Link near Owatonna, Minnesota, will allow DM&E-sourced corn *«o move to the
processing plants of lowa. With the ability to ship to three major markets
iver, processors, and PNW), the basis price for agricultural producers should
rise: some estimates suggest increases as high as 20¢ per bushel for both corn
and wheat. If prices for wheat, corn, and soybeans increased just 10¢ per
bushel, then farm income in the DM&E service region could increase by more
than $90 million in a typical crop year. Given the terribly difficult conditions
facing farmers on the Upper Great Plains, the ability to raise incomes by such a
significant amount is a strong argument that DM&E’s application meets the
public convenience and necessity test.

If DM&E is successful in rebuilding its railroad, farmers should also
enjoy lower input costs and higher yields. Today, the threat of track-caused
derailments limits DM&E’s ability to carry anhydrous ammonia and other
agricultural chemicals. Once DM&E rehabilitates its line it will be able to carry
more fertilizers, pesticides, and herbicides, and the cost of these inputs should
fall. Reduced ‘nput costs can have the same effect on farmer’s profitability as
increased product prices.

The benefits of DM&E’s construction program will not be limited te
agricultural producers in South Dakota and Minnesota. Agricultural products,
like all other goods, compete for the railroad industry’s locomotives, crews, and

trac< space. Coal traffic from the PRB is a steady and lucrative business for


long-term capacity constraints in the U.S. rail system, the lack of intramodal
competition in the U.S. rail industry, and the future adequacy of rural roads.

In addition, as the Board comes to its decision, it should keep in mind
the possibility that if it rejects this application, the DM&E may file abandon-
ment applications in the next few years. With so much of its track rated at 10
miles per hour, DM&E may not be able to keep its entire system in service.
Just as there are positive benefits that will occur if DM&E reduilds its line,
there are negative impacts to abandonment and cessation of service: commod-
ity prices and land values could fall further, it could be more difficult zo attract
economic developmen: to rural communities, and the stress on the rural road
svstem could increase.

Because we believe that the public convenience and necessity call for the
approval of DM&E’s application, USDA urges the Board to approve this con-
struction application and to publish a schedule that will allow for an appropri-
ate and timely review of the environmental issues the project entails. Publish-
ing such a schedule will give DM&E the best possible opportun‘ty to success-
fully rebuild its line and brir.g about the many benefits described above.

Respectfully Submitted,

WhrkeaL arava?

Michael V. Dunn
Under Secretary
Marketing and Regulatory Programs

~I


and reduce the probability that severe weather or other disruptions will slow

the movement of agricultural products, coal, and other goods.

FARM INCOME

In economic terms, transportation creates “place utility” and “value” for
the product being maved — corn at the processing plant is more valuable than
corn in the field. At present much of DM&E’s track is worn-out; large sections
of its mainline track are restricted to 10 miles per hour. We believe that
rebuilding DM&E will lower transportation costs, creating new opportunities
for mutuaily beneficial exchange, which will aid consumers and producers.

Rehabilitating DM&E will improve the ability of agricultural producers to
market their goods and boost their basis price. Presently, most of DM&E’s
agricultural traffic is hauled to the Mississippi River for trans-ioading onto
barges, but DM&E cannot provide year-round service to its agricultural
shippers because the river is frozen during the winter months. Little of the
grain from DM&E’s service region is exported through the Pacific Northwest
(PNW) ports even thougn much of the production from nearby North Dakota
and Nebraska moves to the PNW. DM&E’s shippers cannot compete effectively
for the PNW traffic because the railroad is too slow — it takes 9 days to move
across the DM&E from end-to-end. Rebuilding the railroad will promises to cut

this travel time from days to hours. In addition, connecting with the I&M Rail


both the Union Pacific Railroad (UP) and the Burlington Northern Santa Fe
Railway (BNSF|. Demand for the !ow-sulfur PRB coal! is increasing as utilities
seek to comply with the requirements of the Clean Air Act. As coal and -
intermodal shipments bid away rail capacity, it seems possible that
agricultural shippers, particularly those not using unit trains, could face
_upward rate pressure in the years ahead. Thus, approving DM&E’s
censtructicn application could increase capacity available co agricultural

shippers not just on DM&B, but on UP and BNSF as well.

RURAL ECONOMIC DEVELOPMENT

The Secretary of Agriculture advises the President, other members of his
Cabinet, and the Congress on policies and programs designed to improve the
quality of life for people living in the rural and nonmetropolitan regions of the
Nation (7 U.S.C, 2204(a)). Rural development activities are important to the
U.S. Department of Agriculture (USDA) and we believe DM&E’s application
should be approved on the additional ground that it could improve business
and employment opportunities and increase the economic well being of rural
residents. Extending DM&E into the PRB could create thousands of jobs in the
mining and rail industries, while generating many other direct and indirect
benefits, including enhanced opportunities for industrial developr-ent and

tourism.


CERTIFICATE OF SERVICE
The undersigned hereby certifies that on November 30, 1998, he caused a copy of the
Department of Agriculture’s comments to be served >y first-class mail, postage prepaid, or. all

parties of record in STB finance Docket No. 33407.

Keith A. Kiindworth

Program Manager

Marketing and Transportation Analysis
Agricultural Marketing Service


BEFORE THE

SURFACE TRANSPORTATION BOARD

STB FINANCE DOCKET NO. 33407

DAKOTA, MINNESOTA & EASTERN RAILROAD CORPORATION
CONSTRUCTION INTO THE POWDER RIVER BASIN

COMMENTS OF THE

U.S. DEPARTMENT OF AGRICULTURE

Michael V. Dunn

Under Secretary

Marketing and Regulatory Programs
U.S. Department of Agriculture
Washington, D.C. 20250

Date: November 30, 1998


‘RURAL ROAD NETWORK

Increasingly, agricultural products move to market by truck, which
places additional stress on the Nation’s rural road network. The deteriorating
cendizion cf rural roads and bridges has led USDA to identify the future
adecuacy of the rural road network as a key agricultural transportation
challenge for the 21* century. In both South Dakota and Minnesota the
condition of more than 40 percent of the major hignway system is rated as
“less than fair.” Rebuilding DM&E will have two positive effects on the rural
reads in these two states. First, as rail become a more attractive transporta-
tion option, less grain will move over the rural road network. Second, DM&E’s
expansion plans should generate additional property taxes, both on its own
property and, indirectly, through higher land values in its service region. Thus,
communities in these states should enjoy better roads and schools than would
otherwise be che case, thanks to higher local tax revenues and lower road

maintenance expenses.

CONCLUSION

At the National Agricultural Transportation Summit held in Kansas City,
Missouri, July 27-28, 1998, USDA identified a number of challenges that will
face agricultural transportation in the 21“ century. Approving DM&E’s

construction application could help to remedy three of the problems identified:


BEFORE THE
SURFACE TRANSPORTATION BOARD

DAKOTA, MINNESOTA & EASTERN RAILROAD CORPORATION
CONSTRUCTION INTO THE POWDER RIVER BASIN

COMMENTS OF THE
U.S. DEPARTMENT OF AGRICULTURE

AUTHORITY AND INTEREST

The Secretary of Agriculture files these comments in support of the
Dakota, Minnesota & Eastern Railroad’s construction application. Under the
Agncultural Adjustment Act of 1938, the Secretary is authorized to participate in
Surface Transportation Board (Board} proceedings in order to represent the
interests of agricu:tural shippers and producers. The Secretary is also a
participant ir. the markets for agricultural products through the operations of
the Commodity Credit Corporation and foreign commodity donaticn programs.

The Dakota, Minnesota & Eastern Railroad’s (DME) construction
application is important to the agricultural sector and we are pleased to
support it. DM&E proposes to construct 278 miles of new track into the
Powder River Basin (PRB) coal fields of Wyoming to tap the growing demand for
low sulfur coal. DM&E proposes to compietely rebuild their mainline between
Winona, Minnescta, and Wasta, South Dakota, a distance of 598 miles, and to
make significant improvements on the remaining 239 miles of their system.

1


We support DM&E’s application because we believe it will increase rail capac-

ity, improve farm income, boost rural economic development, and reduce

pressure on the rural road network.

RAIL CAPACITY

Since the Staggers Rail Act of 1980 the freight railyoads have dramatically
improved their productivity; more freight moves over a smaller network while
rates have fallen and quality has improved. Unfortunately, two factors darken
this otherwise bright picture. First, consolidation among Class I carriers has
reduced intramodal rail competition. Second, the recent rail congestion
problems suggest that the era of downsizing is over — increasing the volume of
freight movements over a shrinking network no longer seems possible.

Indeed, the western railroad service crisis of 1997-98 demonstrates the
sensitivity of current rail operations to shocks that reduce system velocity.
Some shocks, which cou:d nave been handled loca‘ly not so long ago, can now
disrupt interstate commerce. Consolidation in the industry has reduced the
number of routes available to carriers, increasing the likelihood that weather-
related disasters can disrupt rail traffic. It is important to prevent such service
problems by adding capacity and new routing options, which the DM&E

proposes to do. Approving DM&E’s application wili strengthen the rail network