RAILROAD RATE DEREGULATION: EFFECTS ON CORN AND SOYBEAN SHIPMENTS

The effects of several possible rail-pricing strategies under rail deregulation on the degree of rail captivity of grain elevators and farmers in two areas in Iowa are examined. In phase 1 of the analysis, each elevator was assumed to have received the same amount of corn and soybeans were assumed to be still on the producing farms, and farmers could shift to alternative markets in response to higher rates. In phase 1, simultaneous rail rate increases of 20-40 percent by all railroad companies above the rail rates in effect during most of the 1977-1978 crop year would have resulted in increased marketing costs to elevators of about 3.5-6.0 cents/bushel of corn and soybeans marketed in the Eastern District and about 7.5-14.5 cents/bushel in the Western District. Measured by the additional marketing costs that resulted from rail rate increases, railroads have more market power over elevators in the Western District than they do in the Eastern District, which is close to the Mississippi River. In phase 2, the same rail rate increases would have resulted in increased marketing costs of about 3.6-6.3 cents/bushel in the Eastern District and about 6.8-13.3 cents/bushel in the Western District, about the same per-bushel increase as in phase 1. However, in phase 2 the cost of hauling the corn and soybeans from farms to elevators was included. The market alternatives available for corn and soybeans located on farms are much greater than for that already delivered to elevators. The analysis showed that the principal beneficiaries of a rate increase by one railroad company would be the competing railroad companies and the elevators located on their tracks, whereas the railroad that raised its rate and the elevators located on its tracks would not benefit by this action. (Authors)