Agriculture Committee on Sept. 26th, 2006

[The Chair, Conservative, Gerry Ritz]

Thank you, folks, for your patience while we did that in camera portion, just some of the housekeeping that has to be done around here.

Today we will begin our discussions on the Grain Commission report that was tabled just a short time ago. Conrad Winn undertook to put that forward.

Before us today we have Christine Hamblin, who is the chief commissioner, and Terry Harasym.

Thanks for your patience, folks. If you would care to make your presentation, we'll move right ahead.

[Christine Hamblin, Chief Commissioner, Canadian Grain Commission]

Thank you, Mr. Chairman. It's certainly a pleasure to be here today to have a chat with you about the COMPAS review. It is obviously early in the stages of reviewing the report. We haven't had a lot of time to digest it, but I think it's a good opportunity to have some initial discussion around the COMPAS review of the Canada Grain Act and the Canadian Grain Commission.

You have already introduced us. I will just comment that we have three commissioners at the Canadian Grain Commission: in addition to myself, we have Terry, and Albert, who is back in Winnipeg holding the fort. Albert is from Alberta. I am from Manitoba; my husband and I have a farm just south of Winnipeg. Terry is in Winnipeg now, but he has come to us from Saskatchewan and has had some involvement in the grain industry there.

As you may know, the Canadian Grain Commission administers the Canada Grain Act, which was established in Parliament in 1912. Our mandate, as set out in the act, is to, in the interests of producers, establish and maintain standards of grain quality and regulate grain handling in Canada to ensure a dependable commodity for domestic and export markets. This mandate involves the delivery of a national grain quality assurance system, with approximately 700 employees located throughout Canada.

The CGC is organized around four strategic outcomes that reflect our planned direction and the daily delivery of our program activities. Our four strategic outcomes are, firstly, a grain quality assurance system that addresses the changing requirements of domestic and international grain markets; secondly, grain quantity assurance that addresses the evolving needs of the grain industry; thirdly, research and development on grain quality that enhances the marketability of Canadian grain; and fourthly, support of producers' rights to ensure fair treatment within the grain handling system.

The Canada Grain Act has been modified on a number of occasions, but not significantly since the early 1970s. The last time the act was amended was in May 2005, when specific changes were made to bring Canada into compliance with the WTO commitments. During the legislative process, stakeholders requested an amendment calling for an independent, comprehensive review of the Canada Grain Act and the Canadian Grain Commission.

Upon passage of the bill, Agriculture and Agri-Food Canada was tasked with hiring a consultant to complete this review. COMPAS, a public opinion and research firm, was the successful candidate in the competitive process. Throughout this review, the CGC provided supportive information but had no direct influence on the final report. The COMPAS report is now complete and has been tabled in Parliament for consideration by parliamentarians such as yourselves.

This brings us, obviously, to today's business. As I mentioned, there is a general sentiment among some sector participants that change is needed for Canada to maintain its reputation and competitiveness in international grain markets. There is no question that the industry is changing, and we agree that it is time to consider change for the CGC.

We are facing numerous challenges, both as the Canadian Grain Commission and as an industry as a whole. Over the past 15 years, we have witnessed the removal of transportation subsidies, many grain company mergers, the rise of high-throughput concrete elevators, altered transportation patterns and conveyance options, increasing demand for grain quality and grain safety assurance, many technological advancements, and evolving end-user needs and preferences. Despite these changes, grain quality assurance continues to be essential to the success of Canada's grain sector and is likely more important now than ever before.

While our legislation has not been substantively updated to keep pace with these changes, the CGC has continued to deliver its mandate in a relevant manner. We have achieved this through policy and regulatory initiatives, and prioritizing resources to emerging issues.

For example, our current organizational priorities are to enhance Canada's grading system with our wheat quality assurance strategy to address the challenges of visually indistinguishable wheat varieties and the constraints of kernel visual distinguishability, or KVD, as we more commonly refer to it.

The second priority is to strengthen the grain safety assurance by developing new and improved objective testing methods for toxic substances.

The third priority is to respond to grain-related trade issues to enhance the acceptance of Canadian grain in a changing regulatory and global environment.

The fourth priority is to enhance our licensing and security program, which we call our licensing and compliance initiative, to ensure that companies handling western Canadian grain are in compliance with their legal obligations.

That's just a bit of background. Now I would like to discuss the contents of the COMPAS report. In general, the report is reflective of stakeholder positions on various issues. The COMPAS report recognizes the ongoing value of CGC's role in the grain sector. We are pleased that it reaffirms our mandate with respect to establishing and maintaining standards of quality for Canadian grain and regulating grain handling in Canada to ensure a dependable commodity for domestic and export markets.

We are also in favour of bringing clarity to the phrase “in the interests of producers”, although the details of this still need to be sorted out. Specifically, the report also recognizes the value of the CGC's grain research laboratory and its linkage to the competiveness of our grain exports.

Additionally, COMPAS suggests that CGC consult on an alternative to our current security program. We agree that this is important, and we have been seeking feedback on this issue for numerous years. In the meantime, we are moving forward with our licensing and compliance initiative.

The report also provides some useful direction on the issue of funding. For instance, the report recommends that grain quality and quantity assurance infrastructure be publicly funded, while incremental costs associated with service delivery be cost-recovered. However, it will be a significant challenge to define what CGC activities should be considered infrastructure, and if so, to what extent they should be publicly funded. This is something that needs to be defined as we move forward.

In its efforts to address the subject of grain quality assurance and specifically KVD, kernel visual distinguishability, COMPAS recommends that the federal government commit itself to developing fast, economical technologies for varietal identification testing. In the absence of an immediate solution to KVD, the report affirms the direction we have taken with our wheat quality restructuring proposal.

Overall the report provides about 102 recommendations, but many require further analysis and discussion. A number of these may be difficult and/or costly to implement. For example, the report recommends that inward inspection at terminal elevators become optional and be contracted out to the private sector. Simultaneously, the report suggests that the CGC maintain a capacity to deliver the same service. These recommendations may be somewhat contradictory or at least are not the most efficient way to establish cost-efficient services.

This recommendation also appears to introduce the concept of publicly subsidizing some industry participants to limit the costs of optional inward inspection to maintain industry competitiveness. We feel this would be a significant change in direction and needs careful consideration.

COMPAS has also recommended that a binding arbitration mechanism be established, as appeals to the court are slow and expensive. However, there is no guarantee that this will result in decreased costs or more informed decisions than the current structure, which already has a quasi-judicial nature. It is likely that if stakeholders do not like the results from this recommended arbitration mechanism, they will still proceed to the court action.

In addition, the report does not address the potential costs of all the recommendations. Implementing all the proposed recommendations would result in a significant cost to the inspector, including producers, and increased funding requirements for the Canadian Grain Commission. The potential costs or benefits flowing from implementing individual recommendations require further study.

Although these are just a few examples, for the sake of time I will leave others to be addressed during the question-and-answer portion of the session.

In terms of next steps, the Canadian Grain Commission will continue to assess and analyze the COMPAS recommendations and work with the minister to determine an appropriate course of action. Legislative change will depend on the government's parliamentary agenda, but we hope that any changes to the Canada Grain Act will be comprehensive.

In closing, I would like to thank you, Mr. Chairman and members of the standing committee, for the opportunity to present to you some of our perspectives on the review. The COMPAS report provides a very good base for moving forward. In the meantime, the Canadian Grain Commission will continue to deliver on its mandate to serve the interests of producers and the entire grain sector.

Again, it's a pleasure to be here today, and we look forward to answering your questions.

[The Chair, Conservative, Gerry Ritz]

Thank you, Ms. Hamblin.

Mr. Harasym, do you have any follow-up points?

[Terry Harasym, Assistant Chief Commissioner, Canadian Grain Commission]

No. We're ready to go.

[The Chair, Conservative, Gerry Ritz]

Mr. Steckle, you have seven minutes, please.

[Paul Steckle, Liberal, Huron—Bruce, ON]

Yes, I may, in the interest of time this morning.... We have a lot of people who want to speak to this topic.

Given that there is a move afoot by the current government to address the whole issue of single-desk selling in this country, if the Wheat Board were to be altered in such a way as to remove that single-desk concept, what kind of impact would that have on your organization in terms of the movement of grain ultimately through to the consumer? Would that same access be there? Would you still be there? How do you foresee that, or has there been no consideration given to how that might affect you?

[Christine Hamblin]

Regardless of the changes that would occur with the Canadian Wheat Board, the Canadian Grain Commission's mandate would remain the same. We will continue to operate as a neutral third party for the inspection and weighing of grain.

Our mandate covers 21 different grains, not just wheat and barley. So I won't say that there would be absolutely no changes, but the mandate will continue, and changes would be minimal.

[Paul Steckle, Liberal, Huron—Bruce, ON]

It's fair to say that the people buying our grains and various products that you people inspect before they reach their destination realize the quality assurance program that we have, and that coming from Canada, they can be assured of timely--in most cases--delivery of product, and certainly of a safe and quality product. And I think the Canadian Grain Commission has done an excellent job in doing that.

Anytime that we've had reviews of past organizations and their structure and how they've conducted themselves, there's always been a need for a committee or an organization or a body that does this kind of review to come up with substantive changes. And I guess the question that farmers might want to ask of you, were they here today to do that, would be how much of this new cost is going to be passed on to the farm community. I think that's a very important question, given the very difficult times we're in, particularly in the grains and oilseeds sector.

I'm just wondering how you see the recommendations. I haven't read them all, so I'm not in a position to ask questions on the details, but I can certainly ask how you, from your perspective, initially looking at the report, see where this might lead us in terms of the costs and where those costs might be passed on.

[Christine Hamblin]

I think we need to first of all recognize that COMPAS was not instructed to do a funding or a costing basis for their recommendations. So the COMPAS report does not include an answer to your question.

I think it's very important that we look at the recommendations that would be implemented and discussed, exactly some of the issues you've talked about: the impact on producers, the costs. Ultimately there needs to be a decision made on funding.

The Canadian Grain Commission has been in a situation of being underfunded for a number of years because of the desire to not increase costs to producers. It is a question that is going to have to be addressed going forward. COMPAS puts forth the suggestion that infrastructure costs be funded by appropriation and that service costs be funded by fees. I think it's a model that has some merit, but obviously there needs to be some definition of infrastructure and a definition of services, and then a decision can be made as to whether it's appropriate for government to fund or for producers to fund.

[Paul Steckle, Liberal, Huron—Bruce, ON]

Who would be the basis of the report recommending outsourcing of inspection, when that's been done in-house? How do you think it will impact the work you people have done in the past and will do going forward? How would you have the assurance of continuity of quality assurance, given that it would likely be contracted to the lowest bidder? If this were to be the case--I think you talk about outsourcing and inspection--where would you see that going? I have some difficulty with that, because I've seen that kind of thing happen in other areas in which we've done those kinds of things, and they haven't always been positive.

[Christine Hamblin]

First of all, on what they're talking about, our mandate has us responsible for inspection and weighing as a product moves into the terminal elevators and again as it moves onto a vessel. We call it “inward” as it's going into the terminals and “outward” as it's going onto the vessels.

The report is suggesting that those services be contracted out, with the Canadian Grain Commission having oversight. They also have suggested that the Canadian Grain Commission continue to be one of the providers of that service. That model, we feel, would probably have some cost implications that perhaps would not be reasonable. I think the whole issue of contracting out needs to have some further work done on it. As you know, we have had an independent study by Meyers Norris Penny to look at that issue. Other studies in the past have also looked at that issue. Meyers Norris Penny have presented their discussion, but they didn't put forward solid recommendations. We need to evaluate those recommendations. We need to acknowledge the work our inspectors and weighers do, and the value it adds to the marketability of Canadian grain. Those things all have to be taken into consideration before decisions are made to move forward.

[The Chair, Conservative, Gerry Ritz]

Thank you.

Mr. Anderson is next, for seven minutes, please.

[David Anderson, Conservative, Cypress Hills—Grasslands, SK]

Thank you, Mr. Chair.

I had really hoped that this review would set the tone and direction for the next thirty years in grains, and we've talked about that.

I'm wondering if you see that this report really addresses some of those approaching issues. It talks about things like ethanol as a big thing; I'm not aware that it deals much with things like neutraceuticals, pharmaceuticals, or that kind of thing. Does it address the changes that are going to be taking place in the grains industry?

I'm particularly concerned that there really doesn't seem to be any solution presented by the report to this issue of KVD. Second, you've come forward with only a suggestion of adding one more new class of wheat to the list. I'm not sure that's going to meet their future requirements either. I'd be interested in your comments.

[Christine Hamblin]

To save my voice, we're going to take turns answering questions. Terry will respond to this one.

[Terry Harasym]

Thank you for the question.

The whole area of KVD is an issue we've been wrangling with, at the commission and in the industry, for probably 40 years or more. We have pretty much decided that there are clearly balance issues with respect to preserving the existing market for milling wheat while at the same time trying to create a new class of wheat that can be used on the domestic feed or ethanol side of the equation.

I think the approach we have taken--and it has been supported by COMPAS in the report--is that there is a need to do both these things simultaneously. I think if you asked anyone in the industry whether we would want to remove the constraints of KVD on the plant breeders, and therefore the ability for farmers to have new varieties to use in new ways on the domestic front--either feeding or ethanol or other uses--they would say that of course we do. It is hooked, fundamentally, to some mechanism to be able to segregate the milling and the non-milling classes.

Obviously the answer, in a simple way, is technology. We do not have anywhere in Canada--or worldwide, for that matter--the ability to use a technological solution to do what we're talking about in a way that is either cheap or effective or capable of reliable use close to an elevator driveway.

I think the answer is that we are moving forward to answer the needs that are on the domestic side. We are doing it in a measured way; we are doing it in a balanced way. It does provide an interim solution to addressing the needs of the livestock feeding sector, as well as the ethanol side. It is clearly not as fast as some would like, and it is probably faster than others would like. We do have competing uses for the wheat we produce, and the issue is how you do it in a measured way as you go forward.

I think COMPAS has recognized the complexity of the issue; I think they've also recognized that our solution has been a long time coming, but it is progress and it is moving in the direction you've just described.

[David Anderson, Conservative, Cypress Hills—Grasslands, SK]

One of the problems is that the farmers have waited, as you say, a long time and this has not changed and it doesn't change. We lose varieties. They have to move across the border usually and they're producing ones that we've developed up here.

I'm just wondering if you have any comment on this. Rather than just introduce one new class and accept that this is what it's going to be, is there a way of introducing a process that could be put in place to amend those classifications rather than just saying for now we're only adding one new class and that's how it's going to stay forever? Isn't there some way whereby we could put a process in there so that we can then be flexible as time goes on here?

[Terry Harasym]

I think the issue of one new class is that we are trying to address the general purpose component of the wheat non-milling market uses. We could end up with many different types of varieties, specifically aimed at different end uses. It may be ethanol or it might be, as you suggest, other uses. So I don't think the creation of one new general purpose class is in any way limiting the ability of the breeders to specifically tailor a variety for a specific end use.

[David Anderson, Conservative, Cypress Hills—Grasslands, SK]

There's just one point, though. That doesn't give any option on anything that looks or has that same visual look as your two main classes.

[Terry Harasym]

That's correct.

[David Anderson, Conservative, Cypress Hills—Grasslands, SK]

So those things are still ruled out, and that's actually what the issue is with seed growers and with farmers. They want the ability to produce those other varieties and to find some way of segregating them so that they can grow them. Isn't that correct?

[Terry Harasym]

That is correct. I think there is clearly, as I said earlier, a need to.... The CW red spring and the CWAD classes account for 85% of the wheat produced in western Canada. It is milling classes of wheat. What we were trying to do by removing ultimately KVD requirements from the six minor use classes and the creation of a general purpose class is to in fact move in the direction of providing our plant breeders with the ability to do exactly what you're talking about. Until we have a technological or better way of ensuring that we have the capacity to keep the milling-quality wheat segregated from the non-milling types, I think it's prudent for us to do it in a phased and stepwise fashion.

[David Anderson, Conservative, Cypress Hills—Grasslands, SK]

Western farmers continue to wait.

Paul brought up the issue of inspections. I see that COMPAS is recommending that inward inspections become optional. I think this is something that in the past you didn't oppose. Am I correct on that?

The suggestions in here regarding inspection would bring some fairly radical changes to the system if they were implemented. Is that correct? You're talking about doing away with inward inspection or making it optional, so limiting your role there, but also privatizing some of the services. Do you have any comments about that, other than the ones you made in your statement?

[Christine Hamblin]

I think they are significant changes. If we go down that path, there's no question, and my comments in the opening were that really we need to do some work on evaluating the impacts of some of the recommendations around inward inspection and contracting out.

We don't feel that it's efficient to have those services contracted out and at the same time be one of the competitors in that environment. We think that would add a significant cost to our system, which could be producers paying or government paying. But there is value in the work that our inspectors are doing and we need to make sure that as we move forward we're giving full credit to what we've done in the past but acknowledge that there is room for changes. And if the decision to view it in a different way is made, then we need to ask ourselves how we best accommodate the needs of the industry in doing that.

[The Chair, Conservative, Gerry Ritz]

Mr. Bellavance, seven minutes, please.

[André Bellavance, Bloc, Richmond—Arthabaska, QC]

Thank you, Mr. Chairman. I would imagine the Liberal Party will be up before the Bloc Québécois when the next round of questioning begins. I just wanted to be clear on the order of questioning.

Thank you for joining us and for testifying. This review is thorough, if not comprehensive. After all, 102 recommendations have been made. Are any of these recommendations priorities to you? You're well acquainted with grain growers. They've also had an opportunity to give testimony and to take part in this study.

In your opinion, which recommendations should be given priority consideration? I'm not asking you to list every single one, but surely the Commission feels that some priorities are more urgent than others. Which recommendations would top the Commission's list? What issues would the Commission like the government to address?