The economic impact of alternative rail pricing schemes for export wheat

Abstract

The purpose of this study is to examine the economic impact of three alternative wheat rail pricing schemes on the economies of agricultural and rural communities. The three rail rate structures studied are through rates, flat rates and direct rates for export wheat. Economic impacts result from two effects in changes in wheat flows: the impact of alternative rate structures on farm price, and the impact of the different rail pricing schemes on the use and resultant damage to the state and local road systems. A network model is used to predict wheat flows by truck or rail under different pricing schemes. These results are used to predict the cost to the road system. Results for export wheat in south central Kansas indicate that the change from through rates to flat rates generated a net societal cost of $ 0.6 million: increases in road damage costs more than offset farm income gains through savings in transportation costs. The proposed change from flat rates to direct rates is predicted to generate net societal benefits of $ 0.8 million. The change to direct rates results in farm income gains from lower transportation costs as well as decreases in annual road damage costs. These gains more than offset logistics costs associated with the elimination of the transit rate system. From a public policy view, the study shows that pricing decisions made by the railroad industry affect not only the railroad industry and its clients, but also society as a whole. Policymakers should carefully evaluate each rate alternative for the full societal impacts before the rate structure is implemented.