In the 1890s, when rich mineral deposits were discovered in the Kootenay region of southern BC, American developers began to move into the region and extend rail lines northward from their transcontinentals. The CANADIAN PACIFIC RAILWAY, determined to retain control of southwestern Canada, asked the federal government for assistance to extend its own line over the CROWSNEST PASS into BC. At the same time, Prairie farmers were complaining about high freight rates charged by the CPR, and further federal assistance to that company would be unpopular unless something was done about the freight rates.

The Crow's Nest Pass Agreement, dated 6 September 1897, was an agreement between the CPR and the Canadian government. The CPR was given a cash subsidy of $3.3 million and title to pass into BC in exchange for reducing, in perpetuity, eastbound rates on grain and flour and westbound ones on a specified list of "settlers' effects" (total rate reduction about 15%). The CPR obtained access to the valuable mining and smelting activities in the BC interior, and the government was able to allay western concerns over national transportation policies. The rate reduction coincided almost exactly with the beginning of the settlement boom, and quickly became enshrined in the public mind as a key part of the economic strategy of the day.

Suspension of the Agreement

The suspension of the agreement in response to wartime inflation created consternation among western farmers. The CPR resisted attempts by the Board of Railway Commissioners to reimpose the terms after 1922, and there followed a period of complicated political and legal maneuvering. In 1925 the 1897 rates on grain and flour traffic were reinstated, applicable to all such traffic on all rail lines to Fort William, and the "settlers' effects" provision was cancelled. This solution was not satisfactory to anyone, and further negotiations produced in 1927 the agreement that the rates would be applied to all the company's lines, but only on grain and unprocessed grain products.

Over time the Crow rate represented an ever-smaller fraction of what it cost the railways to transport grain, and there began a lengthy search for a more equitable rate. For farmers the Crow rate was an important factor in reducing costs enough to attract and keep export markets. But it did not provide sufficient revenue for the railways to make improvements and to expand their lines to serve increased traffic flows, heavier rolling stock, and the improved service demanded by the farmers and other shippers.

Western Grain Transportation Act

After much heated discussion and disagreement by government, railway, farmers and farmers' organizations, the Western Grain Transportation Act was passed 17 November 1983 (effective 1 January 1984). It allowed grain-shipping costs to increase gradually, but never to exceed 10% of the world price for grain. The federal government agreed to pay the rest of grain-transportation costs, $675 million in 1987. The railways agreed to spend $16.5 billion on new equipment and expansion of service by 1992. An alternative proposal to pay the subsidy directly to farmers and to let rail rates rise to cover full costs of operation was rejected in 1983, although the idea retains considerable support today.

Distortions

In the 1990s more and more western Canadians realized that the subsidization of transportation costs on grain and unprocessed grain products, but not on processed products, seriously distorted the regional economy. While the rates helped the primary producers, they discouraged secondary processing within the region. Processors found it more advantageous to have the unprocessed products shipped out of the region under the subsidized rates, and to establish appropriate processing facilities outside the region rather than to pay the much higher rates on processed goods shipped out of the region. Efforts to reduce the federal government's large budgetary deficit further increased the pressure to reduce subsidization programs which had apparently outlived their usefulness. There were also warnings that the western Canadian grain transportation subsidies contravened some of the terms of the North American Free Trade Agreement.

Consequently, after the 1993 federal election, the new government moved swiftly to eliminate the rates. Under the Western Grain Transition Payment Program, prairie farmers were offered a one-time financial payment which was to provide compensation for higher shipping costs and funds so farmers could make the necessary adjustments in their operations. The blow was cushioned by relatively high world prices for grain. After 97 years and numerous negotiated or legislated changes, the freight rate reductions first agreed to by the federal government and the Canadian Pacific Railway in 1897 came to an end.