To speak more in terms of farm profitability, the average costs of production have risen to over $300 per acre in some areas of the prairies. If our farm families were to sell our grain in today's environment, we'd be lucky to average enough revenue to simply break even, and that is after harvesting a bumper crop, as others have mentioned. Any producer who suffered production issues this year will be well into the red and in some cases relying on AgriStability for assistance. This is gut-wrenching when producers can see that futures prices are offering excellent returns, if only they could cash in on those prices. The only thing holding them back right now is logistics.
The second cost I want to talk about is added interest costs. This has been alluded to previously already. Grain producers are going to face extreme difficulty with managing cashflow. Those who cannot pay back their input loans by the agreed-upon deadlines will face penalties in the form of outrageous interest rates being retroactively applied to their balances. In addition, many farm families will be unable to meet other loan payment options on capital purchases, which will increase their interest costs, and in some extreme cases, could result in forced liquidation or seizure—none of which we want to see.
The third cost I want to mention is additional handling and spoilage costs. If not stored properly, grain is a perishable commodity. A significant amount of grain was stored in grain bags and on the ground this past year due to the bumper crop. These storage mechanisms are not long term and need to be dealt with before spring, in many cases to avoid the risk of significant spoilage.
Spoiled grain in most cases becomes worth little to no revenue, resulting in a direct hit to the bottom line. In addition, many producers are going to have to move the grain stored in bags or on the ground to bins, and that's assuming they actually have bins to move them to. This will result in fuel, transportation, shrinkage, and possibly some drying costs, all of which will raise their costs and negatively affect the bottom line.
It should also be noted that this is not likely going to be a one-year issue. Estimates are that 20 million tonnes of grain will likely carry over to next year. So if our farm families produce an average crop in 2014, the situation will be exactly the same as it is this year, assuming no change in the logistical situation. What if our producers actually harvest another bumper crop? Where will we be then?
I have some conclusions and recommendations. They're very simple. I don't think there's anything too complex here. First of all, in the short term, we need a solution to be investigated and implemented. The easiest one is just to get the grain moving. If there's...[Technical difficulty--Editor]...government support. Financially, just get our grain moving so that we can sell it, we can get the cash, and we can pay our bills.
Barring that—and I really do think that the short-term solution is going to be a tough one—as the canola growers indicated before...[Technical difficulty--Editor]...some mechanisms out of the cash advance system. I would like to recommend that we review and look at making the full $400,000 interest free. I would like you guys to review that and see if it's possible to increase it, because $400,000 is not significant for a large grain operation anymore. You could possibly look at something like $200 per acre per farm to cover at least the inputs to get these guys through until next year. Also look at extending the deadline for repayment for the 2013 and 2014 cash advances to bridge this gap that we're looking at, as mentioned previously.
On the long-term side, I'd like to make a couple of recommendations. We need to look at the overall grain movement capacity and align that with expected average production figures in the future, as mentioned previously. This will allow for more competition in the grain logistics business in Canada. Specifically I still think we can achieve a lot by taking a closer look at the Port of Churchill and finding a way to make better use of that line and port.
The third one is that I really think you need to put some sort of accountability into place such that the railroads have to be accountable to us and to the line companies and the citizens of this country. The lack of delivery results should result in penalties that can be paid back to producers to equalize our losses incurred when we face situations like this.
I would also like to point out that CN and CP have known about this problem for four months now. As far as I can see, they haven't done anything about it. They may be working on it behind the scenes, but I have not been informed as to what they've done to make it better.
There is one other thing I'd like you to consider when reviewing the entire grain logistics system. It's always interesting to consider how you would do it, if you were to step back and have to rebuild the system from scratch. Rather than what we have today, what would you do if you had to start over and how would that impact your decision on what alternative measures might be out there for us to move grain or increase capacity to get grain out of our country?
With that, I'll thank you for your time. I hope I've provided some beneficial information on this extremely important topic for our industry and I look forward to your questions.