Evidence of meeting #17 for Agriculture and Agri-Food in the 39th Parliament, 1st session. (The original version is on Parliament’s site, as are the minutes.) The winning word was kvd.
A recording is available from Parliament.
Conservative
Professor, Plant Sciences Department, University of Saskatchewan
They started twenty years ago.
Conservative
Bloc
Jean-Yves Roy Bloc Haute-Gaspésie—La Mitis—Matane—Matapédia, QC
Thank you, Mr. Chairman.
I have one question. However, I would like to come back to the bonding system you spoke of, Ms. Dutton. I want to be sure I understand.
The purpose of the bonding system is to protect producers and ensure that the companies buying the grain are creditworthy and capable of paying the producer. That is the purpose of the bonding system.
You say that the companies producers sell to have no bonding system. In my opinion, the issue is really that we have a free market system. A producer is aware of the risk he runs if he sells to a business that is not necessarily bonded.
However, you talked about an insurance system and of the some 2% in investments that would represent, as opposed to setting money aside to be bonded, as is currently being asked of you.
Are you talking about a private or public insurance system? The two systems are quite different. Under a private insurance system, the costs go up considerably when there is even one accident. When costs go up, the person at the bottom--namely, the producer--is the one that ends up paying them. Even if the company pays some of them, it's clear that most of the costs will be passed on to the producer. They can't be passed on to the buyer, because it's a question of staying competitive. So there is an issue there, if you're talking about private insurance.
So, I would like you, on behalf of your company, to present your personal vision of how this could work--in other words, what you would like in the way of a bonding system.
As an Individual
Thank you for your question.
Previously there was an option for a grower to deliver to an unlicensed company at their own risk, and some people recommend that this indeed be part of the new system. Right now the risk insurance for a farmer is covered by a system of bonds. This means that I have to have, in any given month, enough of a bond held in place to cover the liabilities I incur during that month. To assume that there's a difference in cost between risk and bond is not accurate, because you're still covering the percentage of sales. The only time that's different is when a client is over his bond; then they're not covered for whatever percentage is exposed, and not covered by perhaps not reporting accurately or by whatever system is being bought by non-licensed companies.
With the insurance, I really think we shouldn't focus on what the number or the percentage is, because it will vary. It probably will vary per client. It can be a public insurance or it can be a private insurance. Right now we operate under our export insurance. We use EDC to insure our outgoing exports. We use that as a method to protect our investments. So indeed, upon delivery, the farmer would then be insuring his product during that time.
I find there's a very disjointed understanding of the costs. When I talk to farmers, they tell me they won't pay for insurance for their grain. What they don't realize is that the cost is in the equation, whether I pay it for them, they pay it on their own behalf, or there's some type of cost-sharing.
I think the point you made that is important to focus on is that during the initial stages of any program, there will be an outstanding liability. There won't be a big enough fund, and perhaps the insurance won't be willing to take on the enormous amount of risk that perhaps could be involved. It then would be the role of government to pick up the slack in the terms of overexposure at the time, and to protect and to keep the royalties or the premiums at a lower level.
It's also important to realize that if we are going through humongous changes in our industry.... For instance, in terms of the ethanol and biodiesel component that we're seeing reflected in the study, we're looking at 25% less wheat going out of the country and some 30% less canola. And that's just talking about Canadian statistics; it's not talking about how much is going to happen when we get pressure from the U.S. because they need our grain more. There are some people who feel that our trade will become more north and south than indeed export-oriented.
It's important to ask, if we also look at the Canadian Wheat Board and the changes that may happen, what is the most bankable and simple system?
Bloc
Jean-Yves Roy Bloc Haute-Gaspésie—La Mitis—Matane—Matapédia, QC
As of now, has no real assessment been made? Have none of the companies working in your area assessed the bonding system?
As an Individual
Okay.
There were some major studies done. I think the most proof in the pudding that this can operate is the case of Ontario; it's the system they use. It's not only used in Ontario; it's used in many jurisdictions in the U.S.
Conservative
Jacques Gourde Conservative Lotbinière—Chutes-de-la-Chaudière, QC
Good afternoon.
In my former life, I was a grain producer and buyer. I'd like to draw a parallel with Quebec. As far as grading is concerned, the Régie des marchés agricoles et alimentaires du Québec is responsible for training graders, who are accountable for their decisions. The producers themselves can register with the Régie and become graders.
As well, again in Quebec, every time someone sells grain, he is responsible for that grain. The buyer can always refuse the grain if his grader grades it differently from the sellers. For example, if I'm selling No. 2 corn, I have to provide the weight and the grade. If my buyer determines it to be a different grade--supposing it's No. 3 corn, then an independent grader must automatically proceed with a third grading assessment. Then, if they still don't agree, the case is submitted to the Régie. It is very rare for this sort of thing to happen. Only 3% of gradings are submitted to a third grader, and about 0.8% of gradings are submitted to the Régie. This is a system that makes it possible to resolve a lot of problems in a number of markets.
We're from the East, but we have noted that in Western Canada, that is not at all the way the system works. We have trouble understanding your issues, because we work a different way, which may be closer to the way the Americans work, since we buy a lot of American corn.
In fact, our grading is based on the specific weight, the humidity, and the broken grain in the shipment. In terms of proteins and so on, the grading is done with grain orders called “identity preserved grain”.
I'm trying to draw a parallel between what happens in the West, and your way of grading grains, which is causing us problems. Indeed, it seems that in Western Canada, grain is not graded the same way it is on the world market. You export your grain around the globe, but your grading system does not seem to be internationally recognized. The other countries may have evolved and have moved now to a global system with respect to grain and grading. Or is it because here in Canada, and specifically Western Canada, we haven't gone along with that trend and have thus inhibited developments in that regard?
As an Individual
You mentioned that growers have to provide a grade for their product upon delivery. Is that what you said?
Conservative
Jacques Gourde Conservative Lotbinière—Chutes-de-la-Chaudière, QC
A producer can decide not to grade his grain, but he must accept the grading determined by the first buyer. However, if he wants to challenge the buyer's grading, he can always grade his own grain.
Graders are all trained by the Régie des marchés agricoles et alimentaires du Québec and are accountable for their decisions. If it were to happen repeatedly that a grader improperly graded the grain, he would have to take the course again, because otherwise he could lose his certification and perhaps even be prosecuted, if there is a belief that he was dishonest in establishing the grading. That's why it is extremely rare for grain to be improperly graded. It is graded two or three times, and in 97% of cases, the result is the same each time.
As an Individual
There are differences, I believe, in accountability. At the moment it is very difficult to find accountability. In saying that, I think one of the big differences between your market and ours is that we're shipping, as a rule, large volumes of grain, especially in the case of wheat, where a farmer may deliver 40 tonnes that becomes part of a 40,000-tonne shipment once it hits Vancouver. That's probably where you're ending up with the most costs.
As far as the process you initiate between the grower and the elevator is concerned, probably the only difference is that there is a grade dispute mechanism that's not often employed. I don't think we should knock the Grain Commission's success in providing Canada with a very reputable product. Don't ever go saying that we do not have a world-recognized system. If in any way you got that message, it would be erroneous. We have very well-represented grading standards, from my knowledge.
Professor, Plant Sciences Department, University of Saskatchewan
There is one more level of grading in this whole process. That grain--because 70%-plus of our wheat is exported into the international market--is also graded when the international buyer purchases the grain, and if it doesn't come up to the standards that they feel it should in terms of what they purchased, then they don't have to accept the delivery. There are often penalties associated, and those penalties go right back to the farmer in terms of the pool.
Conservative
The Chair Conservative Gerry Ritz
Thank you, Mr. Gourde.
Mr. Atamanenko, do you have any follow-up? I'll give you a couple of minutes.
NDP
Alex Atamanenko NDP British Columbia Southern Interior, BC
I have a quick question and hopefully there will be a quick answer.
On KVD, once again, Canada has it and the United States doesn't. Am I correct?
Professor, Plant Sciences Department, University of Saskatchewan
Western Canada.
NDP
Alex Atamanenko NDP British Columbia Southern Interior, BC
What is the difference between a farmer who takes his grain in his truck from his farm in Canada and the one in the United States? What is the difference as he or she moves up in the grading process? How do the systems differ? Obviously, the quality of wheat is good there too.
October 5th, 2006 / 12:40 p.m.
Professor, Plant Sciences Department, University of Saskatchewan
The systems are quite different, but one major difference is there is no KVD at all in the U.S. system. My experience with the U.S. system--and I think maybe others can comment as well--is they focus more on the actual quality factors that are important to the product they're buying.
NDP
As an Individual
I have just one specific example, and Conrad maybe is the person to comment. When the Canadian wheat was grading number three and receiving a very low price, that same product could go across the border and be sold into the U.S. system at a higher value.
President, Great West Railway
One of the biggest differences between the two is the varieties they're able to develop and grow versus ours. That's where they're beating us now, and the spread is getting further and further apart.
NDP
Alex Atamanenko NDP British Columbia Southern Interior, BC
What about the process? When an American farmer takes his grain, how does the grading happen if there's no KVD? What happens?
Professor, Plant Sciences Department, University of Saskatchewan
Maybe you should comment on that, Conrad.
President, Great West Railway
At my brother's farm west of Havre, Montana, they'll take composite samples of their grain and that grain will go to a terminal and it will probably end up in the state grain lab in Great Falls, Montana. They'll get a printout sheet that lists protein, falling numbers, etc. You can go up to six or seven factors on there. That's just like a bible. That's what you'll take to the companies to market your grain.