One of the largest hidden costs that farmers incur is transportation. This cost is typically deducted from the commodity price farmers receive at the elevator. Elevators have no choice but to pass on the cost of transporting commodities to market.
Farmers also incur transportation costs when they buy inputs, because companies charge the price of the input plus transportation. The phrase, “Farming is a business that pays the freight both ways,” is a factual statement.
This reality might be okay if the farmer had an avenue to pass on transportation costs. Farmers are price takers. As such, we don’t have a mechanism to say, “Pay me more as my expenses have increased.” Unlike other industries, farmers cannot pass freight charges on to anyone else.
Since 1980, drastic rail industry consolidation has occurred. We have declined from 42 to four major Class I Carriers. Those four mega-carriers generate 95 percent of gross ton miles and 94 percent of revenue. So how much rail competition do we really have?
According to the chart below, we have experienced a 98-percent increase in the cost of a rail car since 2001. North Dakota, like many other states, is a captive shipper. In areas where rail-to-rail competition exists, shipper grain rates are 17 to 21 cents/1000-ton miles (similar to Canadian grain rates at 16 to 19 cents/1000-ton miles). For producers in captive shipper situations (i.e. North Dakota, Montana, Minnesota, South Dakota), shipper grain rates run between 25 to 31 cents/1000-ton miles.
At the same time as rates increase, we have seen a massive move by BNSF and UP to curtail or shut off markets. They have cancelled many destination rates and moved to “mileage scale rates” which generally run $1,000 to $2,000 or more in higher tariff rates. This has the effect of rerouting the direction farm commodities ship, which may be to the least profitable market.
Railroads argue that government intervention is necessary to ensure they earn “adequate revenues.” At the same time, railroads argue that NO GOVERNMENT intervention is necessary to limit their monopoly power!
It is time our government through the Surface Transportation Board investigates the inequities of this concentrated system. Farmers are getting paid less in real dollars each year and cannot continue to have the burden of increasing transportation costs with no mechanism to pass on the cost. It would be nice if farming could have government intervention to earn equal and adequate revenue as railroads.
— NDFU President Mark Watne