Impacts on Agriculture of Deregulating the Transportation System: Reply

Koo's concerns over the impacts of transportation deregulation on agriculture are justified, but some rate discrimination is necessary for a healthy transport system. The Staggers Act did tip the scales in favor of railroads over agriculture in many instances. However, some type of rail regulatory reform was necessary because the railroad industry could no longer be regulated as a monopoly industry using public utility theory. Transportation requirements are shipper, commodity, and location specific and, therefore, susceptible to rate discrimination. The impacts of effective rail deregulation will be felt differently in different parts of the country and by different parts of agriculture. Koo rightly points out that rail grain rates in the Northern Plains are now relatively higher than in areas of the country where effective water or rail competition exists, and that such price discrimination could be detrimental to farm income. In fact, however, Northern Plains rates always have been high, and there was nothing in the Staggers Act to cause hope of rate relief in that area. This is rate discrimination applied to a whole region. The ICC could rule that rail market dominance exists for grain in the Northern Plains. This would give the ICC jurisdiction over maximum rates. This is not likely given the current deregulation environment but is a solution that exists if the railroads behave badly or if public sentiment swings back to demand more regulation. We will also see various forms of the seasonal and demand sensitive rates that Koo says are now possible. These are examples of the sort of free market activity that economists argued were needed and which would be encouraged and enhanced by rail deregulation. They should lead to more efficient utilization of rail equipment and improved rail operations. If total transportation costs decrease, farmers as a group should be better off, even though farm price fluctuations might very well increase. Therefore, we should not be particularly concerned about rational price discrimination based on the general concepts of geographic region, modal competition, or demand elasticity. These sorts of price discrimination are necessary for a healthy rail industry. However, we should be very concerned about personal discrimination by the railroads. Contracts with favored shippers can be used to avoid the railroad's common carrier obligation to serve the public generally, as well as the Interstate Commerce Act's provisions which forbid personal discrimination in rates and service and require that all rates be published and strictly observed. Unlike trucks, U.S. railroads historically were not allowed to contract with individual shippers. However, the advent of unit trains and similar concepts in the 1960s and 1970s led to de facto contracts between the railroads and individual shippers as tariffs were designed for a single shipper. Prior to 1980, there was some protection for other shippers against unreasonable discrimination through the use of such tariffs. ICC procedures allowed protests at the time of tariff filing and the ICC could order similar tariffs to be published for competing ship-