The following is part two of a question-and-answer article that outlines some of the details of the Crow's Nest Pass Agreement, its historical background and problems associated with it:

Question:  What effect is the Crow rate having on the railway?

Answer:  It has meant that a shortage of revenues, largely due to mounting losses in grain, has severely limited the railways' return on investment. This has made for difficulties in raising capital on financial markets which is needed in addition to the funds the railways can generate internally for investment in replacement and expansion. Although the current recession has eased pressure at present on the western railway system, increased capacity will be required in the future for all rail movements, not only grain.

Question:  How much capital investment must CP Rail undertake to satisfy projected traffic demand?

Answer:  The work necessary for replacement, modernization, and expansion has been estimated at $3.1 billion between 1983 and 1987. The amount could go up or down slightly depending on inflation and the rate of growth in demand for railway service. The investment will be needed for renewal of rail, ties, ballast, and bridges, for locomotive and freight car purchases, and for plant modernization and capacity expansion.

Question:  How does this compare with railway investment in recent years?

Answer:  CP Rail has carried out more than $900 million in capital expenditures in the 1981-83 period, about $120 million of it in the faith that the problem of grain transportation losses would be resolved. It has included advance purchases of locomotives (including new branchline units), the start-up of construction of the new Winnipeg diesel shop, and additional double tracking work in the mountains.

Question:  The federal government has approved interim payments to the railways this year. Can they be considered "gifts"?

Answer:  Certainly not. These are payments for grain transportation and they simply repay the railways for some of the losses incurred as the Crow problems await resolution. The interim payments, and the payments that would be received under the legislation, are revenues the railways earn from moving grain.

Question:  Is it true that CP Rail is receiving more from interim payments than it is carrying out in additional capital spending this year?

Answer:  No. Some people think so because they don't realize that the payments are revenues which are taxable, and that capital expenditures come out of after-tax dollars. CP Rail is carrying out a $315 million capital spending program this year, $135 million more than would have been possible without interim payments. The after-tax amount of the interim payments is about $77 million ($154 million before tax), a lot less than the $135 million in extra spending.

What is important about the interim payments is that they indicate the government is serious about solving the problem, which has an important effect on raising confidence in the railway's future prospects. This confidence, which would be further increased with the passage of legislation, allows the company to raise capital additional to what it can generate from internal sources.

Question:  Weren't the original government grants of $25 million and 25 million acres meant to support the railway's operation, as well as for construction of the mainline to the west coast?

Answer:  The CPR's obligation under the contract of 1880, in addition to building the railway, was to "thereafter and forever efficiently maintain, work, and run the Canadian Pacific Railway" which it has done ever since. The question of whether grants a century ago should be used to pay for uneconomic services today has been examined many times. In all cases the finding was similar to that of the 1961 report of the MacPherson Royal Commission which concluded that the grants were "to get the railways built".

Question:  In general, what is the view of CP Rail on the grain issue?

Answer:  The company believes that the current low level of statutory grain freight rates contradict the national transportation policy. The railways were never intended to subsidize the grain system. CP Rail believed adequate levels of grain revenue are essential to ensure a viable ongoing rail transport network. It is time for a change, time to take action to keep in place a highly-efficient and up-to-date system to handle grain and other important traffic.

Question:  What are the major projects that CP Rail has planned?

Answer:  The largest single project is the Rogers Pass project. That is, building the Beaver tunnel and associated undertakings. However, the high visibility of this project (more than $600 million) sometimes created the impression that it is all there is to CP Rail expansion program.

There are also programs involving installation of microwave communication and traffic control systems, terminal expansions, additional double tracking, installation of concrete ties, plus yard and repair shop expansions, not to mention all the continuous replacement programs for rails, ties, ballast, and bridges.

This CP Rail News article is copyright 1983 by the Canadian Pacific Railway and is reprinted here with their permission. All photographs, logos, and trademarks are the property of the Canadian Pacific Railway Company.

The Crow Rate - Wikipedia

The "Crow Rate" or "Crow's Nest Freight Rate" was a rail transportation subsidy benefiting farmers on the Canadian Prairies and manufacturers in central Canada, through rate requirements imposed on the Canadian Pacific Railway (CPR) by the Canadian government in exchange for financing and other benefits.

In the late 19th century, mineral strikes in southeastern British Columbia near Nelson, Ainsworth, Rossland, Kaslo, Kimberley, and Moyie inspired American rail interests to push lines northward, to rail out ore and to provide machinery and supplies needed for the development of local smelters. Both the Canadian government and the CPR wanted an all-Canadian rail line to forestall this American access and to reassert Canadian sovereignty in the area. A rail line was planned from Lethbridge, Alberta, to Kootenay Landing near Nelson, British Columbia, through the Crowsnest Pass, which would also enable the development of coal deposits in the Pass and the Elk River valley, important both for mineral smelting operations and for the CPR's conversion of locomotives from wood to coal.

The CPR needed government funding and concessions for the construction of this rail line so they negotiated an agreement between themselves and the Canadian government. This was the "Crow's Nest Pass Agreement" dated 6 Sep 1897. Amongst other things, the CPR agreed to provide reduced rail rates for farmers' grain shipped east to the Great Lakes and for farm machinery shipped west from central Canada "forever".

The Crow Rate was suspended by the CPR during World War One and reinstated in 1922.

Although popular with farmers, these reduced rates were not cost-effective for the railway and provided central Canadian manufacturers and grain ports with an unfair advantage. By the early 1980s, the government attempted to resolve the problems between the competing interests by altering the agreement. The Western Grain Transportation Act of 1983 allowed shipping rates to increase, but never more than 10 percent of the world price for grain. In addition, further cash payments were made by the government to the CPR.

With the election of the Liberal government of Jean Chretien in 1993, the new government took steps to eliminate the subsidies altogether. This was implemented in 1995 through the Western Grain Transition Payment Program, which provided one-time payments to farmers to assist them in making the transition away from subsidized shipping.

Wikipedia.