The billion dollar disappearing act

Everyone was pointing fingers at the railways, but Richard Gray knew a much larger problem was costing Prairie farmers billions of dollars.

It sounds like the set-up for a corny joke: What happens when you put an agricultural economist in a combine?

But the tale of Richard Gray and what came out of that harvest day in September 2013 is no laughing matter. It’s about how billions can disappear from farmers’ pockets with hardly anyone noticing and why the application of economics is far from an academic exercise.

It begins in a field near Indian Head, Saskatchewan, where Gray was helping his son harvest wheat. It was a good-looking crop, but the previous year had looked promising, too, and turned out to be just mediocre. However, the 2013 crop was better than good—a head-turning 15 bushels an acre more than what they were expecting.

“We realized within 20 minutes it was actually yielding far better than it looked,” recalls Gray, a professor in the Department of Bioresource Policy, Business and Economics at the U of S. “All the reports (from across the Prairies) were that crops were looking very good and I knew that if they turned out to be bumper crops, it was going to tax the transportation system to the limit. There was no way they would be able to move it all in a year.”

Academics are often accused of, well, being too academic, but as the main marketing guy on his son’s farm (he’s a part owner), Gray had a call to make.

“We decided to deliver most of our wheat crop directly to the elevator,” says Gray. “Within a month or less, all the elevators were pretty full.”

Normally, ‘selling off the combine’ means taking less as prices are usually lowest at harvest. But this record-smashing 94-million-tonne behemoth wasn’t normal. Bins were quickly filled, with the excess going into grain bags or simply piled on the ground and covered with tarps.

A harsh winter made things worse as trains must be shorter and go slowly in extreme cold. Soon dozens of freighters were anchored on the West Coast, waiting for grain to arrive. Farmers howled in protest, demanding Ottawa force CN and CP Rail to move more grain.

Meanwhile, Gray was following the money, specifically something called basis—the amount grain companies charge farmers for the handling, transportation, and other costs of getting grain to port.

“My colleagues and I started hearing some numbers about the port price and elevator price, and there was a huge gap there,” he says. “Farmers were selling grain well below port prices and it was costing them an awful lot of money.”

At that point, Gray didn’t know exactly how awful, but he was concerned enough to work with his colleagues to hastily organize a symposium to shine a spotlight on the situation.

Just prior to the symposium, the government issued an order-in-council requiring the two railways to each move 500,000 tonnes of grain weekly or face fines of $100,000 per day. But the “much broader issue” was being ignored.

“This went well beyond what the railways were doing,” says Gray. “These basis levels were not a few cents or few dollars a tonne higher than normal, they were $50 to $100 higher. That’s an awfully big number.”

How big? Multiply those figures by the 103 million tonnes sold during the two years it took to export that record crop and you get at least $6.5 billion. That’s the conservative estimate—it could easily have been a couple of billion higher.

You’d think that would really get farmers’ attention, but the reaction was mixed.

“For a lot of producers, it was like, ‘Well, there’s nothing I can do about it.’ Some said, ‘Surely, there’s something wrong with your calculations,’ but others said, ‘We need to push on this.’”

That’s exactly what’s happening. SaskWheat, which commissioned his report, made the lost billions its top federal election issue and the Producer Shipper Coalition (made up of several leading provincial farm groups) made it the centrepiece of its presentation last year to a blue-chip independent federal panel reviewing rail transportation.

That’s the sort of thing Gray applauds.

“Farmers are very good problem solvers,” he says. “If they’re made aware of issues and have the right information, they can be a big part of the solution. To bring about changes, you need producers who are informed.”

Gray’s work is all about promoting change. In this case, he’s advocating for boosting capacity—everything from more railcars and longer sidings to faster unloading and more grain storage at ports. He’s also made the case for an independent body able to coordinate grain movement when the next mammoth crop comes along.

That’s a matter of when, not if, because grain production is steadily trending upwards, with bad years now producing bigger harvests than the ‘bin busters’ of a generation ago. Without more capacity and a referee to prevent grain gridlock, “the wheels will fall off very quickly,” he says.

Still, Gray isn’t expecting an “instant policy reaction.”

“Typically, there’s a slow change in people’s perceptions and then those perceptions become more widely held beliefs, and then slowly there’s change after that.”

When change does happen, no one throws a parade for the economist who brought the issue into the spotlight. For example, more ag research is a top priority for Prairie farm groups these days. They typically cite the big payback from research, often using figures from Gray’s extensive work in this area, even when they don’t know the source.

“I’ve seen (my) numbers show up a lot of times, but it’s not like breeding a new variety of wheat, where you can say, “That’s mine, I did that,’” he says.

That’s OK, he quickly adds, because it’s all about “framing the debate” so people are thinking and talking about the issues that really matter.

“Accounting isn’t an end in itself. It’s useful to draw attention to the issues so you can actually find solutions. That was the focus right from the start in this grain transportation issue.”

And that’s something that will benefit every farmer in every combine.