Agriculture Committee on Nov. 6th, 2012

[The Chair, Conservative, Merv Tweed]

Thank you, and good evening, everyone. Welcome to the Standing Committee on Agriculture and Agri-Food, meeting number 56.

Orders of the day are pursuant to Standing Order 108(2): a study of the subject matter of clauses 351 to 410, dealing with the Canada Grain Act, of Bill C-45, a second act to implement certain provisions of the budget tabled in Parliament on March 29, 2012, and other measures.

Joining us today at the witness table we have, from the Canadian Grain Commission, Elwin Hermanson, chief commissioner, and Gordon Miles, chief operating officer; and from the Department of Agriculture and Agri-Food, Frédéric Seppey, director general, policy development and analysis directorate.

Welcome. I know you people have been before us before. You know the deal. I know there are some time constraints on some of our guests tonight, so I'll ask you to present, and then we'll move right to questions.

Welcome.

[Elwin Hermanson, Chief Commissioner, Canadian Grain Commission]

Thank you, Mr. Chair, and good evening to the standing committee.

We thank you for the opportunity to appear before you today. It also brings back some personal memories from some hours that I spent around these tables as well. It's a bit of a walk down memory lane.

Before I begin my statement, I'd like to make a few introductions. I am Elwin Hermanson, the chief commissioner of the Canadian Grain Commission. I have been in that position since 2008. I'm living in Winnipeg now, but I am from Beechy, Saskatchewan, and have a background in agribusiness and public service.

As you mentioned, Mr. Chair, I'm joined by Gordon Miles. He's the chief operating officer of the commission and has long-time experience in the industry. He coordinates and oversees the delivery of programs, services, and activities of our corporate services, industry services, and grain research laboratory divisions.

I'm also joined by Frédéric Seppey. Frédéric is the director general of the policy development and analysis directorate at Agriculture and Agri-Food Canada.

We are at a pivotal time in the grain sector, when public policies and regulatory structures need to keep pace with the rapid changes that we see in the marketplace. Modernization of the grain sector is an important priority for this government, and modernization began on August 1 of this year with the removal of the Canadian Wheat Board single desk monopoly for wheat and barley. Building on this, the government has proposed amendments to the Canada Grain Act as part of the Jobs and Growth Act, introduced in the House of Commons on October 18. These proposed amendments will advance the modernization of the grain sector. I will elaborate on them later in my remarks.

First, to put the amendments into context, I want to tell you briefly about the Canadian Grain Commission and what we do. Back in 1912—and that's exactly 100 years ago—the government passed the Canada Grain Act, creating the Canadian Grain Commission. This commission administers the act. Under the act, our mandate is, in the interests of producers, to work to establish and maintain standards of quality for Canadian grain, regulate grain handling in Canada, and to ensure that grain is a dependable commodity for domestic and export markets.

This mandate involves the delivery of a national grain quality assurance system, with many employees located across the country. The Canadian Grain Commission undertakes four key activities that reflect on our planned direction and the daily delivery of our programs.

These activities are, first of all, quality assurance: ensuring consistent, reliable grain quality assurance to meet the needs of the domestic and international grain markets.

Second is quantity assurance: ensuring consistent and reliable quantity assurance of Canadian grain shipments.

Third is research: researching how grain quality and safety is measured and developing new technologies and methods for assessing end-use quality.

Finally, and very importantly, there is producer protection: supporting producers' rights to ensure that they receive fair treatment within the grain handling system, and this includes producer cars and what we call “subject to grade and dockage”.

The Canada Grain Act has not been amended in any significant manner since 1971. However, we have delivered our mandate in a relevant manner through various policy and regulatory initiatives and by prioritizing our resources to try to meet emerging issues.

The grain sector has undergone fundamental change since the last amendments to the Canada Grain Act. Over the past 20 years we've seen the rise of high throughput, concrete inland elevators, the removal of transportation subsidies, altered transportation patterns and conveyance options, grain company mergers, increasing demands for grain quality and grain safety assurances, evolving end-user needs and preferences, and of course the most recent change was the end of the Canadian Wheat Board single desk monopoly. With all of this change, many of our stakeholders feel that the grain sector needs a revised Canada Grain Act to remain modern, competitive, and profitable. We confirmed this view when we engaged the stakeholders on this subject earlier this year.

I would also like to inform you that we are currently conducting a 30-day consultation on proposed changes to the Canadian Grain Commission's user fees. It began on November 1. The proposed fees would reflect the streamlined services included in these proposed amendments to the Canada Grain Act.

The consultation will help develop an increased cost-recovery structure that will maintain our role in grain quality, quantity, and safety assurance, producer protection, and the integrity of grain transactions. We propose to implement a new fee schedule for August 1, 2013. The consultation invites producers, farm groups, licensees, and industry associations to give their views on the proposed fee schedule, services, service standards, performance measures, and the potential impact on their operations.

Now, Mr. Chair, it's on to the amendments.

The amendments proposed by the government represent an important beginning to addressing stakeholder concerns. The amendments would streamline our operations and services, reduce regulatory burden, reduce sector costs by about $20 million, and improve producer protection. All of this would be accomplished while continuing to maintain Canada's strong grain quality assurance system. The Canadian Grain Commission would no longer provide inward inspection and weighing services when grain is received at terminal elevators.

Due to the consolidation of the industry, often one company owns both the prairie elevator shipping the grain and the terminal elevator at port receiving that same grain. This consolidation renders mandatory CGC inspection, our inward inspection, and weighing unnecessary. However, if a shipper—and that includes the producer car shippers or a primary grain elevator—deem that inward inspections have value, these inspections will be available from service providers authorized by the Canadian Grain Commission. In the event of a disagreement, these inspections would be subject to review by the Canadian Grain Commission. The proposed amendments would also give recourse to shippers, including producer car shippers in cases where the terminal elevator operator does not have the grain inspected or weighed when the elevator receives it.

Eliminating mandatory inward weighing and inspection by the Canadian Grain Commission requires further amendments to the act. To start, the Grain Appeal Tribunal, which makes final and binding decisions on inspections, would no longer be needed. I would like to assure you, though, that the removal of the Grain Appeal Tribunal does not mean that producers would be unable to question the grade and dockage they receive at delivery to a licensed primary elevator. Under the act, producers will continue to have the right to a service called “subject to inspector's grade and dockage”. Briefly, producers have the right to ask the CGC for a binding decision on grade and dockage in the event of a disagreement.

With the proposed amendments, weigh-overs would be redundant as terminal operators will have entered into commercial agreements with their shippers. Originally, weigh-overs were meant to ensure accurate weighing and reconciliation of stocks stored in terminal and transfer elevators. Without weigh-overs, registration and cancellation—another CGC service—would no longer be needed. All of these operations would be eliminated.

The grain industry asked us to provide and deliver services that respond to its needs and that have value. We are not changing everything we do, only those services that are not needed and that do not offer value. None of the proposed amendments change the Canadian Grain Commission's role in collecting and disseminating data. Service providers and grain companies will gather data and give it to the Canadian Grain Commission for publication on our website, just as we do today.

Keep in mind that these changes do not alter our mandatory role in inspecting offshore export shipments of grain from terminal elevators. The proposed changes do not compromise the quality and reliability of Canadian grain shipments.

Canada's grain grading system remains intact. The Canadian Grain Commission sets and maintains Canada's grain grades standards. We do this based on recommendations made by the western and eastern grain standards committees. Members of these committees represent producers, processors, and exporters. They based their recommendations on research and discussion of any proposed change.

Our grain safety program continues unchanged. The Canadian Grain Commission continues to sample, test, and monitor for grain safety risks, including the presence of toxins, heavy metals, and pesticide residues.

Finally, grain producers have let the government know that they value producer payment protection. The proposed amendments to the Canada Grain Act improve this program. Currently, licensed companies provide security to the Canadian Grain Commission. We hold this security and use it to pay producers in the event a licensed company does not pay for this grain. The proposed changes give us flexibility to move to an insurance-based system with a change to the Canadian grain regulations. With an insurance-based program, elevators and grain dealers would continue to be licensed and producers would continue to receive payment protection from the Canadian Grain Commission. However, licensed companies would reduce their risk through insurance to cover their payment obligations to producers for delivered grain.

Unlike the current program, an insurance-based program can guarantee producers up to 100% of the value of money owed. As well, costs to licensed companies would be reduced, generating savings for the grain sector. This eliminates costs that are ultimately paid by producers.

While these changes help reposition the Canadian Grain Commission for a modern grain industry, there is still more to be done to ensure that the organization can optimally serve the grain sector. We must continue to develop grain research that supports grain quality assurance.

We must continue to develop new ways to measure grain quality, evaluate grain grading factors, and identify new uses for Canadian grain. We must continue monitoring the safety of Canadian grain. Globally, standards for quality and safety are becoming increasingly stringent. We must be ready to provide assurances that our stakeholders can use to successfully access markets.

We are now in a post-single desk world. Producers and grain companies are developing new commercial relationships, and new forms of oversight may be required. We will continue to work with producers and grain companies to keep grain deliveries fair and transparent for all.

Mr. Chairman, I thank you for the opportunity to present to you and to the standing House committee members. The grain sector has entered a time of fundamental change. The proposed amendments to the Canada Grain Act will help the Canadian Grain Commission effectively deliver grain quality and safety assurance, quantity assurance, research, and producer protection now and in the future. We are committed to continuing the development of new and innovative regulations and policies to serve the interests of producers and the entire grain sector.

It's a pleasure to share this information with you, and we look forward to any questions the members may have.

[The Chair, Conservative, Merv Tweed]

Thank you.

Ms. Ashton, welcome.

[Niki Ashton, NDP, Churchill, MB]

Thank you very much.

Thank you to our presenters.

I would like to start off by noting that in the communities I represent and in the province I come from there are many people very concerned about these changes. In fact, Churchill, one of the communities I represent, will lose jobs as a result of this so-called streamlining, which is being sold as a great idea. When jobs are lost in any community, and arguably in isolated northern communities, those kinds of jobs rarely come back. Of course, these are jobs that did important work to ensure the quality and consistency of our product at a specific time and point in the export chain, something that not only benefits producers but also the Canadian brand that we've all come to be so proud of.

Winnipeg will also be losing jobs as a result. Unfortunately, no one from the government has been able to say how many, but there is significant concern that there will be a domino effect once the inward inspection employees are gone. Thunder Bay and Vancouver are where the bulk of the jobs will be lost right off the bat.

It's difficult for communities like ours to see this as a good news story because it simply isn't, both on the job loss front and also in the kind of deregulation that will chip away at a proud Canadian brand.

With regard to inward inspection, clearly this is a very important part of the work that the Grain Commission has done, but it's also a very critical point in securing the kind of quality and consistency that Canadian farmers hope to have at all times. We're wondering if, in your deliberations, you took into account the COMPAS report, particularly recommendation number 4 around optional inward inspection and ensuring that there be optional inward inspection going forward—once again with an attempt to ensure the best kind of quality and consistency.

[Elwin Hermanson]

Thank you, Ms. Ashton, for your comments and your question.

The question is whether we considered optional inward inspection by the CGC. First of all, we looked at what inward inspection is. Inward inspection takes place when the railcars are being unloaded into the terminal. In today's modern industry, that doesn't reflect what was required when we had several companies shipping to each other's facilities. Often the Wheat Board was involved and had a stake in the grain, and there was a strong demand for inward inspection.

That is now gone. Where there is a need for inward inspection to occur, it's more of a commercial arrangement between the shipper and the terminal elevator. In other words, if they want a deal, if they want an agreement, they can do one.

It would be very difficult for a federal agency such as the Canadian Grain Commission to provide an optional service. It's challenging enough in this business when you have grain volumes going up and down, and movement varying with the weather, to have the right staff available to do inward and outward inspection.

If we were in a position where we could do optional inspection, it would be very difficult for us to determine what worked for us, given our collective agreements and the way we operate as a government agency. Probably, in our opinion, it would not be fair to our employees and it would be difficult to satisfy the industry. That would reflect, in the long run, on the service that producers receive.

While we could give thought to that, the conventional wisdom would be that it wasn't a reasonable or practical option for the Canadian Grain Commission.

[Niki Ashton, NDP, Churchill, MB]

I would add to the record that we're concerned that the COMPAS report in 2006, which isn't that far back, noted that this was an important consideration and that inward inspection ought to be there. In places such as Churchill, where you don't have the same kind of company commitment...as you know very well, since the loss of the Wheat Board, it's a very tenuous time for the port of Churchill. With people who have been involved in any kind of inspection, the chances of keeping them there if they don't have the kinds of jobs that the Grain Commission provided...it means they won't be there. With the companies lacking a commitment to Churchill, it poses some real problems going forward for the kind of traffic and incentives that ought to be there for our one and only arctic port—not just for the community of Churchill, but for the province of Manitoba.

[The Chair, Conservative, Merv Tweed]

I'll have to stop you there.

Mr. Payne.

[LaVar Payne, Conservative, Medicine Hat, AB]

Thank you, Chair, and my thanks to you gentlemen for coming tonight.

It's important that we hear your testimony. This fits right in with what's happened in terms of the freedom to market your grain. Now we are modernizing our industry, going into the 21st century. I think we're looking at very positive things.

Mr. Hermanson, I believe you said you had started stakeholder consultations on November 1. How long will that go on? Are there particular locations? What methods will people have to consult?

[Elwin Hermanson]

The current consultation, which commenced on November 1, is not to review the content of this bill, but rather to review our user fees, which will now complement the services that will be provided upon the passage of this bill.

The actual consultation will take place for about a month. We are not planning on extensive consultation. We consulted broadly after the 2010 budget, when it was clear that our funding model would change to a more sustainable model. So the extent of the consultations will be very focused on where the service changes are. We expect to hear from all of our industry stakeholders. We usually do.

There is a process under the User Fees Act that we have to follow. There's a certain time period for responses and a time for any complaints. If there are complaints, there's a period of time when those should be resolved. The proposed fees come, I think, to both Houses of Parliament for your review and approval.

In addition to this consultation, we have done an engagement with the industry on the amendments we're talking about in Bill C-45. This was a fairly extensive process where we heard from a large number of our stakeholders. You'll never get 100% support, but I would gauge that we certainly had a consensus among the industry that the amendments you're considering have general support from most stakeholders.

[LaVar Payne, Conservative, Medicine Hat, AB]

Thank you.

You talked a bit about inward inspection. I'm wondering if you could touch on that. What would be the benefit to farmers of the removal of inward inspection?

[Elwin Hermanson]

The biggest advantage would be that it takes the cost out of the system. When you are mandated to inspect every tonne of grain unloaded from railcars at all ports in Canada, it's a pretty hefty bill. There are some other costs associated with inward inspection, as I mentioned in my comments, that could also be eliminated. If you add the proposed savings we expect from changing the farmer security program, we're looking at about $20 million in costs removed from the grain handling system in Canada. That's a significant cost. It's something that needs to happen to make sure that Canada stays competitive and maintains or even expands the market access we currently enjoy.

[LaVar Payne, Conservative, Medicine Hat, AB]

Those are potentially large savings for our farmers.

You also talked a little bit about quality. Maybe you could just expand a little bit in terms of the quality of the products.

[Elwin Hermanson]

All exporters desire to have a quality assurance system. Quite frankly, in my opinion, Canada has probably the best in the world. What that means is that when customers buy Canadian grain, they are confident, when they put the order in with the specs and the grades or whatever they choose to put in the contract, that when they actually receive the grain, it will mill and perform just as they expect it to.

There needs to be consistent quality. We, of course, can't determine what the weather's going to do. The weather will determine how much grain you have of good quality and how much has been degraded by some factor or another. The important thing for the customer is that when they order a specific type of grain, they get exactly what they want. The Americans are focusing on that. The Australians slipped a bit on that, and now they're trying to restore their grain quality assurance system. It's important that Canada maintain that Canada brand so that we can keep market share and have markets for all of the grains we export.

[LaVar Payne, Conservative, Medicine Hat, AB]

I'm assuming that—

[Elwin Hermanson]

That is determined through the work of our grain research lab and by the work we do at outward inspection. Outward inspection is when we inspect the grain that is going onto the vessels. That's to make sure we comply with the regulations different countries have.

A company might want to sell grain to another company in another country and isn't too fussy about it. But perhaps the government of that country is very fussy. If we don't meet the requirements of, say, the EU or Japan or China, or whatever country, we could see exports from Canada to that country cut off until we fix whatever is wrong. We feel quite a responsibility to maintain outward inspection to protect the Canada brand.

[The Chair, Conservative, Merv Tweed]

Thank you, Mr. Payne.

We'll go to Mr. Valeriote.

[Frank Valeriote, Liberal, Guelph, ON]

Thank you, gentlemen, for coming.

Mr. Hermanson, first I want to say that a number of us on the committee have visited the Canadian Grain Commission. It was inspiring. For those out east to go out west to see it function was just remarkable. Seeing people from other countries who were there checking out our grain and how to use it was just remarkable.

You talked about the quality of grain and confidence in the quality of grain. That's so important. A number of people have been writing, to each of us, I'm sure, raising issues and concerns they have.

I see from the legislation that basically they're going to transfer inspection to the private sector, to a certain degree. One of the concerns expressed to me is that there isn't going to be a monitoring system put in place to ensure that results are consistent and uniform among the different service providers. In other words, there's no one person overseeing it. Then we have private industry. While they may be accredited or certified in some way, what are you going to do over time to make sure they are providing consistency in the application of whatever expectations there are for the quality of grain?

[Elwin Hermanson]

First of all, we are currently monitoring grain, and we will continue to monitor grain. The amendments proposed in this act do not change our role in monitoring grain. What will no longer occur is mandatory inward inspection, which now can be provided if the companies involved ask for it from a third party. That will not diminish our ability to receive samples, starting with the producer right through the grain handling system to the point where vessels are loaded. It does not reduce our responsibility for grain safety. We are not shifting responsibility for grain quality assurance to third parties or to the private sector. We are retaining that responsibility under these amendments.

[Frank Valeriote, Liberal, Guelph, ON]

Excellent.

You spoke of the User Fees Act. You said that the User Fees Act—and I'm paraphrasing—allows a charge or a levy for a product or a service that is provided only by a regulatory authority and that results in a direct benefit or advantage to the person paying the fee. Some of the expressed concerns are that there are certain derivatives, such as a grain research laboratory, maintaining grain quality assurance, maintaining food safety, policy development, and traceability—these are all things in the public interest that do not derive direct benefits to the user. You said you're in a 30-day period of determining what these user fees will be.

Can you tell us what you intend to include for which charges will accrue and what will be excluded? Will policy development, food safety, and traceability, for example, be excluded because they don't derive a direct benefit to the end user?

Can you give us some kind of indication of how the increased fees may compare with those that are charged in other countries like Australia or the United States? Have you even gotten that far to estimate what they might be?

[Elwin Hermanson]

Thank you, Mr. Valeriote. Excellent questions.

Yes, in the previous consultation we did on user fees, the issue of public good versus private benefit was hotly debated by our stakeholders. I think most recognize that there is an element of public good. I'm getting a little bit off the topic here because now I'm getting into the user fees rather than the amendments, but they are supposed to marry up here, so I think that is relevant.

There will be a component of public good in our funding. We anticipate it will be around current levels of just over $5 million a year. We're waiting to hear what our stakeholders say this go-around with our change in services.

But you're right, there's an element of grain safety. There is an element of what we do that is recognized as being for the benefit of all Canadians. However, the larger portion of what we do benefits industry players; it benefits the companies. We do a lot of work for the companies. It benefits producers. We do a significant amount of work for producers, and under the User Fees Act, where we do that kind of work, the cost should go to the benefactor, which is an individual or a company player in the industry.

Up to this point, increasingly the taxpayers of Canada have had to subsidize those services because our fees were frozen in the mid-nineties at 1991 levels. We all know what has happened to a cup of coffee over the last 20 or so years; it costs a lot more, and of course our services cost more. The taxpayer was having to subsidize us almost to the tune of 50% on an annual basis, even though the majority of what we did was for private benefit, not public benefit.

So I think we need to rebalance, and that's a debate, and we're looking forward to seeing how that transpires through this consultation process.

[The Chair, Conservative, Merv Tweed]

Thank you.

Mr. Richards.

[Blake Richards, Conservative, Wild Rose, AB]

Thank you. I appreciate you being here. Your expertise is much appreciated.

The way I see this—and I think the way many farmers, particularly in western Canada, would see this—is as the next step in the modernization of our grain sector. To highlight that, I'd like to read a couple of quotes from one of my constituents, who also happens to be the president, or he may be now the past president, of the Western Barley Growers Association, Doug Robertson. I'm sure he'll be happy that I was able to quote him here at committee. His quotes really say it all, I think. He said:

Along with a voluntary CWB, it is essential that we also update the Grain Commission and the Grains Act so that its regulations also fit a more open market for all our grains and oilseeds.

Then he also said:

Since farmers are now in control of their marketing, they don't want to have to be paying for services they do not need or want, and one of those has been inward weighing and inspection charges.

I think that really says it all. I'd like to get your take on it. Could you expand on this a little bit for me? I think this really is the logical step—and that's certainly what we've heard from the minister and from others—in the modernization of our grain handling system in western Canada.

I wonder if you could first of all explain to us how the removal of the monopoly on August 1 of this year modernizes the grain sector. And could you also expand on how you see that this might be the next step in that modernization as well?

[Elwin Hermanson]

When I got to the commission, I did a little bit of research to find out what issues the commission had been dealing with prior to my arrival, and I found the issue of inward inspection preceded my appearance at the commission by many years. The issue of whether in fact it was a necessary service had been debated for a long time. One of the other members mentioned the COMPAS report, and there are actually documents that precede that one debating the issue.

One of the reasons for the slowness in coming to grips with change, I guess, was the Canadian Wheat Board. The Wheat Board actually took possession of grain when a farmer sold it through a company's facilities, and it was important for them to know what grain was going into these terminals; that was for wheat and barley. It wasn't the case with canola and non-board grains, but with wheat and barley the board wanted to know what kind of grain was going into the terminals. I suppose they could have paid a third party to do that, but because there were substantial amounts and they were sort of quasi-government as well, I guess it made more sense for the Canadian Grain Commission to do that. Now that the board has lost the single desk and is competing for wheat and barley with other companies, the last brick in the wall that would be an argument for maintaining mandatory inward inspection by a government agency has pretty much been removed.

So, yes, it has made a difference.

[Blake Richards, Conservative, Wild Rose, AB]

Really this requirement has sort of added an extra burden, through the government, of course, onto the taxpayer. Would you...?

[Elwin Hermanson]

Every car that we inspected before our user fees changed was approximately $25 or $26, and there are thousands and thousands of railcars of grain unloaded every year. Remember that this cost was far below our actual costs, so in fact every time we charged that $25 we were undercharging for the service, for the cost of what we were providing. That benefited the companies at the time, but they were receiving better value than they should have. Even at that, an unnecessary cost was being imposed on them. So it just seems that eliminating mandatory inward inspection is a win-win, both for the taxpayers and for the industry.