  operation  on a c o s t  incorporating is  $1  "contract  train  Further,  to  as  to  a n d when,  be a b a n d o n e d .  A r a i l - g r a i n system  2  i f ,  are to  with  is  lines  control  contract  It  conduct  branch  a management  (such  t h e PSA i s  is  system, done  November  p.  of  the  as  because  corresponds  1977),  This  91.  a the  more  1977),  p.  56  closely  to  the  system.  However,  annual  costs  future as  of  is  grain  shown  the  system  below,  two  than  does  the actual  the difference  systems  is  only  1974  between  i n the order  the of  10  percent. Unfortunately, to  point  out,  even  changes  that  have  1974.  Some  of  3  discontinuance  the "modified  taken the  of  place more  the  interchange,  t h e abandonment  originated  "a  grain  hopper-car  the  retirement  its  small-capacity For  significant  statutory  box  given  by  absolutely  "correct".  magnitude  of  Hence  are used without  this  from  are the  moving  to  Calgary/Edmonton  of  2,000  since  branch  lines,  elevators  that  to  i n the  8,000  Federal  cars,  substantial  and  number"  of  cars.*  developed  above,  the  1974 m o d i f i e d - s y s t e m  t h e Snavely Commission cannot  such  changes  an i n c r e a s e  by C a n a d i a n N a t i o n a l o f " a  the reasons  they  number"  incorporate  grain  the  careful  system  grain-related  i n 1974,  fleet  on  is  not  of these  of  o f some  does  rail-grain  rates  implementation  of  Governent-owned  the  statutory  the  closure  in  system"  significant  Victoria,  the  Nevertheless, costs  they  be c o n s i d e r e d  indicate  and a r e t h e b e s t  the  estimates  qualification for the  costs to be  order  of  available.  remainder  of  thesis. Exhibit  systems,  Snavely  *Ibid. ,  1 shows,  the  transporting  3  as t h e S n a v e l y Commission Report  costs  statutory  for to  CP  grain  Commission Report, pp. 5-6.  both  the Sail  i n 1974  Volume  II,  modified and  and  Canadian  a n d t h e moneys  op. c i t . ,  the  actual  National  of  received  by  pp. 8-9.  57  i  1  |  Exhibit  | fill  1  |  1974 C o s t g Re v e n u e Sj, a n d S u b s i d y P a y m e n t s t h e T r a n s p o r t a t i o n o f S t a t u t o r y g r a i n by_ R a i l —r 1  Amount  r  Modified System  I |  Costs  I  Revenues  j  Subsidies  |  Revenues  2  6  Actual System  i  | f  j  1  203.908  f  ; 227.515  |  1  88.107  \  88.427  |  1  4 1 . 458  |  51.558  |  129.565  |  139.985  |  Subsidies  i  I  ) | I f  ifigures for Canadian National a n d CP R a i l (Northern A l b e r t a Railways Excluded). Source: Snavely Commission Report, V o l . II, p p . 9 6 , 100, and 104; Appendix 0.  | I I J  | |  ^Revenues  rates  J \  account f o r l e s s of Revenues.  J }  j (  The than  =  statutory grain freight +miscellaneous revenues.  miscellaneous revenues o n e - h a l f o f one percent  i  :  two r a i l w a y s of  |  — T | |  i  IT  1  ($000,000)  •  1  the  | |  fc  its  Snavely  Report,  by  inflation."  5  inflation  rate  cost  performance  w h i c h was p u b l i s h e d  Commission  increased  general  f o r the  1  estimates  at  least  This  is  of 8 to  inflation  25  i n November o f "...the  1974  35  percent  as  to  11 p e r c e n t of  service.  that  equivalent  rate  of this  to over  average  three  years.  9 percent  per year  Volume  1977, costs  a  an  In  the have  result annual  of cost  Therefore,  i s used  a  i n the  58  following  section  1975-77.  (At  for  an  transporting  the  year  revenues annual  annual grain  2000,  cost  year  of  costs  would  every  the  9  be about  Pass  rail-grain  in  9 percent,  double about  the crowsnest  inflation,  i n the  rate  costs  rates.  costs  the  costs  years.  By  times  the  20  With  would  years  5  be  percent 8  times  2000.)  Impacts  Railway is  Impacts.  necessary  alternatives  An i n d i c a t i o n o f g r o s s  for  estimating  on t h e r a i l w a y s .  1974-77,  as  carriage  of statutory  costs,  well  revenues, with  is  to  necessary  1974  costs  follows. costs  1974  In  system  from  II  related  of  the Snavely  costs  (carloads)  of grain  carloads  in  Following  this  related  are  costs  are divided  costs  9  percent  grain  revenues  1977  traffic was  are increased  for  yield  available  both by a  the  1975-77,  the  1974  changes  have  figures  been  a n d 1977,  is  i t the  done  as  given i n  the  volume-  i n the  (the  the time  estimate.  rail-grain  figures  Then  annual  i n the  "volume-related"  1975-76 at  for  Adjusting  volume-related  general  a total-cost  the  1976,  to the  reflect  policy  figures  f o r 1975-77  Report.  i n the years  not  adjustment,  to  according  four  would  into  revenues  incurred  figures.  estimates  to  these  that  cost  adjusted  of the  losses  i n 1975,  1974  Commission  railway  determining  payments  and " l i n e - r e l a t e d " c o s t s  Volume  2 gives  of annual  subsidy  obtain  and net  impacts  Exhibit  grain.  a modified  the  the  estimates  extrapolate  to  First,  as  and  experienced  of  by r a i l  under  rail-grain  inflation  rail-grain  received  revenues  The  f o r estimating  of  volume  number  of  writing).  and t h e  line-  inflation  rate  In estimating  the  are  adjusted  to  Exhibit  and  2  G r o s s R a i l R e v e n u e s , Net R a i l Revenues. S t a t u t o r y - G r a i n C o s t s and Revenues, 1974-76  Amount  Gross Railway Revenues from C a r l o a d F r e i g h t | 1  Net  Railway Revenues J CP R a i l | Canadian N a t i o n a l * | 3  1  Total Statutory Grain Costss Revenues* Subsidies Net l o s s  j \ | | J  7  1  I  1975  1428  |  1590  45 | (38) | 2 1 204 88 42 74  available  to  date  (April,  1977  1976  2  |  J823  1  j 32 | (168) | 11361 |  51 12 63  j I | |  .c 28 83  257 101 52 104  | | | \ |  2 80 101 57 122  | | | |  243 99 50 94  Source; Canadian Transport Commission 1974-76. F i g u r e s exclude s u b s i d i e s .  ZNot 3  1974  ($000,000)  | } | | |  Waybill  c  Analyses,  1978).  Source: Canadian P a c i f i c Limited Annual Reports, 1975 a n d 1976; " C P E a r n i n g s Z o o m , " The P r o v i n c e (Vancouver: March 14, 1978). Figures represent net revenue from a l l r a i l operations of CP R a i l (including non-carload freight t r a f f i c and passenger traffic),  •Source: Canadian National Railways Annual Reports, 1975 a n d 1 9 7 6 ; " B a n d e e n ' s G e t t i n g CN B a c k on t h e Track,"The P r o v i n c e ( V a n c o u v e r : March 8, 1 9 7 8 ) . F i g u r e s r e p r e s e n t n e t revenue after interest payments f r o m e n t i r e CNR S y s t e m ( i n c l u d i n g a l l r a i l and n o n - r a i l o p e r a t i o n s ) . 5  S o u r c e : E x h i b i t 1. F i g u r e s f o r 1975-77 d e r i v e d from 1974 figure by a d j u s t m e n t s r e f l e c t i n g c h a n g i n g t r a f f i c volumes a n d g e n e r a l c o s t i n f l a t i o n (9 p e r c e n t p e r y e a r ) .  * S o u r c e : E x h i b i t 1. F i g u r e s f o r 1 9 7 5 - 7 6 d e r i v e d from 1974 f i g u r e by a d j u s t m e n t s r e f l e c t i n g c h a n g i n g t r a f f i c volumes. 7  Source: Exhibit 1. F i g u r e s f o r 1 9 7 5 - 7 7 d e r i v e d f r o m 1974 f i g u r e by a d j u s t m e n t s r e f l e c t i n g s u b s i d y i n c r e a s e s due to changing t r a f f i c volumes and g e n e r a l c o s t i n f l a t i o n .  reflect  changing  traffic  volumes.  To  estimate  the  1975-77  60  subsidy  payments,  changing  the  traffic  increases.  For  subsidies),  volumes  all  the  1976  of  the  of  statutory-grain  in  In  to  categories  addition,  to  adjusted  general  (grain  volumes  shipments,  assumed  are  addition  traffic  volumes.  is  subsidies  the  1977  as  figures,  1974  are  the  reflect  percent  costs,  assumed  annual  revenues, to  be  constant  also  affect  throughout  and  the  origin-destination  which would  be  9  to  same  pattern  the  dollar  the  1974-77  period. From the  existence  rates  the  rail  of  based  nor  the  it  is  carload change percent,  by a  and  be 6  to  of  through  that  alternatives. that  the  The  would  the  to  1976.  (see  in  Chapter  percent;  These  estimates  grain of  gross  1974,  revenues  1975, 2,  the  and 3,  and  4,  the  the  subsidies  or  through  have  railway been  figures  freight  effect  be  other of  percent,  the 6  railways  rate  revenues  realized  would  would  grain-transporting  in column 2  revenues  would  from  5  If  1976.  of  net  levels  by  shipped  traffic.  net  costs  the  freight  grain  revenues  IV),  1974  8  in  volume  Pass  increased by  compensatory  reduction  revenue  other  traffic  and  that  Crowsnest  have  increase  neither  variable  indicates  operations)  assumption  in  1975  be c a l c u l a t e d  than  would  freight  alternatives  the  either 3  4)  that  increase  percent  each  Exhibit  3 and  increase  traffic  can  from n o n - s t a t u t o r y - g r a i n  3-percent  freight would  the  it  rather  both  affected  received  that  recovered  system,  assumption  have  assumed  for  2,  rates  from c a r l o a d  percent  revenues  accompanied  In  9  the  would  Exhibit  alternatives  is  on  in  compensatory  revenues  figure  rates  have  figures  (Policy  gross  are  the  not  increases. (from  under are  based  have  all these  on  the  declined;  :  i — ;  Exhibit  1  I  3  i i i i i f a j x M i Revenue Onder V a r y i n g Assumptions 1974-77  I |  A  -r 1  —  r  J 1  1  T  1  Amount  " —  —T  ($000,000)  " " " '  1  '"  " "  "" "  •  "  •" ""  ~  *  —  j |  | Net Revenue Net R e v e n u e ] J Actual Jwith C o s t Recovery on|with Cost Recovery on| Y e a r | N e t R e v e n u e ( G r a i n , n o D e c r e a s e i n | G r a i n , 3% D e c r e a s e i n | \Other C a r l o a d - F r e i g h t | | O t h e r Revenue Revenue ( !  |  J  J  |  1974 !  |  1975 1  J  1976 |  I  1977 I  —  J  I  81  I  41  |  I  (42)  I  (87)  (  63  |  167  !  105  f  83  |  205  7 (136)  j. _  ,  •  Non-determinable  the  figures  freight would  have  have  respectively. the  three  net  railway The the  been In  assume  3  first  about  traffic.  by a p p r o x i m a t e l y  would  on  grain  by  69  alternatives  3-percent  by  years,  would  have  figures  in  In  net  1976  then, had  losses and  a  data.  in  railway  would  1977, and  profit cost  have  net  been  profit percent,  147  implementation substantial  other  with  1974  percent  165  decline  net  in  Waybill  Waybill  1977  assumption,  1975,  percent.  these  a  eleven-fold In  increased all  |  Commission  u n a v a i l a b i l i t y of  Under the  increased on  to  column  revenues.  recovery cut  i n  due  2  ,„_,!_  _  ' S o u r c e : E x h i b i t 2 and C a n a d i a n T r a n s p o r t Analyses, 1974-76. 2  _ _ _ -  —  of  any  effect  of on  revenue.  net-revenue  assumptions  of  column 3 of  variable-cost  recovery  Exhibit on  3 are  statutory  based grain  62  (Alternatives from  ether  2,  revenues  profits  would  defined  Impacts. are  51  be  is  agricultural  further  this  grain-farm  plus  income  government  Income  received  excluded. Prairie  Even  grain  farms  for  is  farms  $2,500.  sale  payments producers here,  difficult  to  net were,  income on  of  grain  farms"  are  constitute  products.  having annual  6  at The  sales  of  interpreted  as  7  income" of  is  agricultural  related  tc  those  from non-farm  estimate  products products.  activities  the aggregate  * " G r a i n " r e f e r s t o wheat a n d " s m a l l g r a i n s " as 1971 Census of Canada. See the Appendix d e s c r i p t i o n of " s m a l l g r a i n s . " 7  they  impacts  agricultural to  1974,  net  sales  on  1976.  "Grain  f o r which grain  effect  i n 1975, and  in  the  alternatives.  from the  defined  percent  assessing  of  than  Policy  indicated  In  percent  of the annual  subsidy  as  36  Estimates  "net grain-farm  by g r a i n  greater  by  revenues  the  revenue.  by 67  sales  in  show t h a t  in  increased  exceeding  thesis,  result  6 times  restricted  products  do  reduced  farms  of  The f i g u r e s  freight  policy  those  percent  definition  they  reguired  of the four to  In  been  reduction  a significant positive  almost  been  have  farms  if  been  3-percent  traffic.  railway  have  Grajn-Producer  producers  even  have  and a  and 4 have  other  would would  net  3,  2,  in  losses  least  freight  net revenue  reduction  grain  a n d 4)  carload  Alternatives railway  3,  with  net income  is of  confidence,  defined for a  in the complete  Sales of "over $2,500" farms account for a p p r o x i m a t e l y 95 percent of t o t a l farm cash r e c e i p t s . , (Source: 1971 Census of C a n a b a a n d 1970 f a r m N e t I n c o m e ( S t a t i s t i c s Canada C a t a l o g u e 2 1 202 A n n u a l ) . )  63 largely  because  grain-farm  of  are  Canada,  the d i f f i c u l t i e s  expenses.  estimates these  of  farm  Statistics gross  not broken on t h e o t h e r  hand,  principal  agricultural  estimates  of  information to  derive  1970  and t h e  rough  i n the  1970  and  entire  analysis  The  1971  agricultural province.  estimates farm  income  from  t h e 1970  (Manitoba,  sold,  payments"  1970 is  gross  then  gross  on  added  calculated income,  In t h i s  machinery  of  i s  Census  possible This  is the  and the  the "value  Income  8  the  the three  (29  to  net  1970  expenses percent  of  and by  figures  The 1970  The  buildings  type  figures  by s u b t r a c t i n g  and  1971  section,  by f a r m  these  income.  alberta).  their  1971-76.  a n d summing o v e r  and  of  complete  are estimated,  Net  to  to  expenses.  estimates  Farm  i t  but  Census  give  figures,  classified  grain-farm  Saskatchewan,  depreciation  are  years  gives  Canada  not  By c o m b i n i n g t h e  incomes  1970"  1971  according  does  the thesis.  to the  o f Canada  Statistics  of  to  annual  by p r o v i n c e ,  The  grain-farm  grain-farm  products  "supplementary  1970  estimating  publishes  farms  N e t Income  of  i s extended  Census  but  expenses.  appendix  net  categorizes  Farm  estimates  accomplished gross  1970  with  and expenses of farm.  product  farm  Canada  income  down b y t y p e  associated  for give  grainexpenses  provinces include of  total  expenses). To e s t i m a t e the  following  "value  8  gross  grain-farm  procedure  o f products  sold"  is  income  adopted.  for  each  f o r the years  First,  the  province  1970 are  1971-76  figures  for  adjusted  by  In 1970, t h e " s u p p l e m e n t a r y p a y m e n t s " w e r e p a y m e n t s made u n d e r t h e p r o v i s i o n s o f t h e P r a i r i e F a r m a s s i s t a n c e a c t (PFA A) a n d t h e Lower I n v e n t o r y f o r Tomorrow (LIFT) program.  64  factors of  reflecting  field  crops.? payments"  estimates  of  payments  adjustment.*o  Deficiency  years  since  program). percent under  the  beef, over  to  reflect  the three  1970  expenses  annual  only grain  the fact  that  in  payments"  and  tc  get  province.  The  years  also  without  only  years  the  figures  f o r the  that  they  two-price  are  reduced  wheat by  i n c l u d e payments  Act  f o r hogs,  gross-income  g r a i n - f a r m expenses  then  each  separated of these  in  f o r each  the  figures  is  operating  adjusted for  and year  from f i e l d from f i e l d  i n the years  into  figures  province  ^Income "Income  25 made  poultry,  a r e summed  1971-76,  a l l  the  and d e p r e c i a t i o n  by a f a c t o r farms  reflecting in  the  same  1974,  1976  is  crops" crops"  for for  year 1970  These f i g u r e s a r e t a k e n from Farm Cash R e c e i p t s (Statistics Canada C a t a l o g u e 21-201 a n n u a l ) . l 0  sale  included  (under  they  the  a l l  those  Stabilization  Finally,  are  changes  factor  is  are  the  figures  by  for  from  provinces.,  estimate  expenses,  payments  for  agricultural  income  included  deficiency-payment  and potatoes.  To  The  The  are  it  payments  the adjusted  grain-farm  supplementary  receipts  "supplementary  are added t o  gross  1973-76,  i n annual cash  Second,  "deficiency  incorporate  9  changes  1972.  The supplementary p a y m e n t s a r e p a y m e n t s made u n d e r ( i n v a r i o u s y e a r s ) t h e PFaa, t h e L I F T program, the Farm Acreage Payment Program, the two-price wheat program, t h e Western Emergency A s s i s t a n c e P r o g r a m , and various crop-assistance programs for f a r m e r s a f f e c t e d by a d v e r s e w e a t h e r c o n d i t i o n s .  65  province. *-  The  1  and  summed o v e r  subtracting  the  4  shown i n The  fourth  the  difference  between  grain  the  and  rates—in by  grain  relative  the  to  "grain  bear  a l l  of  rate  increases  customers.  *-The f a c t o r  2,  are  then  Income"  summed  is  together  calculated  by  Income".  of  both  these of  grain-farm  calculations.  Dnder  which i n v o l v e r e t e n t i o n net  grain-farm  the  income  under Income  this  to  the  be some  adjusting  can  would  have  column are  of  been  alternative  under  figures  to  all  Further, freight  passed  the  that  the  have  foreign  expenses  the  Pass borne  overestimated  would  that  they  rather  than  probably  possible  that  and d o m e s t i c  indicated  of  c o u l d be  extent  is  the  Crowsnest  shippers,  It  frou  3  transporting  are  producers  to  operating  of  They  grain  costs.  on  studies  3.  alternative  estimates  railways  by them  to  of  be d e d u c e d  additional costs  costs  increased  Although  In  received  farms."  would  4.  the  income  subsidies)  cost  increased  the  for  and  Exhibit  Net  the  "Gross  w i t h no  words,  represent just  1  "Net  results  on  producers to  the  revenue  other  expenses  exhibit.  rates  column o f  from  rates,  impact  (compensatory  1  shows  Pass  of  provinces.  alternatives  Crowsnest  that  the  types  "Expenses"  Exhibit policy  two  that  the  not the  grain foreign  is  " O p e r a t i n g e x p e n s e s ^ f o r p r o v i n c e and y e a r "Operating expenses" for province, 1970 The f a c t o r f o r a d j u s t i n g d e p r e c i a t i o n expenses the above factor. The "operating expenses" e x p e n s e s " a r e t a k e n f r o m Farm N e t Income 1974, Canada C a t a l o g u e 21-202 a n n u a l ) .  is analagous to and " d e p r e c i a t i o n 1976 (Statistics  66 demand  for  C a n a d i a n wheat  determined  a  demand  price  of  grain  source  of  supply. if  increase, be  less  that  almost  grain  productin  the  certainly and  be  into  a  grain  absorbed in in  depends  all  grain-farm column  transfer  other  a  study  elasticity largely  the  income  of  on  the  competing  freight-rate would  Exhibit  Prairie  activities,  recent  potential  of  of  4 of  one  2  The  1 3  United States,  decrease  indicated  elastic,*  demand.  Prairie  producers  net  would  for  from  grain  the  than  price  price-inelastic  eastern-Canada  Even  is  probably There  4.  resources  mitigating  cut  the  of  income  reduction. Because all  grain  they  then,  reduced  1975,  and  by  There  have that 1 2  the  15  income  of  column  4 are  they  assume  no c o s t  maximum to  the  in  further i s ,  of  transference, impacts  noted  by  10  of  below).  compensatory  incomes  affecting  rates  percent  in  at  a  would  1974  and  1976. aspect  an  of  increase  effects some  those  quantitative  qualifications  grain-farm  That  differential  in  implementation  percent  one  ignored.  the  because  the  net  is  increases  (subject  3  have  be  and  probably  Alternative  not  cost  shippers  are  maximum,  the  grain  on  alternative to  Prairie  farms  that  3  compensatory producers.  would  be  should  rates  It i s  reduced  would certain  by  much  F o r e x a m p l e , s e e D o n a l d M a c L a r e n , " C a n a d i a n Wheat E x p o r t s i n t h e International Market: an Exploratory Econometric and P o l i c y A N a l y s i s , " Canadian J o u r n a l of a g r i c u l t u r a l Economics, V o l . 25, No. 1 ( F e b r u a r y 1977), p p . ~31-54; a n d C a p e l and L . R . R i g a u x , " A n a l y s i s o f E x p o r t Demand f o r C a n a d i a n W h e a t , " C a n a d i a n J o u r n a l o f a g r i c u l t u r a l E c o n o m i c s , V o l . 22, N o . 2 (July 1974),  R7E7  ip7~1-14.  1 3  a.C.  Zwart and I (agriculture P . 4.  Ralph Lattimore, Wheat F o r e c a s t i n g Canada, Economics Branch; Working  Model--Version Paper, 1977),  Exhibit Grain-Farm  Net  4  1970-76  Income,  -  1 1  Amount  I *  Year  I Gross | Income  1970 1971 1972 1973 1974 1975 1976  I | J I | | |  i  J 1 Expenses  1  649 819 1,102 1,317 2,143 2,582 2,333  — 1  Gross  | | | | | | | '—  Income  =  574 600 642 774 974 1,122 1,268  2  | \  ($000,000) Net Income  1 75 | 219 | 460 | 543 | 1,169 1 1,460 | 1,064  -  1  1  — i  ,  I Additional Cost cf | J Compensatory R a t e s ! 3  I 1 j  —  — —  I 1 I |  —  116 144 156  Expenses  =  +  ! i  j I \ | | }  _ j ~  FCFT: I n c o m e f r o m f i e l d - c r o p s - f o r year FCR: Income from f i e l d c r o p s f o r 1970 x (Census: Value of agricultural products s o l d , 1970) • (FCR: Supplementary payments f o r year) + .75 x ( F C R : D e f i c i e n c y p a y m e n t s for year ( o n l y i n 1973-76))  f o r e a c h P r a i r i e p r o v i n c e , summed o v e r t h e provinces. ("FCR" = Farm Cash Receipts (Statistics Canada, C a t a l o g u e 21-201 A n n u a l ) ; " C e n s u s " = 1971 C e n s u s c f Canada (Catalogues 96-708, 96-709, 96-710)) 2  |  FNI: Operating expenses f o r year FNI: Operating expenses f o r 1970 x (Ex.7: G r a i n - f a r m o p e r a t i n g exepenses, 1970) ENI: Depreciation expenses for year FNI: D e p r e c i a t i o n expenses for 1970 x (Ex.7: G r a i n - f a r m d e p r e c i a t i o n exepenses,  1970)  f o r e a c h P r a i r i e p r o v i n c e , summed o v e r a l l p r o v i n c e s . , ("FNI" = Farm Net Income ( S t a t i s t i c s C a n a d a , Catalogue 21-202 A n n u a l ) * ; '«Ex77" = ~ E x h i b i t 7 ( i n t h e A p p e n d i x ) ) Assumes e n t i r e rate ?Source: E x h i b i t 2. be borne by producers. Figures unavailable.  would increase 1974 prior to  68  more  than  reduced  percent,  10  by  affecting  much the  differences  alternative  not  the  not as of  on,  net  actually  increase,  transfer  of  the  hand,  other  the  incomes  were.  higher  receipts, been  net  increased  (due  There analyses that  of  is  one  a l l  only  branch-line  reflecting  the  transportation  in  the  as  to  ratio  of  would to  of  of  been  on  whether  on.  been  no  grain  If  would  were  the  same  i n column 3 by  a  incentive  for  a  production.  If,  on  than  have  transportation  or  they  affected  partially  higher  this  compensatory  figures  have  with  of  have been  the  were  rates  passed they  actually  increased  costs  on,  would  cash  not  have  subsidy).,  g u a l i f i c a t i o n that alternatives.  expenses  longer  passed  not  out  have  policy  trucking  be  have been  prices  by a g e n e r a l  grain-producer  would  increases  the  those  3 ) , depend  egual  would  producer  abandonment  the  be  factors  well  effects  like  incomes  is,  would  to  as  compensatory  The  would  resources  final  the  grain-farm  increase  there  rate  would  locational  rates  of  income,  sales  grain  but  that  subsidies. ,  that  Prairie  to  farms  (affecting  (Alternative  Grain  grain-farm The  is  4  grain-farm  and  due  grain  income).  increases  were,  4.  is  other  income  grain-farm  freight-rate  Exhibit  price  net  no s u b s i d i e s  passed they  net  producer  on  of  compensatory  Alternative  ••compensating"  with  of  to  that  This  current  rates  Policy  rates  less.  level  in  compensatory  while  other  taking costs hauls.  Interlake  Each  than  inflation  applies  rail  rate.  place will  In  now  recent  Area  of  the  impact  analysis  assumes  freight  charges  fact, and  increase  A  to  in by  study Manitoba  with the  the  future,  an dealing  amount with  investigates  69  the  average  route  0.6  cf  in  net or  1,7  from  from  income This  implementation  Impacts.  grain  (Policy  locating  in  the  industries  the  higher  freight  to  domestic  than  rates  grain  11  percent,  would be i n of the  more  would be passed  purchasers).'  of  and  cents  1975-76  program 18 to  on, at it  IV,  4)  to  the case  However,  in  on  Billion impacts  alternatives.  attractive  currently  a  in Chapter 3  2.0  assuming  addition  stated  per  result  of  of such  the  cents  would  cost  policy  Another  a d o u b l i n g of  1.3  would be a r e d u c t i o n  Alternatives  is  or  and  the effect  1 5  vary  would increase  program  prices),  various  increases  that  miles  trucking  As i s  Prairies  processing  to  with  per b u s h e l .  estimates  b y 42  marketings,  percent.  rates  5.5  fuel  Secondary-Industry freight  1974,  these  cents  an a b a n d o n m e n t  current  associated  dollars,  per-bushel  grain-farm  costs  and 2.0  bushels  the  producers'  resulting  1  5230  of higher  of  dollars,  haul  Assuming t h a t  1 6  (because  1976  per bushel  truck  trucking  increase  levels  1974  w h i c h was p u b l i s h e d i n  bushel.  1  cents  producer's  an  In  1  study,  cost  i n trucking  configurations. *  between  a  increase  raising  would  make  agricultural(assuming  least is  that  partially,  difficult  to  *J.E. Tulloch, J . A . HacMillan, E . W. Tyrchniewicz, C F . Framingham, and W.A.N. Brown, The I n t e r l a c e A r e a — I m p l i c a t i o n s o f A l t e r n a t i v e T r a n s p o r t at i o n P o l i c i e s ; A P r e l i m i n a r y Analysis (Winnipeg: University of M a n i t o b a , Department o f A g r i c u l t u r a l E c o n o m i c s and Farm Management, M a r c h 1 9 7 7 ) . 5  1 6  I b i J . ,  Tables  64,  74,  84,  94,  E.W. Tyrchniewicz, G.W. Moore, and O . p . T a n g r i , The C o s t of T r a n s p o r t i n g G r a i n by Custom and Commercial Trucks, Besearch Beport No. 16 (Winnipeg: University of Manitoba, Centre for T r a n s p o r t a t i o n S t u d i e s , August 1974), p. 54.  70  estimate that of  the  extent  would i n f a c t the  not  only  place  by  the  the  Federal  existence  of  the  latter  4.  many  Further, factors  current is  resulting  the  patterns  is  an  particularly production Even impacts  if on  difficult fact  is  of  established in  Alberta,  located there  conclusions  with  presents  livestock grain  on  is  transportation  no  the  rates  livestock  This  the  Canada.  of  studies to  grain  results  of  According to  a this  increase  are  influence of  these  Although Prairies,  Canada's  beef  rigidity,  freight  attested  The  of  the  a  the  rates by  are the  different freight-rate  report  three-part model,  to  entirely  impacts  industry.  the  3  1 7  reached  the  that  in  locational  raising  there  least  of  The  development  industry.  industry  difficulty is  livestock  would  of  proportion  inherent  industry  respect  the  structure  lakebead,  IV,  the  is  Alternatives  rates  Not  case  Program.  the of  the  relocation the  i n Chapter  location.  In  Assistance  diminish  large  of  to  implementation  Eastern  recent  sector.  freight  a  in  estimate. two  study  to  rates  Grain  indicated  industrial  Prairie  to  also  development  circumstances.  freight  the  and  possibility  would  geographical  that  increases  is  such  Feed  from  unrelated  existing  there  as  relocation  the  grain  by  and  in  industry,  also  incentives  1 7  industrial  take  livestock  affected but  of  of  model  shift  revenue  the  first  of  the  to  "market"  of  western  S.D. G a i n e r , S . E . D r u g g e , and R . A . K n o w l e s , E c o n o m i c A n a l y s i s of the Effect of Transport Rates on P r o d u c t s o f t h e Industrial C h e m i c a l a n d Meat P a c k i n g I n d u s t r y , with Special Reference to Edmonton, a Canadian Transport Commission Research P u b l i c a t i o n "(June 1 9 7 3 ) , T a b l e 31.  71  Canadian  livestock  another  group  adjustments  restricted which  its  has  a  route-rate to  the  options  lower  rates  production  the  very  model showed  livestock long  costs  the  would  n o t be  were  is  mix.  2  impacts are  increases This  by  any  prices."  1973-74,  This  sectors  increased  Even i n t h a t 1  the is of  In years  1970-71  of  of  1 9  profitable  than  results  distribution  i n 1973-74.  of less  group  Its  i n the various  the  and  base. and  most  linear-  of Manitoba,  1973-74  for  prices.  a  region  affected  high  the  the case  an a d j u s t m e n t  of  levels  under  affect  low average  industries  because  the  prevailing in  could  r u n , with  economic  percent,**  used  of rate  the Interlake  that  prices  or 8  production.  financial returns  those  production  Thus,  to  considered  m i x . Such  had  optimal  the  than  the effects  diversified  grain  million,  Economists  agricultural  analysis  the r e l a t i v e  freight  which  on  production  economy;  prices  determine  clearly  agricultural  by $100,1  agricultural  fairly  indicate  due  of  model t o  programming route  producers  with grain  (optimal) crop  year,  percent  year,  however, in  the  0  of alternatives unclear.  transportation increasing  However, costs  fuel  3 and 4 on t h e i t  rising  prices,  is  likely  Prairie that  faster  than  there  could  in  other be a  ispeter L . A r c u s , " T h e Impact o f Changes i n t h e S t a t u t o r y Freight Rates f o r G r a i n , " Proceedings of the Agricultural and Food Marketing Forum:. Freight Rates and the Marketing of Canadian Ilricultural Products "(Winnipeg: University of Manitoba, Department of "Agricultural Economics, Occasional Series #8, 1977), p . 90. 1 9  2  Tulloch  oibid..  et. Table  a l ., 27.  op_. c i t . , p .  47.  72  noticeable In  westward  addition to  processing  grain  production, general  industries  but  the  rather  than  a  larger  effect  would  the  development  against  other,  on  Prairie  impacts  Policy  resources.  in these  have  cannot  be  It  is  have  a  industries  than  inconclusive;  determined.  weigh  the  impacts,  They are  policy  This  development  determined  ignored.  of  economy  would  been  been  to  Prairies,  industry.  has  precisely  evaluation  on  Impacts.  in  The  province its  column  as  grain  Alternative  Prairie-province  amounts  more  former the  farm  rates  the  rates  Prairie  impacts  impossible  freight  included  alternatives  in  VI.  Prairie-Province  of  or  rapeseed  the  livestock  effects  is  to  grain  the  non-farm  in  current  the  development  difficult  in  their  of  in  in  industry  development  guantitative  qualitatively  each  the  are  industry  to  livestock  no c h a n g e  rapeseed  this  increase  most  they  Such an  addition  of  on  the  on  an  industrial  nevertheless,  Chapter  be  of  agricultural  an  reguire  compensatory  on  analysis  it  impacts  would  by  Rather,  outputs.  industries.  other  Unlike  industries  expansion  these  affected  rates.  reallocation  satisfactory  makes  be  implementing compensatory  have  The  to  of  industry,  products. farm  An i n c r e a s e  that  no  farm  location  livestock  these  utilizing  likely  it  of  expansion  the  freight of  encourage  in  would  some  mix  crushing.  the  industries  compensatory  would  shift  3  a  of  whole  farms.  of  can  For  income Exhibit  the be  policy  largely  example,  (compensatory  personal 4  impacts  rates  would 4  be  the with  to  alternatives inferred direct no  reduce  ("Additional  from effect  subsidies) i t  by  Cost  the of  Compensatory broken  down b y  (PPI's) direct the  for  (1.6  of  of  income  second,  that to  reduce  of the  rates;  It  can  be  those These  the  haul.  size of  one-tenth  given in  of  the  of  the  third  one  PPI's  are,  is  in  first,  forward not  that to be  costs  the  two  in  Saskatchewan the  on  grain-farm  the  increases customers,  and due  of  the  in  third,  that  increased would  compensatory  would i n c r e a s e on  same  assumptions  additional cost  based  amounts  reallocated  trucking  assumption  the  grain  grain,  first  that  on  section  of  percent,  by  Cost,  incomes  exhibit  based  the  would  of  personal  effect are  passed  in  Violation  relative  reduce  profitability  increase  Additional  from the  largest  resources  reduced  no  to  assumptions  1975  provincial  mentioned  be  the  seen  3 is  the  would not  violation  than  the  figures  Prairie  w o u l d be  lengths  less  as  rates  response there  The  snows  and  1 percent;  impacts.  freight  year.  5  2 1  Alternative  percent).  assumptions  Exhibit  province,  that  impact  order  in  Rates").  figures  it  (by  derived  previously) . The reduce since  implementation  Prairie the  initial  spending. income The  This  reduction,  phenomenon  "multiplier a  PPI's  1-unit  direct  Policy  more  which of  than  the  would  the  reduction  is  amounts  instigate a  "third  income  total  3  would  drop  termed  the  a  in  less  "second  round,"  changes in  ultimately  indicated  would r e s u l t  would cause  compounded and  Alternative  reduction  reduction  effect,"  initial  by  of  income  consumer round"  and s c  is  termed  resulting  "multiplier.'<  '-The a d d i t i o n a l c o s t o f c o m p e n s a t o r y r a t e s i s three provinces on the basis of their e x p e n s e s i n 1970 (see E x h i b i t 7).  above,  of on. the  from  Assuming  allocated to the relative grain-farm  7a  Exhibit and  5  'Provincial Personal Income A d d i t i o n a l Cost of Compensatory  the  Millions  2  1  amount  Manitoba  I  5,742  Saskatchewan  |  Alberta  Total  amount  the in  a  column  reduction  I  5,481  85  (1.6)  I 256  (4.7)  |  J  10,721  | 36  (0.3)  I 108  (1.0)  |  |  21,944 I 144  (0.7)  | 432  (2.0)  I  in  of  and  of is  PPI) |  (1.2)  direct 3  (% o f  | 68  multiplier  total  t amount  | | j  (0.4)  1976/77  Special  Source: Exhibit 4 and Exhibit provices the basis for a l l o c a t i n g the three provinces.  that  PPI)  I A d d i t i o n a l Cost \ with a J M u l t i p l i e r of 3  23  I  * S o u r c e : Canada Yearbook Canada), p. 1018. 2  (%of  1975  Dollars  Additional Cost of Compensatory Hates  |Provincial I Personal j Income J  of  Hates^  3 is  indirect  Exhibit 2 percent  5. of  effects The  PPI,  in of  the  a  present  Alternative  average with  (Statistics  The latter "Additional  7. the  appropriate  Edition  exhibit Cost to  situation, 3 are  "multiplied"  reduction  of  4.7  those income percent  Saskatchewan. The  numbers  Alternative would  occur  in  3.  There  is  any  of  under  implementation  Exhibit  of  the  5 represent another the  modified  the  income  policy  income  effect,  however,  alternatives  branch-line  effects  system.  which  with This  of  the  effect  75  is  the increase  would over a  be i n c u r r e d longer  result  transfer  of  increase  of  increased  spending,  but  (via the  work. the  A  that  of  the  provinces*  expenditures Government  represent  0.2  1975  percent.  personal  Federal  Government Impacts.  Government  1974-75.  are  of  from these  highway  revenues,  They  Prairie  the  in  be a l t e r e d  2 3  the  In  or  from  the  companies the  Hall  of  the  rationalization estimates  is  in  approximately  relation  to  highway  insignificant relative  5  and the costs  to  total  income.  impacts  of  budget. *  pp. 86,  be a  construction  extra  as  would  for  2  the These  The f i n a l policy impacts  impacts  to  alternatives  be  87,  and  estimated  on t h e  Federal  depend on t h e s u b s i d i z a t i o n  W.A. Scott, "Road C o s t s , " G r a i n jnd. R a i l i n Western Report of the Grain Handling and T r a n s p o r t a t i o n V o l u m e 2 (1977) , C h a p t e r ~ * 2 , Ibid.,  grain  estimates  per year,  total  their  there  prepared  result  The t o t a l  dollars  not  that  and c o n s t r u c t i o n  report  would  haul  costs  governments)  Prairie-province  million  Provincial  are  provincial  the engineering  the  12  to  would  branch-line network.22  order  required  T h e P P I *s  presents  maintenance  3  do  were  distances.  i n highway c o s t s  percent  2  income  to  Commission  the  the  u p g r a d i n g and maintenance  producers  population to  employed  the  as  average  of  general  of  i n highway  Cana.da--The Commission.  88.  * 0 n l y i m p a c t s on Government e x p e n d i t u r e s are considered. There would a l s o be e f f e c t s o n G o v e r n m e n t t a x r e v e n u e s , b u t t h e s e a r e i g n o r e d because under any p o l i c y a l t e r n a t i v e the revenue gains (eg. from railway t a x e s ) w o u l d be p a r t i a l l y o f f s e t by r e v e n u e losses (ecj. f r o m g r a i n - f a r m t a x e s ) . T h e n e t g a i n o r loss would be minimal (as, i n f a c t , would t h e net e x p e n d i t u r e gain/loss).  76  scheme the  adopted,  status  (except  suo.  in  The  approximately This  2 5  rate  of  0.2  proportion  Alternative  equal  3  to  subsidy  subsidies) ,  raised  payments  the  expenditures only  {by  substantial—Alternatives  1975  payments  by  2.5  percent.  no  in  to 1974the  will  rate.  be  Under  reduced  of in  by  0.2  involve  subsidy  payments  percent. the  2  have  would  the  which  governments), 4  amounted  assuming that  been  (both  0.4  and  modified  subsidization)  increase by  all  more  4  have  of  altered  the  inflation  have  or  be  expenditures  with  would 2  of  time,  general  rates  Under A l t e r n a t i v e s  have  grow o v e r  the  not  expenditures  Government  expenditures  "compensating" would  total  maintenance  would  would  Government  would  (compensatory  annual  percent.  in  the  implementation  payments of  1,  expenditures  the  percent  increase  recent  to  subsidy  approximately  Alternative  Government  response  system).  75,  Under P o l i c y  In  terms  effect  of  would  increased  be the  2 6  Conclusion The examined the  quantitative in  party  relative would  have  this  chapter  impacts are  being  considered.  to  railways'  the  approximately  of  of  net  the  four  policy  varying importance,  The  impacts  revenue;  doubled  net  are  10197  Yearbook  1976-77,  Special  revenues  Edition  d e p e n d i n g on  very  Alternatives  ^Federal Government e x p e n d i t u r e f i g u r e s taken o f F i n a n c e , P u b l i c A c c o u n t s of C a n a d a , Volume and F i n a n c i a l S t a t e m e n t s ) . *Canada  alternatives  in  1976  important 2,  3,  and  and  4  1977.  from Canada, Eept. I {Summary Report  (Statistics  Canada),  p.  77  Relative  to  important;  Alternative  (perhaps)  15  agricultural likely  net  percent  5  percent).  on  small  The in  party  relative  Government  have The  impacts  would  some  in  be the  income  of  not  impacts the  clear,  expansion  of  respect  to  impacts the (as  quite  significant  affected  least  by  is  expenditures  the are  Federal less  than  different  cf  the  effect high  as  policy  Government; 1  on is  although  the  by  it  is  terms  figure  but  With  average  percent),  also  alternatives  long-run  the  are  income  the  Prairies.  income, 2  the  reduced  are  (perhaps  personal  income  industries  personal  are  Saskatchewan  effects  1976.  processing  on  alternatives  in  there  Prairie-province Alternatives  3 could  processing  that  agricultural  grain-farm  percent.  the  78  Chapter Jvaluation  of  the  VI  Policy  Alternatives  Introduction  Above a l l , the p o l i c y a n a l y s t m u s t be c o n c e r n e d with making recommendations t h a t w i l l get policy moving g u a l i t a t i v e l y i n the r i g h t d i r e c t i o n , even i f t h e " o p t i m a l l e v e l " c a n n o t be readily defined n o r i m m e d i a t e l y a c h i e v e d . *-  Although evaluations appropriate Pass  of  in  the  1.  and  some of  context. and  For  reasons,  these  subsidies  and  Pass  are  can  so  rate  be  evaluated  with  of  the  involved  therefore  and  the  not  is  Crowsnest  "optimum  by  make  comment  the  certainly  made  to  have  levels" "readily unlikely.  determining  trade-offs  the  among  selected.  of  rates  above  parties  is be  chapter  the  the  subsidies  alternatives  to  this  The i s s u e  faceted,  progress  rates  alternatives)  of  achievement"  combinations  Crowsnest  purpose  recommendations,  present  "immediate  rate/subsidy  policy  than  many  rates  levels  The  the  interests.  Nevertheless, better  the  is  freight  defined";  is  rather  rates  conflicting  it  level  and s u b s i d y r e c i p i e n t are  railway  as  (the  follows;  subsidies  »H.M. Veeoan and T.S. Veeman, "The Directions of Canadian Agricultural Policy," Canadian Journal of Agrjxultural Economics—-Proceedings of the 1976 Annual Meeting of the Canadian A g r i c u l t u r a l Economics S o c i e t y , p . 85.  79  2.  Compensatory rates a) w i t h no s u b s i d i e s b) w i t h p r o d u c e r s u b s i d i e s c) w i t h r a i l w a y s u b s i d i e s d) w i t h p r o d u c e r a n d r a i l w a y  3.  Bates g r e a t e r than the compensatory a) w i t h no s u b s i d i e s b) w i t h p r o d u c e r s u b s i d i e s  ii.  Non-compensatory rates greater Pass r a t e s a) w i t h n o s u b s i d i e s b) w i t h p r o d u c e r s u b s i d i e s c) with railway subsidies d) w i t h p r o d u c e r a n d r a i l w a y  •'Compensatory the  rates"  movements;  costs. and  subsidies  are  they  Different  allocation  egual  do  not  to  bases  are  than  the  with  the  long-run a  variable  contribution  respect  discussed  Crowsnest  subsidies.  include  possibilities  level  i n the  to  costs  tc  constant  subsidy  course  of  of  levels  the  policy  evaluations. In the  order  to  "better"  criteria  determine  ones,  used  in  in  Chapter  discussed improving  grain-producer encouraging Prairies,  the  and  the  transportation,  the  the  costs  include  achieving  the  of  philosophy  consists  of  objectives,  current  in  the  The votes,  applied  the  to  rail-grain  The e v a l u a t i o n  using  the  goals.  currently  determining  of  subsidy),  industry  in  of  level  maximizing  recovery  payments.  objectives  political of  The  objectives  of  secondary  subsidy  different  the  are  evaluation.  (net  those  cost  for  (conflicting)  maintaining  of  alternatives  primarily  balance  "user-pay"  alternative  accomplishes  namely,  a  policy  be c r i t e r i a are  efficiency,  minimizing  the  thesis  achieving  implementing  policy  must  development  goals"  and  IV,  of  transportation  "political  system,  there  this  economic  which  how  of well  each it  quantitative-  80  impact are  analysis  e m p l o y e d where Two o f  of  the  the  policy  because  they  these  the  to  is  vote  pay."  general  of  for  implicitly  included  be  be  favoured  is  a  is  not  where  is  goal  to  of  it  is  The  second  of  "user  goal the  subsumed  of  objective  although  the  directly  hereafter  the  social  vote  alternative  appropriate.  implicitly  voting  IV,  policy  costs,  of  possible  affect  Therefore, the  most  The f i r s t  Chapter  by  into  relates  It  would  in  income.  used  goal it  objectives.  discussed  objective  the  the  "other  (and  objective  under  the  fact  grain  Government  Canadians that  the  Prairies.  the  Government  the  that  with  to  the  the  the  signed in  of  more  the  1897,  Canada  of  Prairies  of  Canada*s  the  s h o u l d be  disadvantage  these  of  should assist  Prairie  for  Agreement view  as  regions  considerations  tariff  level  the  used  the  made  Pass  third,  to  IV  Railway  rate  Crowsnest and,  Chapter  the  West  to  transportation  geographical  of  in  Canadian P a c i f i c  respect  Canada  &n a c c e p t a n c e of  cost  when i t of  discussed  contributions  the  commitment  overcoming  considerations"  significant  second,  transporting  many  is  separate  that  are  policy  incorporated  to  in  maximization.  vote  transportation  economy  perpetual  the  analysis  objective.  first,  policy),  impact  explicitly  of  producer  efficiency,  Three  Canadian  the  used  they  other  particular  is  not  to  likely  objective  Because  economic  by  a  are  although  grain-producer  low  of  closely  as  would  as  political  with  a  maximization  mentioned  are,  how  However,  maintaining  Extensions  p o l i t i c a l goals  objective  protected  V.  appropriate.  relate  maximization that  Chapter  evaluations,  determine  patterns.  a  of  a  tool  such  implies  producers  held  in  as  that the  81  transportation  of  grain  direct  subsidies,  these  considerations  maintaining  the  transportation must are  be  of  non-grain  indirectly, statutory  grain  be  were  a  achieving  of  the  large,  Chapter  indirect account  The  this  object  final  acceptance the  of  objective  of  these  net  considerations  policy  decision;  they  thesis.  to  the  consideration: fact  incurred  consideration cost  to  rates,  grain-producer of  fourth  losses  in  the  recovery  policy  short-run  sudden  that on  they  the  supports  in  the  alternatives,  dislocation  change  in  grain  relevant  consideration  II)  the  rather the  shippers must  tear,  carriage the  of  political  transportation  of  i t  to  is than  evaluations  could  freight  of  of  the  policy  occur  if  Chapter  Prairie  subsidies.  important  there  rates.  mentioned i n  preference  direct  that  is  This  IV  (and  producers  is  taken  for into  alternatives.  Evaluations Three  reductions 10  the  a  an  "weight" of  freight  rail.  A final in  in  discusses  This  words,  importance  who make  railway  evaluating  aware  other  level  The  freight  the  of  by In  also  low s t a t u t o r y  relative  further  grain.  objective  adds  by t h o s e  IV  In  current  considered  Chapter  both.  costs,,  judged  not  or  through  of in  percent).  subsidies, rates  policy  grain-farm These  these  than  net  the  alternatives  incomes  alternatives  compensatory  greater  Because  the  rates  are  (reductions  with railway  rate  very  level  of  rates  with  no  subsidies  only,  and  poorly  with with  in  sizeable order  compensatory  compensatory  alternatives  involve  no  the  subsidies.  respect  tc  the  82 social  objective,  Crowsnest level  Pass  of  neither would  they  Rates  adopted,  the economic  objective  encourage  of resources  continuation  simply  the  effect  least  percent  40  political that  the  system status  had  that  costs are  minimizing  been  demurrage  is  would  into also  system  charges,  Pass  and 1977.  recently  with  not  include  i f  of railway  continue  t o have  It  the  complies  with  objective.  It  railway  courses  cost  a  is  not favoured inefficient  costs  with  significant them  by  at  with the The f a c t  is a  to  further  politically.  2  grain-handling  of c o n t i n u i n g the the  objective  associated  by g r a i n  is  policy  by t h e Government  of action  unnecessary  which are borne  This  recovery.  the alternative  The  subsidies,  reducing  undertaken  an  a c c o m p a n i e d by  i s not c o n s i s t e n t  consistent  costs.  rates,  quo.  alternative  account,  cf  grain-intensive  status  revenues,  alternative  this  current  level  the  of assisting  producer  inefficient  and  associated  taken  cfuo  of  Regardless  alternative  the  current  i n 1976  have  outset.  Prairies.  on n e t r a i l w a y  and examine  indication If  the  objective  studies  identify  2  of  negative  of  of the Crowsnest  has  the  nor t h e development  i n the  maintenance  alternative  this  perpetuation  Continuation  at  with Railway S u b s i d i e s .  subsidies  allocation  a  are eliminated  storage producers  with and via  of an shipthe  See, for example, Canada Grains Council, Sepprt•to the Grain j3h!dJLAn.c[ and Transportation Committee by the Railway Compensation Sub-Committee (Winnipeg, June 1977). T h i s report has t h e o b j e c t i v e o f " . . . i n v e s t i g a t i n g a l t e r n a t i v e proposals for d i r e c t i n g compensation to the r a i l w a y s . . . . f o r the movement of s t a t u t o r y g r a i n " (p. 1 ) .  83  Canadian  Wheat  Board.  A railway-subsidy result  in  increase  an  in  increase  Federal  would  Pass  increase  million). over and  larger  subsidy  time  grants  w o u l d be  than  that  the  to  w o u l d be  small  benefit a  general  the  other  would  assist  some  encouragement  need  freight  existing  rate  to  the  and  continued subsidies  bear  grow  larger  Although  to  a l l  absolute is  ($122  a  terms.  At  advocated  be  the  Government a  (both  difficult  fully-compensating level  railway  rates  non-grain  to  an  to  railways., of  for  cost  probably  costs.  would  as  percent  would  spending  would  well  railway  forced  in  it  as  of  relative  significant  level  current  0.4  subsidies  rail-grain  the  At  by  on  which would otherwise  would reduce  raising  the  Government),  new  revenues  compensating  inside  possible  subsidies  of  be  current  alternative  i n Government  large  One  the  restraint  justify  net  expenditures  w o u l d be  the  the  expenditures.  Government of  than  railway  fully  size  would  they  and  of  the  payments  outside  grain  with  Government  proportion  when  lower  rates  as  expenditures,  in  levels,  The r e l a t i v e  time,  higher  Government  Government-spending Crowsnest  level  non-grain  apply.  Cost  risk-taking  (see  Chapter  shippers  as  development  railway  of  recovery in  IV).  well  freight on  the  form  lower  rates  as  providing  Prairie  processing  industries. Fully undesirable on  grain  compensating conseguence.  would g i v e  any  cost  such  an  increases  attitude  them  railway  subsidies  A s s u r i n g the no  incentive  would s i m p l y be  developed,  the  have  railways to  of  operate  passed  economic  one  on  to  efficiency  potential  cost  recovery  efficiently; taxpayers. within  If the  rail-grain by  fixed  general  system  annual  fully  form  permanent  necessary  for  be  viewed  the  railways.  upgrading this  It  could  the be  deteriorated  system.  Compensatory  Rates.  previous  this one  development promote  the  processing in  lower  with  It  compensating  relocating  to  the  of  Further,  Prairies,  i f  in  would  Governments  as  the  perhaps  intention  was  for  plant  assisting  allocated  network.  subsidy  the  take  physical  than  million  the  preferred  they  the  rather  to to  However,  improving  the  subsidization  scheme  be  to  far  superior  economic-efficiency grain  freight  Prairies  compensatory  commodities  railway  that  may b e  could  the  with  levels  the  Cost-based  grew  subsidies  one-time  eliminated  costs.  $100  on  be  railway  branch-line  achieving  on p r o c e s s e d  possible  1977  advantage  industries.  is  the  alternative  terms o f  economic  a  Such  be  Depending  objectives.  rates  fully  in  that  investment  producers  fact,  merely  with  could  particularly  Prairie  policy  in  than  intermediate  grain  in  effect  subsidies  grain.  alternative;  grant  by  Government  may,  of  This  subsidies,  assisting  parts  adopted,  at  transporting  as  this  or  rather  subsidies  compensating  of  adopt  subsidies,  inflation rate  Railway to  would s u f f e r .  (as  in rates would  the and  rates  would  agricultural could be  result posible  subsidies)..  eastern  grain  would simply  processors, shift  their  rather source  than of  85  grain  supply  positive there the  to  the  development  would  s t i l l  United  effects  be  States. of  This  3  would  compensatory  incentives  for  diminish  rates,  new i n d u s t r i e s  the  although  to  locate  in  Prairies. The  of  alternative  Crowsnest  subsidies, efficient long-run such  Pass  w o u l d fee t o then  changes  i n these on t h e  or  changes  in  as  this,  the  grain  soon  costs.  Over based  One rates  be  would  making  a longer on  be  its  would  rate  be  grain this  Under a  time,  competitive of  an  short-run  to  of  Price  in  of be  Index such  efficiency.  reducing excess  scheme,  there  could  p r i c i n g scheme  increases  the  problem  independently  improve  of  rail-grain  changes  effect  to  drawback  current  changes  for  cover  a v o i d i n g the  to  pricing  railway  simply to  an a p p r o p r i a t e  the  rate  alternative  incentives  biggest  rate  a contribution of  of  motivated  have  set  the  way  in  the  railway be  equal  costs.  could  period  market  of  example,  changes  with  disadvantage  would  of  like  compensating  perhaps  annual  For  leading to  Therefore,  could  is  railway  improvements  increases.  rates  basis  railways  costs,  rates  rates  the  costs.  overall  absence  This  initial  rates,  fully  One p o s s i b l e  determine  determined  Efficiency  costs.  the  costs,  an  Railway  structure. set  with  from  operation.  rate  compensatory  rates  suffers  variable  a  of  railof  cost  grain  traffic  railways'  constant  c o u l d be  a  move  to  forces..  immediate  increase  disruptive effects  to in  compensatory the  Prairies.  'Carol D, Nachtigall, George F. Skinner, and Edward W. T y r c h n i e w i c z , " C r o w s n e s t Pass G r a i n R a t e s : Time f o r a Change?", Proceedings--Sixteenth annual J3getinq i n J o i n t Session of the C a n a d i a n T r a n s p o r t a t i o n R e s e a r c h Forum and the Transportation R e s e a r c h F o r u m , Voume X V I , N o , 1 , 1975, p. 275.  86  (a)  No S u b s i d i e s .  because  of  its  (b)  Producer to  affected,  that  is,  compensatory  rates  would  However,  permanent  be no to  be  development new  grain  on  annual  advantage for  industry  transportation  be  and t h e  based  incentives  secondary  could  to  to  Pass  amount  from  could  of  this  Prairie  livestock  producers  between  If  so,  grain type  be  producers  rates.  of  above income.  difference  compensatory  shift as  the  Crowsnest  the  (such  costs  equal  the  subsidies individual  subsidies  of a  the  eliminated  on g r a i n - f a r m  Producer  compensate"  they  is  effects  Subsidies.  "fully  subsidies  the  alternative  pronounced negative  designed  the  This  shipped.  would  rates.  would  production  production),  would r e m a i n  reduce  There  grain  the  since  at  the  net same  level. There "fully" Prairie basis  are  on  an  of  would it  would  not  transportation devoted all  to  grain  farms) .  Prairies,  For  For  fully costs  compensate incurred  reason,  such  advantages  Grains Council,  op.  By the  for  local  it  could  the  cit.,  which  subsidy than  would  encourage  allocated  on t h e  basis  on of  the grain  ship  grain  design,  this  subsidization  individual the  be  for  proportion of  land  scheme  was  objected  likely  the  same  to  in  the  once  the  To  its  diminish  became  24-26.  rather  producers  processing  would  pp.  producers  to  (unless  objection of  of  incentive  Prairies.*  production this  a  rather the  compensating  some  example,  eliminate the  for  basis,  acreage,  in  although  development  •Canada  aggregate  planted  process  scheme  possibilities  development.  transported, than  other  clear.  on  87 detriment,  however,  administratively Both involve grain  of  a  producers,  to  possible  or  even  are  based  would  have  long-run  promote  secondary  above,  once  is  the  plans Such  planted  in  with  the  over of  may  be  above  would  payments  time  than  to  objections  cf  a  especially  if  amount  to  shipped,  the  by a d d i t i o n a l  (although,  Prairie-  incentives  they  grain  due  subsidies  subsidies,  respect  on  prove  removed.  involve  Prairies,  Prairie  could  Prairie  be  rather  alternative  subsidy  would  assisting  subsidies  source  When s u p p l e m e n t e d industry  to  these  they  size.  advantages  proposed  increased  visible,  acceptable  basing  schemes  of  they  acreage  subsidy  commitment  subsidization  on  goal,  politically  as  diminishing  they  development  so  visibility  subsidies:  Other constant  more  This  direct  Government  The v i s i b i l i t y  the  of  expensive.  subsidization  permanent  inflation.  type  d i f f i c u l t and  the  embarassing,  this  could as  acreage  to  be  a  mentioned would  be  difficult)., There which  is  avoids  is  equivalent the  to  percent  is the  per  compensate caused  by  l b i d . ,  pp.  to  a  amount year,  the  constant problem  that,  would for  (right  would  19-21.  have  to  over  from  the  existing  when i n v e s t e d  yield the  implementation  producer-subsidy  subsidies  lump-sum payment  producers  compensation  s  unconventional  development  alternative equal  one  of  been  annual  current  increase  million  time,  grain (for  in  rates, if  but  which  beginning).  returns  compensatory $156  at  alternative  the  This  producers example)  adequate freight 5  The  10 to  rates annual  subsidies  had  88  been  implemented  Government figure  1976;  outlay  or  producers  moderated years,  payment.* they  are  point  of  4.7  $69  would  be  of  may  of The  been  not  be  of  return,  the  billion.  This  Government  such  drastic. a  are  lived  to  the  the  accepted  payment could  be  number  appealing (from  easily  a  They  finite  equivalent  possibilities short  $1.56  effects  over  would be  cf  Federal  and  payments  and  rate  1976  immediate  defined they  percent  would have  which  Although these  view),  10  Canadian.  annual  total  well  a  percent  per  by m a k i n g  the  at  required  represents  expenditures, on  in  of  lump-sum in  that  Government's by  Canadian  taxpayers. (c) rates with  Jailway. with  railway (d)  rate  subsidies,  subsidies  Railway  and  structure,  variable to  no  Subsidies.  costs  producer  railways  in  traffic. private  of  rail-grain  of  Whatever costs  reduction  in  rates  borne  existing  nature  of  a subsidy  the  size  of  the  grain other  would freight  development  shippers. ,  could  be  the  long-run  in  addition  given  costs  contribution  of  rates  compensatory  just  constant  size  on  industrial  the  subsidy to  a  Therefore,  the  by  Prairie by  a contribution of  Under  system.  compensatory  compensatory  would r e c o v e r  annual  of  above.  Subsidies.  the  an  of  eliminated  railways  enterprise,  constant  is  Producer  alternative  alternative  the  Because  predicted.  the  only  subsidies, lieu  L i k e the  of  subsidy, increase traffic,  and r e l i e v i n g  this a  type  tc  by  the grain  margins  in  cannot  be  contribution  the  l i k e l i h o o d of  further the  to a  enhancing  "grain"  burden  89  The  long-run variable  include lines; be  costs the  incurred  latter  allocated  recovered  to  are  particular  traffic  contributes  future  line  having  grain  costs.  Therefore,  with  the  Therefore,  this  and  achievement  of  the  Greater  to  effects  those  of  railways  other  resistance "captivity that  with  by  to 1 1  of  to  costs.  this  pricing  grain  traffic  It  pronounced  a  way tc  to the  would  expenditure. objective  may  also  The  effects  make  some  scheme rail. rates,  level  of  hinder  on  than  the  latter  would  traffic,  contribution may  may b e  the  be  former  because It  would  The  grain  there  of  rates.  development  rates  However,  "compensatory-plus"  in  subsidies  compensatory  the  to  constant  contribute  Level.,  and P r a i r i e  forcing  for  objective.  the  more  grain  justification  by t h e  payments.  than  be  traffic,  constant  1  favoured  be  to  Government  Compensatory  efficiency  promoted  on  not  cannot  hence  producer  of  main  objectives.  implementing compensatory  simply  effects—economic  those  level  of  that  and  determined would  not  must  railway  cost-recovery  a d d i t i o n to  greater  to  rates  subsidies  is  extent  economic  do  that  they  problems,  is  subsidy  the  rates  would  further  in  To the  contribution  railway  costs  Nevertheless,  vote-maximization  than  implementing  a  grain  operation  constant  revenues.  there  alternative  Government  the  capacity  required  minimizing  of  railway  subsidies  increase  ownership and  compensatory  efficiency,  Railway  similar  line  make  transporting  traffic.  investment, traffic  of  the  railway  to  economic-efficiency  Sates  in  examples  from t o t a l  encourage  costs  be  of  the  the  public current  publicly  railways  like  to  some  be  argued  would  be  90  taking from  advantage  grain  would  not To  shippers be  with  increases would  designed  probably  "Compensatory ()  the  degree  rates  and  Producer between  a  on  the  it  arose,  objective.  be  the  level,  efficiency,  this  of  determined  rates'  high rate  to  income  transportation  should  original  and  with  pricing  market-determined  grain-farm  rate  scheme  rates  (see  to  as  second  paragraph  likely  be  to  reasonable  ways fixed  the in  time  which  such  proportion  former  under  than  the  A  the  price  of  level  railway  terms  would  be  a  pricing  price  one). could  the  the  would  are  be two  deterlined: (2)  The l a t t e r long-run  of  while  would  There  or  way  (see  level  be  Bates  rates).  development  costs,  thereof. of  Pass  new s i t u a t i o n  unsatisfactory a  rates.  freight  compensatory  else  proportion in  Prairie  compromise  (or  of  differences  Crowsnest  grain  policy  and of  because  "compensatory-plus"  compensatory  pricing  effects  eliminated  only slight  "compromise"  current  increasing the  under  efficiency  over  are  subsidies  following).  variable  is  income.  There  Greater  negative  equivalent  alternative  compromise  the  to  This  subsidies  referred  reducing  preferred  encourage  Rates  economic  gradually  in  after  initially  producer  assisting  a  if  vote-maximization  costs  Subsidies.  producer  Implementing  as  transfer  resistance,  rates  eventually  effects  Non-Compensatory {hereafter  Such  to  Hates").  negative ('*»)  lead  Subsidies.  12  a  to  f  efficiency  railway  With an  regulation  themselves.  railway  of  implementation.  (1)  to  "compensatory-plus"  independently  of  Government  consistent  encourage  grain,  its  of  as  a  would  be  economic-  91  efficiency level  and  were  latter  about  policy  the  economic  imposition  of  railway  level  would  would  rise  resulting 1974,  variable  that One  achieve,  users  of  some  Mg  compensatory  Ihi£»i  P->  to  the  no  to  83  of the  subsidies  political  compromise  than  Pass  is  would an  price  level,  but  costs  constant the  at  in 5  long-run  year  2000.  A  alternative  efficiency.  is  that  compensatory direct  because  would  in  implemented  cost  for  one  railway  pricing  need  type).  The  7  by t h e  undesirable pricing  change  level  of  pricing of  first  were  railway  benefits  are  sudden  been  system  compromise  and  the  the  percent  particular for  to  in  rate  the little  time.  had  level,  causing  Crowsnest  policy  price  of  price  increase  paying  this  of  over  the  the  incentive  disruptive  involve immediate  it  would  pricing producer of  their  a  more  increase  rates.  Subsidies.  with  33,  increasing  grain-rail  social  level  initial  Pass  advantage  inflation  of  the  (contrary  this  annual  pricing  the  the  equal  If  If  Crowsnest  constant  cover  degree,  Also,  compensatory  Therefore,  be  benefits  Such  less  correspond  held  w o u l d be  a v o i d i n g the  (=0  are  of  the  visibility.  have  gradually  first  provides  to  gradual,  a  disadvantage  subsidies.  to  of  the  costs  it  the  dislocation  inflation.  if  significant  while  at  the  as  also  losses  from  objectives.  high-proportion price  annually  and  percent,  is  a  example  which  same  would  shcrt-run  An  7  development  the  rate  With  no  policy rate  level  level  subsidization, on  grain-farm  chosen  would also  for  the  determine  the  effects  of  a  income  would  particular  year.  the  degree  to  92  which  the  social  reguiring railway  in  would  1976;  have  effects on  shippers  costs  percent would  grain  objective  rates  caused  would depend  short-run  alleviated  option  effect  is  also  revenues. level  objective  Grain  favoured  by  the  one,  political  income  by  railway  The  8  prices  Problems prices  4  costs  percent.  grain  of t h i s  effects  and  resulting would  be  of  price-and-subsidy costs  would r e s u l t undermining  cost  level,  net  of  Plan,  proportion  rail-grain rate  world  example,  percent  10  grain  revenues  the  cf  For  50  of  subsidies.  world  current  the  percent  Stabilization  on  to  grain-farm  long-run  in  negative  assisting  egual  reduction  on  railway  the  of  75  income  dependent  Regardless is  to  agricultural  on  to  of  egual  heavily  Significant  close  rates  reduced  fluctuations  by t h e  The  pay  i n f r i n g e d upon.  have  an  non-transportaton  from  to  was  covered from  a  by price  the  political  of  subsidies  minimizing  Government  recovery.  the  elimination  objective  of  expenditures. (b)  Producer  Subsidies.  previously,  having  a  rate  compromise  development  is  Nevertheless, the With objective  •In.  1976,  instituting  social  and  producer of  cost  users  It  by t h e  above  recovery  actually  in  paid  but the  36  rate  analysis the any  given  purpose  would be  of  Prairie-  structure  "compensatory  subsidies  vote-maximization subsidies  diminish new  under  producer  the  may d e f e a t  would  created  discussed  to  subsidies  structure.  potential  phenomenon  with  producer  According  {this  rates"). consistent  objectives. no  railway  transportation  percent  of  subsidies, of  grain  rail-grain  costs.  the by  93  rail  would  Government subsidy  for  subsidies resulted assist  would  of  equal  subsidies  constant,  or  not  rate  inflation  the  even  size  Governmment As  »In the relative equal to  a constant  proportion  the  Federal  they  railway  effect  is  If  they  would  assistance  also  provided  by  uncertain. expenditures  railway  size, cost  of  in  expenditures.  a  9  coverage,  diminishing,  d e p e n d i n g on  whether  coverage  exceeded  described  above  s u b s i d i e s would  and  perhaps  cost  increases,  decline  costs  compensating  time,  c o u l d be  alternative  probably  fully  increasing  subsidies  in  of  Government  railway-cost  railway  would  over  providing  increase  a l l  having  structure.  burden of  increase in  providing  price-level/subsidy combination.  growing absolute  Under  the  latter  absolute  railway  absorb  but  the  revenue  compensating  absolute  the  price goods,  beyond  particular  increase  of  rates.  shippers  fully  on  producer-  of  s u b s i d i e s on Government  would  compensating  the  alternative  particular  favours  finished  However,  inflation,  to  on  railway  to  freight-rate  fully  this  p o l i t i c a l objective  recovery  development  effect  proportion  grain  rates  depend on the  railway  The  non-compensatory  increases.  rates  of  depend on t h e  cost  any  lower  continuing  With  railway  Prairie  grain-rate  The e f f e c t s  would  Subsidies.  under in  The  furthered.  chosen.  Railway  means  With  be  expenditures  level  (c) a  not  the  remain  with respect  in  or  cost which  burden  of  constant  in  to  total  expenditures.  with  no  subsidies,  compromise  grain  rates  with  railway  most recent Federal budget, the increase i n spending to that o f the previous f i s c a l year was approximately the expected f u t u r e i n f l a t i o n r a t e for the year.  94  subsidies  only  would  incomes.  The  effects  rail-grain (d) result total  rate  be  Summary. policy  met  judged  at  least  to  each Of  In  in  notj way  be  interpreted point  selection.  the 6.  a  In  parties and t h e  producer  d e p e n d on  Railway s u b s i d i e s  the  especially  equalled the  the  Pass  having  only  rail  would if  the  difference  Crowsnest  with  this  the  is  rates.  The  producer  cost-recovery  selection of  the  it  of  objective  the  preceding  exhibit,  each  achieves  "visibility"  of  "better"  analysis  are  alternative  is  each  of  producer  the  main  subsidies  indicated.  the  one-  the  or  author*s for  with c a u t i o n . further  the  well  substitute  for  would  expenditures,  results  how  representing  are  focal  both  but  addition,  alternative  subjective,  Subsidies.  facilitate  of  necessity,  year  on  partially.  Exhibit  terms  objectives.  a  exist,  order  in  in  to  effects  year.  associated  alternatives,  summarized  that  Government  problem would  In  particular  g r a i n - r a i l costs  development subsidies  a  and B a i l w a y  subsidies paid the  indeterminate  in of  in substantial  between  under  level  Producer  of  would  have  the  two-word  judgments  considered  opinion.  preceding analysis,  Nevertheless,  d i s c u s s i o n and  for  the  summary  the  final  are They  and  must  provides policy  95  6  Exhibit Summary o f P o l i c y  Evaluations  1  Objectives  » | J  Fate Level -Subsidies  .  T  1  SO| Pr. r~ c i a l | Dev. *  \ Ec. 1  1  Eff.2  3  Political "i - T— C o s t | Subs. | V o t e | B e e . \ M i n . | Max. | s  j  J  | \ |  f j Crowsnest Pass | good | -low r l w y subs v.p. 1 v.p. - h i g h r l w y s u b s { v . p . • good { v.p.  | | J |  Compensatory -producer subs -producer S r a i l w a y subs  | |  Compensatory p l u s -producer subs' I  J | | | ) 1  Compromise -no s u b s -producer subs - r a i l w a y subs -producer & r a i l w a y subs  8  1 0  1  | | good | good | 1 good | | | | good good | good  I  | good  j  j  | | fair I good good | fair | I good fair | | \ f a i r I good J..  J  |  |  I  good  t  1 | good | fair J good | | fair  jJ  | | fair | p o o r 1 good |  i  good  | poor | f a i r J  J i  1  1  v . p . | poor |  |  |  good | good  1  | ) v.p. good 1  v.g.  | fair | fair | good | I good  |  1 v.p. | 1 1 1 « $• 1  fair J good } I fair | f a i r | I fair | | \ | poor | f a i r | A-  iThis summary should be interpreted with caution. judgments a r e s u b j e c t i v e to a large d e g r e e , and exhibit excludes many r e l e v a n t f a c t o r s . F o r e x a m p l e , a l t e r n a t i v e s i n v o l v i n g producer s u b s i d i e s s u f f e r frem "visibility of s u c h s u b s i d i e s . See t h e C h a p t e r VI f o r more e x t e n s i v e d i s c u s s i o n . The r a t i n g s a r e v e r y good ( v . g . ) ; good, fair, poor, very poor ( v . p . ) . n  z"Economic 3  of minimizing  of  agricultural  processing  Government  subsidies  "Cost Recovery"  I •SMiniffiization :  and  objective  •"Prairie Development" industries.  I  The the a l l the text  Efficiency"  The "Social" Objective i s the producer t r a n s p o r t a t i o n c o s t s .  SBailway  poor J  v  -J  X.  7  5  of t o t a l  96  t  :  >  J Exhibit 6 cont'd. l ; . : _ : J ' " V o t e M a x i m i z a t i o n . " The judgments i n t h i s column a r e v e r y | tentative. It is d i f f i c u l t or i m p o s s i b l e to p r e d i c t the | e f f e c t o f s p e c i f i c p o l i c i e s on v o t i n g p a t t e r n s . , | I I I \ 1 } | t  ® P r o d u c e r s u b s i d i e s are assumed to be allocated on the basis of acreage p l a n t e d a n d t o be c o n s t a n t i n a b s o l u t e s i z e over t i m e . The achievement o f the social objective would be " v e r y good" i m m e d i a t e l y a f t e r i m p l e m e n t a t i o n of t h e p o l i c y , d e c r e a s i n g t o f a i r o r p o o r as t h e n e t p r o d u c e r transportation cost ( r i s i n g compensatory rates constant subsidies) increased over time. This p r i c i n g a l t e r n a t i v e s have t h e added d i s a d v a n t a g e o f causing sudden, dramatic changes i n the f r e i g h t r a t e s t r u c t u r e .  |  9  See  preceding  I  4 | J J I | j j J | | | I  footnote.  \  |*oBates as an increasing proportion of r a i l - g r a i n costs. | evaluations refer to a balance of short-run and long-run I effects.  j J 1  Conelusion Each has  of  advantages  the  policy alternatives  and  disadvantages  objectives.  Of  alternatives  requires  benefits In are  the  of the  each  necessity,  alternative  author's  following  some  with  then,  judgment,  respect  choosing  degree must  evaluated  of  to  in  this  the  the  be w e i g h e d  against  the  policy  better  different  better  personal  chapter  of  the  judgment—the its  costs.  alternatives  ones:  <1)  I n i t i a l Crowsnest Pass r a t e s , i n c r e a s i n g annually by an amount reflecting general railway cost increases or c h a n g e s i n an a p p r o p r i a t e P r i c e Index; constant railway s u b s i d i e s e q u a l to the c u r r e n t revenue s h o r t f a l l  (2)  Initial compensatory r a t e s , i n c r e a s i n g a n n u a l l y at a r a t e r e f l e c t i n g g e n e r a l r a i l w a y c o s t i n c r e a s e s or chanqes i n an appropriate Price Index; constant producer s u b s i d i e s equal to the i n i t i a l rate increase, based, if possible, on planted acreage of g r a i n . ,  97  In  alternative  would  be  to  changes,  ensure  reflect  in  selected  (1),  the  policy  that  the  intention  absolute  costs  of  changes,  the  alternatives,  the  desired  there  revisions,  however,  not  detract  from  the  railway  Both  the  two  alternatives  of  continuing  the  improvements alternative than  in (2)  would  short-run  their  For  both The  and  would  with  alternative  that  unacceptable  to  increases  grain.  the  on  railways  efficiency. the  to the  constant reason The  rate  costs for  is  if  such but  the  the  producer  they  was  Prairie  increases  within  in a  grain  transportation  costs.  of  rates  by  rates  to  implementing  producer First,  the  would  be  substantial  improvements  the  making a  short  rate  alternatives  (Alternative with  the  gradual.  with  "better"  implement  relatively  Government s u b s i d i e s  are  railways  traffic  these offset  the  combined  Jittle  are  to  compensatory  guickly  of  reasons.  to  of  assist  cause  rates  increases  the  that  more  two  both  did  development,  would  Pass  accompanied  under  that  would  for  subsidies  motivated  result  alternative  the  to  policy  to  advantages  Crowsnest  in  manner  superior  latter  The  reviews any  improvements  rejected  it  be  initial  would  and  a  the  incentives.  having compensatory  Second,  would  allowed  efficiency  however,  paying  voters  With  improvements  of  subsidies  believes  that  Under both  met.  in  are  in  increases  alternatives,  done  increases  proportionate  periodic  being  chosen  rates  (1),  to  be  cost-efficiency  achieve  respect  be  rate  than  system.  would  to  annual  rather  were  dislocation.  attendant  railway  author  economic  economic  the  have  Pass  Alternative  alternatives by  Crowsnest  the  rail-grain  objectives  would  of  time,  in  (2)),  efficiency contribution eliminating  railways.  rates  greater  than  the  98 compensatory mainly  from  constant  level the  Both of  that  of  the  grain  provide for  than  that  minimization,  the  relative  size  is  without  Thus, superior would  to  and  is  other  to  initial  the has  other.  follows.  producer  development  of  further  They a r e  worse  by  decline  subsidies of  of the  over  rates  fact  that  time. producer  would  diminish  having the  subsidy  with  compromise  alternative these  selected  weights in  of  benefits  are  given  trade-offs (2)  would  over  visibility. but  would  but  two  various  areas  between  with  them  in  Alternative  Alternative have  the  (2)  long-run  (1) (1)  would  benefit  rates  are  faster  Alternative  market-determined facilitating  these  result  time.  generally  to  different  improvements,  costs,  that  C h o o s i n g between  main  adjustments  in  view  achieves  advantages The  that  subsidies.  relative  Alternative  administrative  of  alternatives  development  future,  it  than  subsidies  choosing  alternatives.  on each  that  producer-subsidy  the  foreseeable  precisely  the  avoid  such  for  smoother  allowing  because  reason  no  grain  one  would  higher  compromise  benefits  and  have  with  better  mitigated  development  efficiency  would  of  are  point  would  policy  as  the  subsidies  two  the  cause  opposition,  contribution  recovery.  the  the  to  with  is  for  considerations;  summarized  voter  the  alternatives rates  from  necessity  depend  respect  of  be r e a l i z e d  variable-cost  eliminated  rates  the  soon  criticism  of  fact,  compromise  of  this  alternative  In  be  freight  railway  but  efficiency  rates.  because  because  policy  alternative  subsidies  and  would  chosen  they  The  rejected  rates.  "compromise"  the  also  Prairies,  costs  compensatory  is  in  of the  economic  99  efficiency  and  Prairie  development.  100  Chapter  VII  Summary  The years  Crowsnest  ago,  have  Pass  been  railways,  and  decades.  The r a t e s ,  of  the  have cost  lonq-run a  carload larger  that  have year,  Pass In  of  freiqht  2000,  other  The interests  maintain  least  more  higher  be  even  of  Prairie  the that  with grain  an  to  on  in  the  less  than  gross  in  railway  have  been  1976,  and  over  the  time,  pronounced grain  net  5 percent  inflation rates,  the  With  revenues  from  6  percent revenues were  the  in  Crowsnest  current  would  rail,  revenues.  they of  their  revenues  by  least  than  two  percent  HO  railway  effects  than  assuming  at  80  national last  grain  railway  larger  supported grain, their  in  Pass  increase  their  who  cover  effects. only  12  annual i n f l a t i o n  percentage  of  costs  form  in  as  to  by  shippers  subsidizing  of the  rates. a  opposed rates  position  object  freight  producers  diametrically Crowsnest  the  to  than  lower.,  statutory  qrain  as  are  concern  two-thirds  costs,  At  equal  effect  were  more  transporting  would  statutory  rail-grain  railways  movement  see  actually  extended  would  The  traffic  even  of  traffic,  ihen  1977.  covered  They  grain  at  are  now a r e  costs  of  originated  Government,  negative  been  year  percent after  on  they  rates  the  which  which  source  Federal  variable  freight than  growing  the  significant  recovery  would  to  a  rates,  group t h a t to  their  these  those  of  perceives the  historical  rates  would  its  railways. right,  and  result  in  101 undeserved freight  rates  variable grain  hardship  costs  farms  by  Prairie rates that  to  on a  grain  by  the  "visibility"  eventual  elimination.  relative to  Prairie lack  of  encourage  bring  the  freight into  Achieving  this  advantage since  there  is  One been  result  invest  so.  This  is  in  a  subsidies  would  in  the  these  those  on  income  loss  of  Prairie  amount. to  higher  freight They  result  in  Prairies.  emphasize  the  would  way be  from  to the  commodities.  the  comparative  processing  associated  their  One  exported  processed  fear  about  industries  agricultural  qrain  long-run  concerned  materials  of  the  non-compensatory  this  been  an  of  the  industries,  with  most  system—loss  be b e c a u s e  of  of  attention  compensating  the  railways  of  grain  system.  Cost  recovery  would  more  conducive  would would to  the  freight  grain-  rates  for  the to  funds  the  railways  for  the  to  an  lead also  done  limitations,  but  plight. costs  create  railways  not  railways*  their  belief In  that either  associated  improved an  has  system.  m i n i m i z a t i o n — t h e y have  draw  carriage  incentive  investment  because  grain  grain-transporting  economic  would  be  in  to  themselves.  are  of  would  weight  likely  disinvestment  the  to  raw  with  Prairies  has  could  more  case,  subsidies  development on  net  opposed  industries  deterioration  there  to  also  raising  equal  substantial  representatives  rates  fact,  activities,  the  Although  such  alignment  the  processing  of  In  current  a  are  direct  line  of  the  percent,  secondary  the  Prairies  reduce  10  part.  approximately  producers  accompanied  Hany  level  would about  their  rail-grain  environment  undertaking  with  needed  that line-  102  capacity  additions than  The  Federal  its  attempts  The  current  that  any  to  in  the  public  commitment  environment.  with  some  parties  of  involved  expenditure  must  into  be  the  to  carriers  compensate  any  service  the  issue. implies  the  general  is  The  public  particularly  Canadian Government  that  in  justified.  railways,  restrictions,  in  restraint  well  account  national  constraints  for  losses  required  as  CP  has  a  incurred an  imposed  duty. the  policy alternatives  considered  as  large  ations  outlined  gradual railway  complying, to above.  increase cost  pricing  subsidies  grain  increases scheme to  grain  transportation reallocation motivated not  be  Government  costs  and  the  The  second  implementation  in  revenue  result  in  rates.  would  gradual,  in  be  Prairie  relative  be size  The  compensatory  by  price  shortfall.  In  as  increases would  railway the  the  the  producer resulting  cost  would  increases  costs.  initially,  long near-  The r a i l w a y s  since  large  index.  or in  a  general  constant  rail-grain  over  institute  reflecting  resources.  s p e c i f i c a l l y to  to  two  consider-  compensatory  efficiency,  would  is  the  appropriate  accompanied  alternative of  an  thesis,  with  rates  freight  subsidies  decline  in  current  improve  related  alternative  changes be  in this  extent,  freight  would  growth  to  probably  or  would  alternative  compensatory  a  The f i r s t  in  egual  this  would  major  take the  these  out  be  also  towards  stand  run,  the  faced  subsidies  p r o v i s i o n of  Of  This  satisfy  must  Despite  statutory  current  Government p o l i c y  disaffection Bail.  the  Government i s  additional  Government  is  Federal  but  would  time.  selected rates,  is with  the  immediate  further  increases  103 tied, an  again,  general  railway  price  index.  appropriate  producers initial to  to  under rate  grain  would  be  than  quickly  with  the  latter.  The  the  previous  the  former  producer  subsidies,  market-determined Both  of  the  upsetting  the  continuing  the  ignored.  costs, and,  aternatives status  Crowsnest  third,  quo. Pass  rates chosen  and  planted  its in  near  have  the  rates  are  the too  In  the order these  of  the  with  alternative increase  for  and to  second,  an  of  develop  than  "visibility"  potential  However,  would  basis  this  the  tc  acreage  out  problems,  the  to  economy,  immediate  benefits  given  time.  Prairies  between  in  egual  shipped  the  the  fourth,  freight  on  changes  be  over  Prairie  grain in  to  be  subsidy allocation  first, its  would  possible, of  cr  would  constant  differences  with  administrative  i f  They  the  processing  are,  rates  be  of  weight  main  one  compensatory  to  on  Subsidies  would  based,  agricultural  more  higher  and  increases  scheme.  diversification  rather  Prairies;  pricing  increase  encourage  subsidies  this  cost  of  its its  increase  future, disadvantage  negative  effects  pronounced  to  of of be  104  Bibliography  A r c u s , P e t e r L . , " T h e Impact o f Changes i n t h e S t a t u t o r y Freight Hates for Grain," P r o c e e d i n g s o f t h e A g r i c u l t u r e and f o o d g§tfc§MBg £ o £ H i l F r e i g h t R a t e s and t h e M a r k e t i n g o f Canadian A g r i c u l t u r a l Products (Winnipeg: University of Manitoba, Department o f A g r i c u l t u r a l Economics, Occasional Series #8), pp. 81-94. 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B i g a u x , "Analysis of Export Demand for Canadian Wheat," Canadian Journal of A g r i c u l t u r a l Economics V o l . 22, N o . 2 ( J u l y 1974), p p . 1-14. The  Commission on t h e C o s t s of Transporting Report, Volumes I and I I (Ottawa, October 1977).  Currie, A . W . , Canadian University of Toronto  Transportation Press, 1967).  Grain by Bail 1976 a n d November  Economics  (Toronto:  Gainer, W . D . , S . E . Drugge, and E . A . Knowles, Economic A n a l y s i s of the Effect of Transport Rates on Products of the Industrial Chemical a n d Me a t P a c k i n g I n d u s t r y w i t h Special Reference to Edmonton, a Canadian Transport Commission Besearch P u b l i c a t i o n ( J u n e 1973) . 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P ., "Statutory Grain Rates," Rojral Commission on Transportation, Volume I I I ( O t t a w a : Q u e e n ' s P r i n t e r , 1962). Report of the Royal Commission on Transportation. Turgeon, Chairman (Ottawa: King's Printer, 1951). Royal Commission on Transportation. M.A. MacPherson, Volume I ( O t t a w a : Q u e e n ' s P r i n t e r , 1961) .  W.F.A.  Chairman,  Runciman, Mac, President of United Grain Growers, "Costs and Revenues in Handling and Moving G r a i n , " address to the 8th Annual Meeting o f t h e Palliser Wheat Growers Association (Saskatoon: January 3, 1978). Scott,  W . A , , "Road  Costs,"  Grain  and R a i l  i n Western  Canada—The  107 Report Volume  o f t h e G r a i n - H a n d ! l a g and II ( O t t a w a , 1977), C h a p t e r  Transportation 2.  Commission.  S n a v e l y , C a r l M. J r . , " P h i l o s o p h y and F i n d i n g s of the Snavely Commission," Proceedings of the Seminar Series on • T r a n s p o r t a t i o n fi 1976-77. Vol. 10 (Winnipeg: Centre for Transportation Studies, University of Winnipeg). S u b m i s s i o n by t h e P r o v i n c e o f Transportation Commission Transportation agency of National Transportation  Manitoba to the G r a i n H a n d l i n g ( S e p t e m b e r 1976).  Saskatchewan, P o l i c y (Regina:  The  Crow  1977).  Rate  and  and  Tulloch, J.R. Framingham, Implications  J.A. Macmilian, E.W. Tyrchniewicz, C . F. and W.A.N. Brown, The Interlake area of alternative Transportatio n Policies: A £E§liffiiSSII A n a l y s i s (Winnipeg: University of Manitoba, D e p t . o f A g r i c u l t u r a l E c o n o m i c s and Farm Management, March  1977). Tyrchniewicz, E.W. , G.W. Moore, and P . P . T a n g r i , The C o s t of Transporting Grain by Custom and Commercial Trucks (Winnipeg: U n i v e r s i t y of Winnipeg, Centre f o r Transportation Studies, A u g u s t 1974). Veeman, M . M . and T.S. Veeman, "The Directions of Canadian Agricultural Policy," Canadian Journal of Agricultural Economics--Proceedings of the J976 A n n u a l M e e t i n g o f t h e Canadian A g r i c u l t u r a l Economics S o c i e t y , p p . 78-90. Wahn, J.D., T r § n s p o r t a t j.on Manitoba, a Canadian Publication (May 1973) .  apd Ipdustr, i a l Development in Transport Commission Besearch  Zwart, A . C . and Ralph Lattimore, Wheat Forecasting Version I (Agriculture Canada, Economics Branch; Paper7~1977).  Model— Working  108  Appendix Determination  The farms  farms  in  farms.  "Farm  however,  Census  thesis,  wheat  peas,  farms  farms  then,  or  other  seed,  beans,  of  farms  the  on  in the  are  of  of the  expense ]/[1970  The Farm  Net Income  The  Census,  crop  defined to  of  a l l  expenses  1970 e x p e n s e s  of farms.  total  sold.  be  those  sales  was  The l a t t e r  include  oats,  corn  grain,  field  soybeans,  grain-farm  expenses  expenses,  however,  (FNI) s t a t i s t i c s .  on  "wages  payments  buckwheat,  annual  for  sunflowers,  rapeseed,  and s a f f l o w e r .  l § t Iftgoig  example,  farms  "small grains".  exceeded  for  the principal  farms"  those  an  1970  rent  51 p e r c e n t  flaxseed,  p u b l i c a t i o n s . ,.- Some  grain  least  the  .95).  to  sold  statistics  of the  =  are  series,  "Census"  according "grain  f o r which at  field  Many  13IJ  Income  figures,  expense]  r y e , mixed g r a i n s ,  mustard  products  gives  percent  ([ 1970  rent  categorizes  farms  barley,  Net  Canada,  95  1970  Census o f Canada  d o n o t d i s t i n g u i s h among t y p e s  this  from  comprise  Income"  statistics  Farm  on the r e n t - e x p e n s e  farms  Net  The  1971  of agricultural  Statistics  Net Income"  "Farm  In  of  Based  Census  i n the  the value  1970.  publication  the  included  f o r which  $2,500  of G r a i n - F a r m Expenses^  the to farm  kind  such  basis  basis  of  labour," as room of  are must  These  costs  given  are  grain-farm  cash  allocated  Census  figure  and b o a r d ,  Census  be i m p u t e d f r o m t h e  appropriate an F N I  in  data.  which  is allocated wages  (a  to For  includes to  grain Census  109  statistic), farms  as  Wages  Thus,  wages  to  to  The  farm  labour  1970  interest  on  which  are  the  is  =  Census;, Census:  for  divided  then  into  required total evenly  estimated  calculations  . 95  estimates  divided  debt  figure  arbitrarily  all  expense  indebtedness  Income  labour  are  estimated  for  grain  follows:  x  on  farm  are  to  cash cash x  wages wages  (FNI:  are  wages  given  interest finance  using the given i n  these  the  farm  labour).  7.  mortgage  operations. on  above  to  farms! farms)  in E x h i b i t on  "Interest between  (grain (total  Interest debt  and  The Farm  indebtedness"  two t y p e s procedure.  footnotes  to  of  Net is  interest,  Details Exhibit  7.  of  Exhibit Grain-Farm  7  Expenses.  1970*  Amount T~  1 Hanitoba|  ,,1  ($000) -  Sask.  •  1  i  T"  _  |  !  Wages t o f a r m l a b o u r | Taxes j Bent j Feed 1 Fuel 6 o i l | Custom work \ Comm'l f e r t i l i z e r s | A g r i c ' l chemicals | Machinery r e p a i r s * j O t h e r mach. expenses | Building repairs* | E l e c . and t e l e p h o n e | Miscellaneous | I n t e r e s t on | mortgage d e b t | I n t e r e s t on debt | required to finance{ operations* |  3,675 7,133 5,485 1,893 7,914 1,189 4,087 1,588 10,183 4,183 3,448 1,724 2,785  | I I | | J ( | | | | | |  13,816 | 29,887 { 21,547 | 4,583 | 30,392 | 4,338 | 4,231 | 3,930 | 36,450 1 13,027 | 8,675 | 4,377 | 17,036 |  5,368  |  25,089  Total  Op. Expenses  |  Depn. Depn.  on m a c h i n e r y on b u i l d i n g s  Total  Depn.  2  3  5  7  8  Expenses  T o t a l Op. & Depn. Expenses  5,966 8,553 9,754 2,751 11,795 2,413 5,525 1,577 16,411 6,582 4,678 2,600 8,466 8,151  24,108  |  7,418  6 5 . 0 39  | 241 486  |  | |  20,199 5,344  | |  81,182 17,828  1  25^543  |  99 010  0  1 1  |  „ _ „.,_  | f  9  1 2  |  Alberta  | J  4,384  |  x  x  | ^0*496  Total  J | | | | | J | | | \ | | J §  23,457 | 45,573 | 36,786 J 9,227 1 50,101 J 7,940 J 13,843 \ 7,095 j 63,044 J 23,792 ] 16,801 | 8,701 | 28,287 \  t !  |  38,608  |  35,910  |  102 640  | 409,165  |  | |  31,059 9,308  I 132,440 | 32,480  | |  |  i* 0 x 3 6 7  | 164.920  I  |  j  10*582  r  J  |  x  |  | 1 113*007 | 5 7 4 , 0 8 5 !  111  Exhibit  *See All the 2  cont'd.  t e x t f o r the d e f i n i t i o n of "grain-farms." c o s t c a t e g o r i e s not r e f e r e n c e d a r e t a k e n d i r e c t l y 1971 Census o f Canada.  Wages  to  farm  ("Census" Income)  =  labour  1971  'Custom  work  •Define  R a t i o (1)  Census: Census:  0ther  *Define  =  cap,, cap.  Machinery  s  7  =  = C e n s u s ^ c a s h wages ( g r a i n f a r m s ) C e n s u s : c a s h wages { t o t a l f a r m s ) x .95 x ( F N I : wages t o f a r m l a b o u r )  Census  Census:  to  be  value value  of of  repairs Ratio(1)  Canada;  "FNI" =  "Machine r e n t a l , c o n t r a c t work".  machinery machinery  and e g u i p m e n t and eguipment  (FNI:  Machinery  machinery expenses = R a t i o ( 1 ) x .95  x  (FNI:  Other  value value  Building  repairs  =  Census,: Census: i Electricity  to  of of  land land  and and  ^Interest  on  (grain (total  machinery  to  farms) farms)  expenses)  (grain (grain  farms). farms)  buildings)  farms farms  reporting reporting  telephone  =  Ratio(3)  fuel fuel x  and and  .95  x  electricity =  or  be  * •Miscellaneous  work,  Net  repairs)  buildings buildings  Ratio(2) x .95 x (FNI: Repairs  # grain # total and  Farm  be  capital capital  R a t i o (3)  197 0  custom  x  to  x  Censosi Census:  'Define  of  .95  Ratio(2)  from  R a t i o (3)  mortgage  x  .95  x  (FNI:  o i l o i l  expense expense  (FNI: and  telephone)  Miscellaneous)  debt  -= C e n s u s : c a p i t a l Census: c a p i t a l x .5 x .95  value of grain farms value of t o t a l farms x (FNI: I n t e r e s t on indebtedness) J  Exhibit  *°Define  R a t i o (4)  Total Total Interest  1 1  1 2  op. on  to  cont'd  be  expenses expenses debt =  7  of of  all all  g r a i n farms except interest census farms except interest  required to finance operations R a t i o <4) x . 5 x . 95 x ( F N I : I n t e r e s t on i n d e b t e d n e s s )  D e p r e c i a t i o n on m a c h i n e r y = Ratio(1) x .95 x ( F N I : D e p r e c i a t i o n on  machinery)  D e p r e c i a t i o n on b u i l d i n g s = Batio{2) x .95 x ( F N I : D e p r e c i a t i o n on b u i l d i n g s )  


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