Page 1

Michigan Agri-Business Association 1501 North Shore Drive, Suite A East Lansing, Michigan 48823

www.miagbiz.org Telephone (517) 336-0223 Fax (517) 336-0227

AN OVERVIEW OF INFRASTRUCTURE OPPORTUNITIES AND CHALLENGES FOR MICHIGAN AGRICULTURE, AGRI-BUSINESS AND RURAL DEVELOPMENT As policy leaders focus on helping agriculture continue to grow and enhance rural development in Michigan, there are several factors that impact those efforts. Michigan’s food and agriculture industry is pegged at more than a $70 billion piece of our state’s economy, and was the most significant contributor to economic growth in Michigan over the past decade, and hasn’t slowed down. Every year there are more and more examples of companies investing in Michigan agriculture, but there are some challenges and obstacles to continued growth. The Michigan Agri-Business Association is releasing a review of some of the current issues affecting rural development in Michigan as it relates to agriculture and agri-business, and specifically the feed, livestock, grain, agronomy and renewable fuels industries. The first infrastructure issue MABA will analyze is railroads. RAILROADS In order to understand the current situation regarding rail transportation in Michigan, it is necessary to review the history, events and actions that got us to where we are today. The most dramatic events occurred 30 to 50 years ago, when railroads began losing business to the trucking industry. Trucks began hauling more and more freight because of their ability to make “point to point” pickup and delivery. The advent of the interstate highway system dramatically reduced travel time between major destinations, making the trucking industry an even more viable option. This led to the financial collapse of some railroads, consolidation of others and various configurations of state or federally owned rail lines, such as Conrail and Amtrak. Michigan was not immune to this carnage, and saw numerous companies exit the business. Miles and miles of railroad tracks were abandoned across the state. Some of those lines were once owned by the state of Michigan, including the existing line through central Michigan,

Page 2 operating lines in the Thumb, and various lines in southern Michigan, including rail in Lenawee, Hillsdale and other counties. Before the state took ownership of some of the railroad lines, larger Class One national rail companies that owned the lines often made a conscious decision to “orphan” some of these lines. They would pull the track and ties from the ends of some of the lines, resulting in dead end railroad lines. Such is the case in the Thumb of Michigan with two former CSXT lines. The last 10 to 20 miles of two lines that ran to Port Huron were sold off for scrap, which meant that both lines terminated in the middle of the Thumb and eliminated any through train operations or connection points with other railroads. These actions greatly reduced the potential of the affected railroads. They were relegated to local, one-way trains, confined to carrying only freight they could generate along a line and delivering to customers located there. Many other lines were completely torn up, such as the line from Reed City to Clare. Unfortunately, with scrap iron valued as it is, and the market for old railroad ties relatively strong, even today many rail lines would be worth more if they were “harvested” instead of used for rail operations. This remains a threat to the remaining track, especially track that is in poor repair. During the Engler Administration, there was an aggressive move to divest the state’s interest in the rail lines acquired over the years, and move them back to private ownership. Today, the longest rail line still owned by the state of Michigan runs through the middle of the state from Durand to northwest Michigan. Rural development is directly impacted by the lack of rail service. This is particularly the case with agricultural development, including grain handling and fertilizer wholesale and retail operations. Both sectors rely heavily on rail because of the heavy, bulky freight characteristics associated with the industries. If a town or other rural location doesn’t have rail service, it is the rare exception that a new facility will be located there. Examples of new or expanded facilities that rely on rail include Auburn Bean and Grain’s Oakley grain plant and new agronomy facility; MAC’s expansions in Breckenridge, Brown City and other locales; and grain plants built 30 to 40 years ago at Grand Ledge, Webberville, White Pigeon and Albion. All were built on Class One railroads with the objective of taking advantage of good, reliable rail service on solid track. The importance of rail extends far beyond the location of new facilities or companies, and today includes the ongoing economic viability of existing facilities that are serviced by short line railroads operating on deteriorating track. A classic example of this dilemma is the Cooperative Elevator Co., and its locations in Sebewaing, Pigeon, Akron, Elkton and Ruth. These grain facilities are by far the largest in

Page 3 Michigan’s Thumb region, and annually handle tens of millions of bushels of locally produced corn, soybeans, wheat and dry beans. The economic importance of rail to their business is crucial. If rail were to suddenly be unavailable at those facilities, it is estimated that grain prices paid to their farmer customers would fall by roughly 50 cents per bushel to reflect the increased cost associated with moving grain to end users by truck. In simplistic terms, if the bid for grain (corn, soybeans and wheat in Michigan) is $5 per bushel by the end user, the seller usually deducts the transportation cost off that price, and that, minus the handler’s margin, is what is offered the grower as a price. If it costs 20 cents per bushel to get the grain to the feeder or processor, the price to the grower is $5, minus the 20 cents for transportation (or $4.80) and also minus the handler’s margin. Grain hauled by truck, in a general case, would cost at least 50 cents more per bushel than rail transportation. That means that deducted from the $5 is not just 20 cents, but 70 cents ($4.30). This increased cost would come directly out of grower – farmer – proceeds. Figures 1-5 (pages 6-7) show that this could cost growers as much as $16.7 million in lost income every year if rail was lost to the region. While some may say that this is an exaggeration and that the rail is operating just fine, it should be noted that the speed on the track from Reese to Akron and beyond is limited to 20 miles per hour because of rail bed issues, and north of Bad Axe to Kinde, the speed is set at 10 miles per hour. We are one washout, one trestle failure or one other problem away from rail not operating in this area! The loss to annual grower income from just corn, soybeans and wheat production, if the mode of transportation shifted from rail to trucks would exceed $31.5 million annually. Consider that this loss only takes into account three commodities and the three counties of Huron, Tuscola and Sanilac. Additionally, it is not just these three major commodities that are affected, but also outbound dry beans and inbound fertilizer. Neither is the Thumb the only impacted region. While no other lines are in as poor condition as those in the Thumb, it doesn’t take long for rail beds, ties and track to deteriorate. Another example of this deterioration is the privately owned rail from Ashley to Middleton in Central Michigan. Fifteen years ago the line was in such ill repair that the railroad experienced “standing derailments.” These happen when the road bed and ties are so deteriorated that a full – or even empty car – sitting idle on the track pushes the rails apart, eliminating a stable base for the rail car’s wheels, and the car simply tips over. This line has since been upgraded. Other parts of the state also rely heavily on short line railroads, and though the condition of the lines might not be as bad as that illustrated above, there must be attention to maintenance and continued improvement in those lines to make sure they don’t deteriorate to the same state. Figures 6-23 illustrate the importance of rail in all parts of the state (pages 7-11).

Page 4

Again, while not problems are not imminent in these other areas, absent attention and investment, the bulk of which is currently handled by the private operators of those lines, there could be challenges equal to those in Michigan’s Thumb region. Michigan needs a consistent substantial commitment from local, state and federal governments to support railroads and rail infrastructure, especially for short line railroads, and rural communities – or farmers will be the loser. The American Soybean Association (ASA) stated in early July: “As Congress considers several transportation issues and measures, including appropriations bills and the potential Surface Transportation Reauthorization bill…the (ASA) is urging support for its top transportation and infrastructure priorities. Soybean farmers have a strong interest in ensuring there is a safe and efficient transportation system. The ability to move soybeans from the farm to processing facilities and our export customers is a significant factor in our bottom line. To maintain our industries’ competitive position in the global market, we must invest in our aging and increasingly inefficient transportation infrastructure.” Another pressing issue is the move by railroads to even larger hopper cars for grain transportation. So-called jumbo hopper cars are now preferred by most grain handlers, but there are almost no short-line railroads in the state that have the capacity and railroad beds (ballast, ties and rail) to handle these heavier cars. On a related note, the current push for “high-speed” passenger rail transportation and the billions of dollars being thrown that way probably doesn’t bode well for freight railroads. While no one is against enhanced passenger rail travel, the fact is that in the broadest terms, a network of passenger trains that operate on an interconnected schedule to provide intercity travel is probably a lost cause. What appears to be developing is a patchwork of single lines that might be dedicated to travel between select cities, without much thought to the broader transportation network or the impact on freight movement. Specifically, plans by Amtrak to acquire the “Michigan Main” line from Norfolk Southern (Pontiac to Kalamazoo) and turn it into a passenger focus will definitely have an impact on freight – and agricultural commodity – movement on that line. Freight would be rendered to a “second class” status, with passenger trains having right of way rather than freight, as is currently the case. While this clearly won’t happen on many lines in the state, we should take note that money is being invested in high speed passenger rail transportation, while investment in freight rail lines languishes. We offer several recommendations to help improve and maintain rural rail service.

Page 5 First, the MiRLAP program through the Michigan Department of Transportation must be adequately funded. This program provides low- or no- interest loans to companies and railroads that seek to improve their lines or add infrastructure. This is an important program that has seen much use by Michigan companies, particularly those involved in agriculture. Secondly, the Federal Short Line Railroad Rehabilitation Tax Credit program must be extended by Congress. This is another basic program to help short lines remain viable and provide quality rural service. Program extension language is contained in H.R. 721 and S. 672, bipartisan legislation currently pending before Congress. Finally, the Federal Railroad Rehabilitation and Infrastructure Financing Program (RRIF), administered by the Federal Railway Administration (FRA), provides long term low-interest loans over 35 years for many kinds of rail-related infrastructure projects. Unfortunately, because of cumbersome and confusing requirements imposed by the FRA, this program has only approved $1 billion in projects out of total authorized funds of $35 billion. We urge Congress to move this program and its resources to the Rural Development Agency (RD) within the U.S. Department of Agriculture. The record of this program is dismal, with only a handful of approved projects and overall industry frustration. The rural development arm of the USDA has a record that is stellar in helping rural communities and businesses grow and add jobs. That is what this program was intended for, and the FRA has missed the mark in its handling of the program. Allowing RD to administer this program, and having another tool in its tool kit to help grow rural communities, would be a plus.

Page 6

MICHIGAN’S THUMB REGION

MICHIGAN’S THUMB REGION

FREIGHT MOVEMENT Truck (doubles) Truck Van Trailer Rail Hopper Car Rail Box Car

1,500 bushels 40,000 pounds of freight 3,500 bushels 156,000 pounds of freight

* Huron, Tuscola and Sanilac Counties

Copyright Michigan Agri-Business Association

Copyright Michigan Agri-Business Association

Figure 2

Figure 1

MICHIGAN’S THUMB REGION

MICHIGAN’S THUMB REGION

MOVEMENT BY TRUCK OR RAIL

MOVEMENT BY TRUCK OR RAIL

Hauling grain by truck instead of rail would increase the cost of transportation from the Thumb to destination by at least $.50 per bushel. 334,000,000 bushels @ $.50 = 16,700,000

Hauling dry beans by truck instead of rail would increase the cost of transportation from the Thumb to destination by at least $10 per hundredweight. 1,500,000 hundredweight @ $10 = 15,000,000 An annual Increase in Transportation Cost for Corn, Soybeans, Wheat and Dry Beans $31,700,000

Copyright Michigan Agri-Business Association

Figure 3

Copyright Michigan Agri-Business Association

Figure 4

Page 7

CENTRAL REGION

MICHIGAN’S THUMB REGION MOVEMENT BY TRUCK OR RAIL

 

$31.7 million in EXTRA COSTS without rail

  

This additional cost will appear as an expense to producers, and a decrease in their income!

 

Copyright Michigan Agri-Business Association

Copyright Michigan Agri-Business Association

Figure 5

Figure 6

CENTRAL REGION

CENTRAL REGION Bushels1

% by Rail

Total Bushels by Rail1

Corn

37,120,000

50

18,560,000

Soybeans

8,250,000

80

6,600,000

Wheat

3,540,000

40

1,416,000

TOTAL

48,910,000

1

26,575,000 bushels @ $.50 = $13,287,500 26,575,000 bushels ÷ 1500 bushels by truck = 17,717 trucks or

7,600 rail cars

26,575,000

Annually

Copyright Michigan Agri-Business Association

Figure 7

Clare Gladwin Isabella Mecosta Midland Montcalm Osceola

Copyright Michigan Agri-Business Association

Figure 8

Page 8

EAST CENTRAL REGION

EAST CENTRAL REGION

Bushels1   

Arenac Bay Saginaw

1

% by Rail

Total Bushels by Rail1

Corn

23,280,000

50

11,640,000

Soybeans

6,700,000

80

5,360,000

Wheat

3,230,000

40

1,292,000

TOTAL

33,210,000

18,292,000

Annually

Copyright Michigan Agri-Business Association

Copyright Michigan Agri-Business Association

Figure 10

Figure 9

SOUTHWEST REGION

EAST CENTRAL REGION 18,292,000 bushels @ $.50 = $9,146,000

  

18,292,000 bushels ÷1500 bushels per truck = 12,200 trucks



or



 

5,226 rail cars

Copyright Michigan Agri-Business Association

Figure 11

Copyright Michigan Agri-Business Association

Figure 12

Allegan Berrien Cass Kalamazoo Kent Ottawa Van Buren

Page 9

SOUTHWEST REGION Bushels1

1

% by Rail

Total Bushels by Rail1

Corn

57,330,000

25

14,332,500

Soybeans

10,600,000

30

3,180,000

Wheat

1,375,000

40

550,000

TOTAL

69,305,000

SOUTHWEST REGION 18,062,500 bushels @ $.50 = $9,031,250 18,062,500 bushels ÷1500 bushels per truck = 12,040 trucks

or

5,160 rail cars

18,062,500

Annually

Copyright Michigan Agri-Business Association

Copyright Michigan Agri-Business Association

Figure 14

Figure 13

SOUTH CENTRAL REGION

SOUTH CENTRAL REGION           

Barry Branch Calhoun Clinton Eaton Hillsdale Ingham Ionia Jackson St. Joseph Shiawassee

Bushels1

1

Copyright Michigan Agri-Business Association

Figure 15

% by Rail

Total Bushels by Rail1

Corn

100,000,000

35

35,000,000

Soybeans

31,250,000

70

21,875,000

Wheat

8,000,000

40

3,200,000

TOTAL

139,250,000

Annually

Copyright Michigan Agri-Business Association

Figure 16

60,075,000

Page 10

SOUTH CENTRAL REGION

SOUTH EAST REGION

60,075,000 bushels @ $.50 = $30,037,500   

60,075,000 bushels ÷1500 bushels per truck = 40,050 trucks

 

or

  

17,164 rail cars

Copyright Michigan Agri-Business Association

Copyright Michigan Agri-Business Association

Figure 18

Figure 17

SOUTH EAST REGION Bushels1

1

% by Rail

Total Bushels by Rail1

Corn

44,700,000

50

22,350,000

Soybeans

18,900,000

80

15,120,000

Wheat

7,470,000

40

2,988,000

TOTAL

71,070,000

SOUTH EAST REGION 40,458,000 bushels @ $.50 = $20,229,000 40,458,000 bushels ÷1500 bushels per truck = 26,972 trucks

or

11,560 rail cars

40,458,000

Annually

Copyright Michigan Agri-Business Association

Figure 19

Genesee Lapeer Lenawee Livingston Macomb Monroe St. Clair Washtenaw

Copyright Michigan Agri-Business Association

Figure 20

Page 11

MICHIGAN SUMMARY Bushels1

Corn

302,430,000

% by Rail

50

MICHIGAN SUMMARY Bushels1

Total Bushels by Rail1

Soybeans

121,882,500

86,700,000

% by Rail

80

Total Bushels by Rail1

61,135,000

121,882,500 bushels @ $.50 = $60,941,250

61,135,500 bushels @ $.50 = $30,567,500

121,882,500 bushels ÷1500 bushels per truck = 81,255 trucks

61,135,500 bushels ÷1500 bushels per truck = 40,760 trucks

121,882,500 bushels ÷ 3500 bushels per rail car = 34,825 rail cars

61,135,500 bushels ÷ 3500 bushels per rail car = 17,465 rail cars

1

Annually

1

Copyright Michigan Agri-Business Association

Copyright Michigan Agri-Business Association

Figure 21

Figure 22

MICHIGAN SUMMARY cwt1

Dry Beans

3,000,000

% by Rail

50

cwt by Rail1

1,500,000

1,500,000 cwt @ $10.00 cwt = $15,000,000 1,500,000 cwt ÷4000 lbs per truck = 3700 trucks 1,500,000 cwt ÷ 160,000 lbs per rail car = 950 rail cars

1

Annually

Copyright Michigan Agri-Business Association

Figure 23

Annually