Export Spread, Farmer Revenue and Grain Export Capacity in Western Canada

Starting in the 2013-14 crop year, a lack of export capacity resulted in substantial increases in the spread between farm and port FOB prices in western Canada. This created a very difficult situation for the farming community. We calculate that this situation reduced grain farmers’ income over the 2013-14 and 2014-15 crop years by approximately C$6.7 billion. Clearly, the grain handling and transportation system has problems and capacity to move grain is one of them. To evaluate the need for grain export capacity expansion, we forecast future grain production using a rational expectations model to estimate future export spreads and subsequent rents. We find that without capacity improvements, the expected cost of limited grain export capacity could exceed C$5.6 billion over the next decade. Capacity improvements on the order of a 25% increase will likely mitigate this issue in the future.