

Because of a combination of factors from weather to long-term railway capacity to a sudden glut of oil tanker cars on the country’s tracks, Canada’s record 2013 grain harvest has been languishing un-bought and un-shipped in silos and barns across Western Canada.

While the federal government and the railways argue about whose fault it is and what can be done, international customers are turning elsewhere, the Western economy is under serious threat and farmers are bearing the brunt of a man-made industrial disaster. Here’s what you should know about the players, the stakes and the consequences of the great grain crisis.

Unlike most jobs whereby a pay cheque arrives every two or four weeks, farmers aren’t paid a cent until they deliver their goods to market. Usually, that means delivering the grain – be it crops like wheat, canola, barley, or oats – to the local grain elevator.

A farm’s cash flow works on a series of loans. Farmers apply for a loan some time in the winter or early spring to purchase inputs like seed, fertilizer, insurance, chemicals and machinery. Those loans then carry them through from spring planting season to fall harvest.

With farmers unable to convert the grain they’ve got stored on the farm into cash, their wallets are starting to feel the pinch: Rent’s due, last year’s loans need to be squared up, farm workers need to be paid, and monthly mortgage and car payments are up too.

Then there are everyday costs like groceries, clothes, school supplies, gas etc. While some families may have income coming in from other sources, many farm families live on the income generated from the farm alone.

Banks and agriculture lenders have said they are willing to extend loans. The problem, though, is that they don’t know how long the grace period should be. Farmers can also apply for an advanced payment of up to $400,000 via the federal government, of which the first $100,000 is interest free. The loan must be repaid by the end of the next production year.

While $400,000 may seem like a lot of money, most farmers and farm lenders say the amount doesn’t come close to covering the costs of operating a commercial farm. Seed and fertilizer alone can cost a farmer growing canola $150/acre minimum or $100/acre minimum for wheat.

Canada is one of the world’s largest suppliers of agricultural goods. With the global population expected to balloon to nine billion people by 2050, Canada is going to have to step up to the plate, literally, as other countries won’t be able to put food in their citizens’ bellies.

But, if Canadian shippers can’t get their product, in this case grain, to market in a reasonable amount of time hungry customers will likely go shopping somewhere else.

The United States and South America both have record crops and are easily able to tap into Canadian export markets. Since the delay started four months ago, that’s already happened. Last week, Japan said they were switching to American wheat after Canadian orders were late two months in a row. Meanwhile, in Vancouver, an empty Japanese boat sailed down to Seattle, Wash. after sitting in port for three weeks.

At least one American General Mills plant, which makes Cheerios, has started importing oats (a main ingredient in Cheerios) from Scandinavia because it can’t get oats from nearby Saskatchewan and Manitoba.

Extremely competitive global markets will make it hard to get those customers back.

Don’t forget, other commodities move by rail too. Potash, coal, steel, lumber, crude oil, new cars etc. all move by rail. So if there are delays in one area, there are delays in others.

Last week, at a meeting with the Western Canadian Wheat Growers Association in Ottawa, former Conservative cabinet minister Ted Menzies said barges stacked with cars were docked in English Bay unable to unload their product onto the rail lines.

Meanwhile, potash mines in Saskatchewan have also reported delays in getting their product to market. And, with new mines planned in Saskatchewan, that means demand for rail service for potash is only going to go up.

Latest estimates suggest stalled grain shipments will cost farmers at least $2 billion by the time the backlog is cleared up. Another $6.5 billion is expected to be tied up in the 20-million tonnes of grain expected to carry over into next year.

Meanwhile, the economies of smaller, rural communities are also starting to take a hit. Right now, many farmers have no disposable income which means they aren’t buying new trucks or going out for dinner at local restaurants. Some might also be putting off buying new farm equipment. All of this is impacting the bottom line of business located in rural areas.

Further to point three, manufacturers and processors who can’t get access to rail cars are having to slow production and shorten work weeks.

Conservative MP Randy Hoback told the House agriculture committee on Wednesday he knows of at least one lumber yard on Hudson’s Bay that is going down to three days a week. Another steel mill in Regina, he said, is worried they might have to lay people off. Processing plants, breweries and canola crush plants across the prairies have also had to idle because they can’t get a steady supply of rail cars.

Rail is the main source of transportation for bulk and commodity goods in Western Canada. Thanks to the fact the prairies are landlocked, the distances to port are some of the longest in the world between 2,500 to 4,000 km.

Those distances mean transport by truck is not an option. Grain is too heavy, and even if a farmer wanted to ship grain by truck the ports can’t unload it. They aren’t equipped with the infrastructure needed to unload grain coming in by truck.

Demand for rail service, meanwhile, is going up across the board, meaning grain will continue to have to compete with more lucrative commodities like crude oil and potash for space on the rails. Right now, the two big railways have no incentive to move grain. Both have an effective monopoly across sections of the prairies. Northern regions are serviced by Canadian National, while Southern regions are on Canadian Pacific lines.

And, with so much grain expected to carry over, unless farmers produce a below-average crop, there’s going to be a ton of grain to move next year. With new technologies and research continuing to improve grain yields, big crops are already expected to be the “new normal.”