Agriculture Committee on Oct. 3rd, 2006

[The Chair, Conservative, Gerry Ritz]

We will continue with our discussions on the COMPAS report on the Canadian Grain Commission.

Joining us this morning is Jeff Reid, Ken McBride, and Marvin Shauf--Marv, you didn't get a title; we'll get you one. He is no stranger to the committee.

Ladies and gentlemen, we'll move right into the meeting. We do have some housekeeping things at the end of it, so keep that in mind for timeframe as well. Thank you for making the change to the 9 to 11 slot this morning.

With that, we'll turn it over to Ken. Are you going to lead off with a short submission?

[Ken McBride, President, Agricultural Producers Association of Saskatchewan]

Sure, I can do that. Thank you very much.

The Agriculture Producers Association of Saskatchewan is pleased to have this opportunity to address the standing committee on the important issue of the future of the Canadian Grain Commission. APAS is Saskatchewan's farm organization with a mandate to promote the interests of agriculture producers in Saskatchewan. As a democratic grassroots organization, our objective is to effectively influence government and other industry stakeholders through sound policy development aimed at improving short-, medium-, and long-term sustainability of agriculture in Saskatchewan and Canada.

Ours is an industry that's gone through many evolutionary changes over a relatively short period of a few decades. Many of the changes seen in Canadian agriculture have been, first, to develop a strong agriculture industry in this country, and second, to react to the impacts caused by agriculture policies of other countries. Over time, the institutions, processes, and infrastructure that have been developed to build this industry have come to play very different roles in a world driven more by economics than subsistence, more focused on mechanization, and have moved from a largely public paradigm to one that is much more privatized.

In many cases, the infrastructure and institutions that have been put in place for the purposes of streamlining and building the agriculture industry have not evolved at the same rate as the rest of the industry. That does not mean, however, that there does not continue to be value in the presence of those institutions for the benefit of the industry and the Canadian economy as a whole. The Canadian Grain Commission is one such institution. In the case of the CGC, there is still value to the industry for the institution to deliver on the mandate on which it was originally organized. That is, one, to establish grain grades and standards; two, to regulate the transportation, handling, and storage of grain in Canada; three, to provide producer protection services; and four, to undertake and sponsor research in grain and grain products.

While there is little doubt that there is still value to be provided to the industry through the operations of the Canadian Grain Commission, the COMPAS report has, rightly in our opinion, identified several areas under which the CGC may need to evolve more quickly to streamline processes and practices to ensure maximum value is being provided to the industry and, more importantly from our perspective, to producers. For example, we concur with the recommendations made in the report that the CGC processes must become more transparent to the industry stakeholders, and that all stakeholders be afforded a more intensive opportunity to guide CGC policy and programs. We encourage the CGC to continue to work toward evolving the grading industry to ensure that producers in Canada continue to have competitive tools that ensure producer profitability on a global basis but don't limit Canadian producers from maximizing their ability to be profitable at home as well.

With the increasing trend toward privatization in the grain transportation and handling system, it is of paramount importance that producers are able to trust the institutions put in place to protect their interests. For this reason, it is of great interest to APAS that the CGC be more proactive in enforcing the Canadian Grain Act to ensure that producers' interests are protected, so that they retain and are able to continually enhance the power they hold in the marketplace.

Of the recommendations made in the COMPAS report, however, APAS is concerned with the recommendation that inward weighing and inspection services become optional in the system. With current mandatory use of inward weighing, producer-owned facilities, producers who utilize producer cars, and companies without export facilities are all able to access an objective assessment of the weight and grade of their grains and oilseeds going into the export terminals. This requirement provides stability and integrity for the entire system. Even in the case of inter-company transactions, the objectivity provided by the third party inspection allows for more stability in accurate weighing and grading. This could and should translate into a producer benefit, as companies are less likely to enlarge margins to cover error when purchasing at the producer level.

As stated previously, there continues to be net benefits to the industry through the use of institutions and processes that exist in today's environment. In the case of inward weighing and inspection, producers stand to benefit from a symbiotic relationship between the Canadian Wheat Board and the Canadian Grain Commission. Terminal gains that may be shared with the CWB are a direct result of Canadian Grain Commission inward and outward inspection at the terminals. Without an inward and outward weighing and inspection quantification, there would be no way of determining gains or losses other than by information supplied by the company.

Without a CWB there would be no mechanism to provide this value back to producers, as there are none currently for any other grains that are sold strictly on the open market. Without this inspection being mandatory, there is no accurate measurement of the throughput to determine terminal gains. From the perspective of maintaining producers' interests, the Canadian Grain Commission has an obligation to maintain the use of inward weighing and inspection to ensure that the grain handling system operates with integrity and honesty for the good of the industry and for the economy.

It is interesting to note that the move towards eliminating inward weighing and inspection services provided by the Canadian Grain Commission is largely being championed by those companies that own export terminal capacity. In the western Canadian system at present, the removal of inward weighing services would provide an extremely negative perception of the system, with those operators being given the ability to treat the rest of the system unfairly.

To mitigate the issues that eliminating inward weighing and inspection services would purportedly address, APAS would recommend that the differential in standards between country and export should be examined for the inefficiencies and added expense that it causes. Blending down or mixing in foreign material may be some of the most expensive practices we have, which will not be addressed simply through the elimination of inward weighing and inspection. There are some perverse incentives for operators to do the wrong thing because of the difference in standards between our country and other countries we trade with.

Producers will ultimately pay a large amount of the cost within the system. Even though other system participants ask for the service, and even if they pay for it, those costs will flow through to producers through handling and cleaning charges. Especially for the inter-company transfers, it is a net benefit to those companies to have the CGC facilitate shipment at the bottom of a grade. Those costs should not continue to be part of the costs that are for the public good or that are borne by the producer.

That's what I have to say right now. Thank you very much.

[The Chair, Conservative, Gerry Ritz]

Thank you.

We'll move to Jeff Reid, second vice-president of the Canadian Seed Trade Association, for a submission.

[Jeff Reid, Second Vice-President, Canadian Seed Trade Association]

Thank you very much.

I'd like to thank you, on behalf of the Canadian Seed Trade Association, for the opportunity to make our comments today on this issue. We would like to limit our comments to KVD, or kernel visual distinguishability, rather than the whole COMPAS report.

My comments will be largely contained within the submission we made, which is available in both French and English, but rather than speaking directly from that submission I'll comment more directly, based on my own personal involvement in the seed industry and some examples we would like to share on opportunities for evolving KVD into the future.

The CSTA represents 143 member companies across Canada that are engaged in all aspects of the seed industry, including research, plant breeding, and production and marketing on both a domestic and international basis. Membership ranges from small companies to multinationals that market garden seeds and herbs; from large western grain companies to small family-run and farm-based businesses across the country. Our members produce about 50 different crops, including grains and oilseeds, special crops, forages, turf grass, flowers, vegetables, and fruits.

Every year over 1.2 million acres of pedigreed seed crops are produced in Canada by over 4,000 experienced growers. The Canadian seed industry makes a very important contribution to the agricultural sector and the economies of Canada and its provinces. The industry generates more than $770 million in sales annually. In addition to 4,000 growers, Canadian seed companies employ an estimated 9,600 Canadians.

The seed industry also makes a strong contribution to Canada's export balance. About 25% of the seed produced in Canada is exported to over 70 countries. Exports of Canadian seed are valued at about $188 million.

Agricultural production starts with the seed. Innovation in the seed sector has driven tremendous improvements in productivity in the past, and continues to be a critical tool for managing risk and increasing benefits to farmers. For example, there are new crop varieties on the horizon that will be increasingly resistant to disease and pests, have increased drought and salinity tolerance, and make better use of nutrients.

I also represent a seed organization. I'm the general manager of SeCan Association, which is based here in Ottawa. We represent about 1,100 member companies across Canada, including everything from small to large--in some cases multinational--independent grower/processors and grain companies. We market both publicly developed and privately developed genetics and are quite proud of the contribution we've made in that regard. We directly return over $40 million back to research on the development of new plant varieties across Canada. We account for roughly 40% of the certified seed sold in Canada.

We have some definite views on kernel visual distinguishability and the impact it has on our ability as seed companies and seed marketers to be able to innovate and add value for our customers across Canada. I would like to share with you, largely on personal experience, what has happened when we removed the barriers on kernel visual distinguishability.

I was previously employed by a small seed company in Ontario that specialized in red wheat variety development. In the Ontario example, KVD restrictions were removed in 1989, and this allowed us to really innovate within the province. The industry speaks for itself on this point, in that it flourished and developed quite a broad array of new products and value-added opportunities for farmers, which have also led to increased investment downstream on the part of grain companies, food processors, and so on. All of this has decreased Ontario producers' dependency on export markets and has brought a wealth of diversity to the cropping options available to them. It has helped wheat acreage to actually increase and compete effectively with other production options, such as soybeans and corn.

So if we look to the future of western Canada, our belief is that what's happening right now is that we're on the verge of some exciting opportunities. Obviously we have a significant investment going on in western Canada in the feed industry, which would benefit from higher-yielding genetics that also have improved disease tolerance.

We also have the emergence of the energy opportunity, in terms of ethanol production in western Canada, which again is going to demand that some radically different types of wheat options be available to producers than in the past.

Based on this, we feel there's a great opportunity right now for us to embrace what is recommended in the COMPAS report, first by loosening up the KVD requirements on the minor classes. Further, we feel there's opportunity to make allowances for kernels to be included in other classes of wheat that in fact would resemble the CWRS and Canadian western amber durum classes.

The recommendations suggested by the Grain Commission to date include removing KVD from the minor classes. We certainly applaud this and think it's a step in the right direction. But we also believe we have a long way to go in terms of opening up KVD even further to bring the kinds of opportunities to western Canadian producers that exist in other countries and now in fact in Ontario.

We believe the cost of maintaining KVD in western Canada has been somewhat underestimated in the past. It's easy to underestimate the cost when you can't see exactly what you're missing. There have been some suggestions by a report that it's somewhere in the neighbourhood of $200 million a year. That is arguably much higher when you consider the cumulative beneficial effects of plant breeding over time.

It's our feeling that Canada really does have a competitive advantage versus our North American and international counterparts in wheat production, and we would like to see those opportunities opened up and further expanded for the benefit of producers. As I mentioned, we feel that in particular this will result in increased processing capacity in western Canada, and a healthier feed and ethanol energy industry going forward.

Coming back to the Ontario example, since 1989 we've seen the number of classes and opportunities available to Ontario farmers increase dramatically, to the point where most of the varieties grown now are visually indistinguishable from each other. This has resulted in a significant increase in processing capacity and investment in Ontario. A lot of that wheat, which is being supplied to domestic mills, is now displacing wheat from western Canada, where they are under the constraints of kernel visual distinguishability.

In addition, we've been able to bring in genetics from other countries that are suitable to many parts of Canada's production regions, but that are not visually distinguishable. In fact some varieties developed with western Canada in mind are now not eligible to be grown there, but can be grown in Ontario. So we feel there's a great deal to be offered to western Canada by removing those constraints.

Further, if we look within the COMPAS report, we talk about the opportunity that would be created by eliminating or reducing the constraints of KVD. We went back to a specific example in western Canada where one of our researchers from a CSTA member company—in fact, our company—made a comment that winter wheat breeders have not had a new hard red winter wheat variety supported for registration for five years, because the material is failing KVD requirements in western Canada.

Normally Canada western red winter has a smaller or less plump kernel than Canadian western red spring type wheat. However, in ideal growing conditions, red winter wheat varieties tend to plump up and produce larger kernels, so that they appear similar to Canadian western red spring. Hence, there have been no new winter wheat varieties in western Canada in the past five years. In contrast, in the east we now have about 20 different red winter wheat varieties available to producers that are offering all sorts of value-added opportunities—in fact, in some cases being identity-preserved for shipment to the U.S.

These are the sorts of opportunities we feel will certainly benefit western Canada in the future, if we're able to first of all embrace the concept of opening up the minor classes and further reducing the constraints of KVD on all classes of wheat in western Canada.

Thank you very much.

[The Chair, Conservative, Gerry Ritz]

Thank you.

Do you have anything to add at this time, Mr. Shauf? You are just here for the questions? That's great.

Thank you so much.

We'll move to the questioning round. Mr. Easter, you'll have seven minutes.

Oh, before Wayne starts, I'll just point out, gentlemen, that once our microphones are on, the BlackBerrys start giving us some distortion. If you're going to use it, get it down on your lap, away from the microphones.

Thank you, Mr. Thibault.

Go ahead, Wayne; I'm sorry.

[Wayne Easter, Liberal, Malpeque, PE]

Throw the BlackBerrys out, Mr. Chair. It would be a good thing.

Thank you, gentlemen, for your presentations.

Starting with Jeff first, I don't think you'll find any disagreement around the committee on the need to develop new products for different characteristics. The key, though, with the Canadian Grain Commission is, when you can't grade a product by visual distinction, how the commission can ensure—in the case, maybe, of some high-milling wheat that's being sold to wherever—that the quality is there for its intended purpose, whether it's making bread in some foreign country or whatever.

That's the problem: how do we find a way to assure quality? Do we have to go to different technologies? We need the ability to assure importing countries that the product is what we say it is and that we do not get blended in with number one red spring wheat, a product that isn't of the same characteristics. That's where we have to find the balance.

There's a research centre in Charlottetown looking into farm products for health requirements, etc., so we are going to be in the future growing products for other than just straight food purposes. Ethanol is another example. How do you see, moving forward, the assuring of quality? You've had the experience of Ontario.

[Jeff Reid]

Thank you very much. That's really a critical question, moving forward.

If we look to the bigger picture internationally, it's my understanding, based on my experience in the industry, that Canada is the only place that depends on this type of KVD system. Obviously there are examples of systems that work around the world, and certainly Canada is not the only place in the world that grows and delivers good-quality wheat to its customers. So we believe there are options out there. Some that have been explored in the past include an affidavit type of system, which I believe is certainly an option and one that has been employed in Ontario.

If we look, though, to what Canada's competitive advantage is, we look to the seed certification system we have in Canada. We have developed in Canada a very effective system, where the CSGA—the seed growers across Canada—work hand in hand with the federal government through the CFIA to have what I think is a seed system second to none, which provides a guaranteed, known entity of seed when it reaches the farmer. I think that provides us with a good base for knowing what we're starting with, and combined with an affidavit system, we feel it can be quite effective and has been effective in the Ontario market.

We have some unique opportunities in Canada. We have a variety of registration systems that ensure we know what is going out there, what is available to be sold, and what is available to be produced by farmers. We have, again, a second-to-none seed certification system, so that we know the seed is being delivered in pure form to farmers and we know what we're starting with. Again, with an affidavit system we think we have a pretty effective option.

Also, I think it's been proven by both the Canadian Wheat Board and the private sector within Canada that we are able to do a good job of identity preservation, keeping things separate. The Canadian Wheat Board themselves run quite a number of IP programs, which I think have been quite effective, and certainly private industry across Canada has demonstrated in all sorts of crops that they are in fact able to keep things separate and know what they're delivering to their customers. So where there's a demand by the customer to know what they're getting, that can be accommodated by industry, and I think that's been demonstrated quite well. As well, we can certainly have a testing system to verify this through the CGC.

[Wayne Easter, Liberal, Malpeque, PE]

Thanks.

I have a couple of questions to APAS.

Ken, you spoke against having optional inward weighing and inspection. Are you saying it shouldn't be optional and it should be compulsory? I don't think you specifically said either way.

You also talked about blending down. I understand what blending down is, but you came at it from the angle that, beyond ensuring quality on outward shipments, the Canadian Grain Commission is really there to protect primary producers from the grain companies to a certain extent.

You made the point that without inward weighing and inspection, there'd be no way to determine losses. Can you expand on that specifically? Are you suggesting that inward weighing and inspection should be absolutely compulsory and not to make that change?

[Ken McBride]

We believe inward weighing and inspection should continue as it is. It should be there for the protection of producers, for objectivity in the system so that everybody is operating under the same rules and producers know that what is weighed and delivered on their behalf to a shipper is actually what takes place, for the protection of our exporters, and for the protection of the people who are buying our particular commodity. We believe that integrity in the system, throughout the entire system, is extremely important. It's not only important for producers; it's also important for our shippers and exporters, and it's extremely important for our customers to know that what they're buying is actually what they're getting. We believe it's important for the entire system.

[Wayne Easter, Liberal, Malpeque, PE]

There's no way to determine losses.

[Ken McBride]

If there is no inward weighing, and you don't know exactly what the weight is when you leave, how do you know the weight is what it's supposed to be when it gets there? We see the inward weighing inspection as an important value for the system to ensure that integrity.

[The Chair, Conservative, Gerry Ritz]

Thank you, Mr. Easter.

On that point, Ken, before we leave it, do you have a preference? Should the CGC continue to do it or should it be contracted out? It was part of the issue in the COMPAS review as well, where the CGC feels it's not the best value for money. They're not specifically in favour of contracting out, but the industry said they'd like that option. What's in the best interests of producers?

I am certainly a strong proponent of inward grading. How do I control what I've delivered to the elevator if I don't have that ticket?

Do you have any idea as to the dollars that blending generates back to producers?

[Ken McBride]

I can't speak exactly to the number that's generated back to producers.

But as far as the contracted part of it is concerned, as long as the standards are maintained, the contractors do it to the same standards, and everybody is grading on the same standards, then if there's an issue where contracting provides more available grading to other producers throughout the system—and I'm talking grain buyers or whatever—and there's a cost saving, why wouldn't we look at that?

[The Chair, Conservative, Gerry Ritz]

Thank you.

Mr. Bellavance, for seven minutes, please.

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

Good morning, gentlemen.

Thank you for being here.

Mr. McBride, I would like to know if you have been consulted by COMPAS about all these changes to the Canadian Grain Commission and, if so, do you find a reflection of your recommendations in the report?

[Ken McBride]

We did have the opportunity to make a submission to the COMPAS process. We attended one of their meetings when they were in Regina, so we have had a chance to make a submission to that organization on behalf of our producers.

There are parts of that report that would reflect what we talked about in our submission, and as I said in my statement, I believe that organization has to evolve along with the rest of the system. As long as that system is a regulation body that looks after protection of producers, but also looks after the integrity of the system, that's what's important. We need to have that system there to ensure protection for producers, but also protection for the people who are buying our product for export to ensure that they are indeed getting what they want.

I think, by and large, we had an opportunity to have a conversation there and to have input.

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

Representatives of another producers' Association who appeared last week before the committee told us that the general directions of the report did not reflect what the producers really wanted.

From what you told us today, you seem to believe that some aspects of the report are a true reflection of the wishes of the members of your Association.

[Ken McBride]

As I said in my statement, as long as the Grain Commission maintains its regulatory governance of the Canadian Grain Act, that's what it's there for. It's a regulation body and it should be able to regulate and ensure that what the Canada Grain Act says is adhered to. We need a regulation body to do that, and as I said, if it goes through some evolutionary changes--there are things that can be done for efficiencies--we should look at those.

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

You have expressed some concerns, which I believe are legitimate, about the costs that producers might be forced to absorb if several of the COMPAS recommendations were implemented. However, these costs have not been calculated. When they testified, representatives of the Canadian Grain Commission told us that the costs related to those changes are unknown.

Could you explain to us why you fear that the costs related to those changes would in the end have to be absorbed by the producers?

[Ken McBride]

Past experience would indicate to me that, if somebody above me has an extra cost that they need to absorb into their business, it usually goes to the lowest end of the scale, and producers are in that particular position. The incurred cost in whatever the system is--whether the grain handlers handle that or whatever--in turn gets handed back down to somebody in the chain, and the guy who can't push it back up the chain any longer is the producer. We have the concern that added costs will be borne by producers, so we're saying the value that the Canadian Grain Commission brings to the entire economy would indicate that some of that cost could be borne, or should be borne, by the taxpayer, simply because it is a benefit to the economy to have our industry where it is.

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

Your solution seems to be that the Commission would keep its mandate so that the rules would be tightened and no cost would then be unduly transferred to the producers. Am I right?

[Ken McBride]

Yes, we believe it's extremely important that the body stay there. As I said, there are evolutionary things that can happen--there are efficiencies to be gained. If there are efficiencies in a system, we totally believe they should be looked at. Anything that can be done to do it in a more cost-effective way should in fact be looked at and implemented.

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

Mr. Reid, you've raised the issue of quality in answer to Mr. Easter. The people from the Canadian Grain Commission have told us during their testimony that the COMPAS recommendation that inward weighting at the terminals would become optional and that it would be done under contract by the private sector.

Have other members of your Association, the seed traders, looked at this issue? Do they have any fears about the quality or even the safety of the product for consumers?

[Jeff Reid]

Essentially, our organizations do not get involved at all on the grain side of the business. Our main concern is with providing a high-quality, pure product going into the production process. On behalf of the seed trade or SeCan, that's not an area we would get involved in or have an opinion on at this point.

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

Mr. McBride, have you looked at the contracting-out option?