The economic potential of U.S. routes for the movement of grain from western Canada to export destinations
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Date
1988
Authors
Miller, Pamela Marie
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Abstract
Recently, considerable attention has been paid to the economics of the existing Canadian routes, for grain transportation but little consideration has been given to possible U.S. alternatives. This study attempts to put the economics of the various routes in Canada and in the U.S. into perspective for the crop year 1984/85. In addition, a number of institutional constraints, which may prevent movements of Canadian grain through the U.S. for export, are identified and discussed. Four basic rate combinations were analyzed using a linear programming transportation-transshipment model. These combinations incorporated different levels of Canadian U.S. rail rates. Several scenarios which reflected different barge rate levels for the Mississippi River were analyzed for each basic rate combination. Several conclusions were drawn from the analysis of the various results. Under the current Western Grain Transportation Act rates, in which producers pay only a small proportion of the total cost of moving the grain to export position, none of the U.S. alternatives would be used for Canadian grain. If WGTA rates were modified so producers paid the full cost of transporting grain, the U.S. routes would become attractive alternatives to existing Canadian routes. The amount of grain which would utilize the U.S. system depends on the U.S. rail rate levels used. Two methods of estimating the U.S. rail rates were developed in this study. The first method was based on rates provided by the major railroads which were based on published tariffs while the second method involved calculating the distance to each U.S. port from each prairie origin and using the WGTA distance formula to calculate representative rates. Results from the first method indicate that at 1985 barge rates less than 5% of Canadian grain would move down the Mississippi while at lower barge rates (100% of tariff) more than 20% would be more economically moved by this route. U.S. rail rates calculated by the second method result in considerably more grain moving through the U.S. At 1985 barge rates, approximately 130% of tariff, over 40% of Canadian should move via the Mississippi while an additional 6% would move through Portland, Oregon in the Pacific Northwest. Even at 170% of tariff barge rates, over 25% of Canadian grain would be economically moved down the Mississippi River. The present rail rate hierarchy established under the Western Grain Transportation Act is therefore seen to render uneconomic movement of Canadian grain by U.S. routes from the standpoint of the user of the system. If the users were to pay the full cost rate, routes though the U.S. would be rendered economic. The economic distortion arising from rates to users which do not reflect real cost becomes evident in this analysis. The degree of regulation built into the Canadian grain transportation system is seen to prevent movements of Canadian grain through the U.S. system. However, each of the institutional constraints identified in this study can be overcome if the need to develop alternative export routes for Canadian grain becomes apparent.