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Canadian railways urge Ottawa to loosen grain hauling rules

| WINNIPEG, Manitoba

WINNIPEG, Manitoba Oct 14 Canada's big railways are pressing Ottawa to loosen rules around hauling the country's crops, changes they say would improve efficiency but that farmers fear would weaken their bargaining power.

A February report recommended that Ottawa institutes transportation system changes, including phasing out a 16-year-old cap on revenue that Canadian National Railway Co and Canadian Pacific Railway Limited earn hauling western grain.

Transport Minister Marc Garneau has spent months meeting shippers and railways, and has a last meeting Oct. 20 with farmers. He will announce decisions this autumn, spokesman Marc Roy said.

Railways struggled to move the huge 2013 harvest during a harsh winter, angering farmers. The former Conservative government imposed grain volume minimums and expanded interswitching, the transfer of cars from one railway's line to another's.

Expanded interswitching remains, while Ottawa removed monthly grain minimums but kept the authority to impose them again.

Railways say the measures, including the revenue cap, distort markets and offer less reason to invest.

"We can buy more modern cars, larger capacity cars if we let the commercial process work," Canadian Pacific Chief Operating Officer Keith Creel said in an interview. "Mistrust between the railway and the farmer is going to have to be healed for that to happen."

CP asked Ottawa to scrap the cap and eliminate expanded interswitching, which allows U.S.-based BNSF Railway Co to take certain Canadian shipments without adequately compensating railways for using their railroad, Creel said.

BNSF declined to comment on compensation. The railway has not made requests to Ottawa regarding interswitching, said spokesman Mike Trevino.

CN wants Ottawa to move away from regulated grain volumes, expanded interswitching and the cap, said spokeswoman Kate Fenske.

Farmers fear they won't get fair treatment without the cap, since nearly all 400 Western Canada crop facilities are served by a single railway.

"There isn't competition in the system," said Ron Bonnett, president of farmer organization Canadian Federation of Agriculture.

Grain companies want Ottawa to preserve interswitching, which introduced needed competition, said Wade Sobkowich, executive director of Western Grain Elevator Association, whose members include Richardson International and Viterra .

Canpotex, the offshore potash exporter for Potash Corp of Saskatchewan, Mosaic Co and Agrium Inc , wants equal treatment of commodities, and no reinstatement of grain minimums, said Chief Executive Ken Seitz.

"We don't want the government to pick winners and losers," said Brendan Marshall, vice-president of economic affairs at Mining Association of Canada, which includes Teck Resources Ltd . (Editing by Bernadette Baum)

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