Thank you, Chairman. It's indeed a pleasure to be here with you and with the standing committee members.
Just to give you a little background, Terry and I are two of the three commissioners at the Canadian Grain Commission. I'm from Manitoba and actually have a farm just south of Winnipeg with my husband. Terry is from Saskatchewan, and our third commissioner is Albert Schatzke, from Alberta. So the three commissioners represent the three prairie provinces.
Mr. Chairman, standing committee members, and honoured guests, it is certainly a pleasure to be here to provide you with some information about the Canadian Grain Commission and to answer some of your questions.
Today I'm going to focus on our mandate, some of our current activities and priorities, and also address some of the challenges that we are facing.
First of all, the Canadian Grain Commission administers the Canada Grain Act. The Canada Grain Act was established in 1912 by legislation and it is the act we have been following since that time. Our mandate as set out in the act is in the interest of producers to establish and maintain standards of quality for Canadian grain and regulate grain handling in Canada to ensure a dependable commodity for domestic and export markets.
The Canadian Grain Commission's responsibilities as a neutral third party in quality and quantity assurance for 21 different grains are very distinct from those of any marketing organization. Our mandate supports the Canadian oilseeds, cereal, and special crops sectors to compete in a rapidly changing international marketplace.
The Canada Grain Act has been modified on a number of occasions, but not significantly since the early 1970s. As many of you are aware, there is an independent and comprehensive review currently under way and the recommendations are to be presented to the Parliament this fall.
We look forward to working with both the minister and the government to ensure that the Canadian Grain Commission is well positioned to have a quality and quantity assurance system that works well for both producers and the industry.
The Canadian Grain Commission's top priority is the delivery of mandated services and regulatory responsibilities assigned to us under the Canada Grain Act. This includes quality assurance, quantity assurance, research, and producer protection. Quality assurance begins with the setting of standards for the inspection of grain. Our scientists and inspectors work very closely to develop standards that reflect the end use quality our customers have grown to expect from each grade. This consistency is important to customers and helps with the marketability of Canadian grain.
Quality and quantity assurance also includes the inspection and weighing of grain as it arrives at port and is subsequently loaded to vessels. Our research also includes finding better ways to evaluate grain quality. This enables us to move from subjective testing to more objective tests. Two examples that are currently under way right now are falling number to replace sprout count and chlorophyll to replace the green count in canola. Another very important function of the research that we're doing is the testing and monitoring for grain safety. The demand for these assurances has increased exponentially in the last few years.
The underlying principle of the Canada Grain Act is to ensure fair grain transactions. This is a very important aspect for producer protection. Two other aspects of producer protection include the licensing and security component and the allocation of producer cars.
I'll tell you a little bit more about the licensing enforcement and licensing and security component. Under the Canada Grain Act, any enterprise buying western grain and incurring a liability to producers must be licensed and post security with the Canadian Grain Commission. The security is intended to compensate producers should they deliver grain to an enterprise that is then unable or unwilling to pay the producer or to return the grain.
The past 15 years have been characterized by the emergence of many smaller grain dealers who went into business to market the increasing production of special crops. These companies tended to avoid licensing and security requirements, feeling that the demands involved affected their working capital position. The Canadian Grain Commission used moral suasion rather than the Canada Grain Act to encourage these enterprises to become licensed, but the results have been very mixed.
Work has been going on for some time to find better solutions, and recently work done by some of the provincial pulse organizations, including producer organizations and industry groups in western Canada, concluded that although the present system of security and licensing was not perfect, it was the best available and licensing and security requirements should be enforced.
Therefore, as of August 1 of this year any enterprise incurring liabilities to producers through the purchase of western grains will be required to be licensed and secured or exempted. The Grain Commission has diligently communicated all of the details of this initiative to industry and producers across the prairies.
The next initiative I would like to talk about is the wheat quality-assurance strategy. For many years, grain handlers and the Canadian Wheat Board have relied on kernel visual distinguishability, or KVD, as a cost-effective segregation and marketing tool for assuring quality of milling wheats. Steadily increasing demand for non-milling wheats destined for the feed and ethanol industries prompted the CGC to launch an extensive consultation in an attempt to find alternatives to processes that were in danger of becoming outdated.
As a result of several initiatives over the past few years, we have developed a three-part strategy. The first part is our variety ID research. We have allocated significant resources at the Grain Commission to continue research into variety identification. We are making some great progress, but the testing continues to be very much a lab-based test. Although we are striving for a quick driveway test, we feel it will be some time before we can accomplish that kind of testing; therefore, we still need to look for other ways to segregate grain.
Our second point in the strategy is to continue monitoring for ineligible varieties in our shipments. We monitor rail cars and vessels to ensure that we maintain the integrity of our wheat shipments.
The third part is the development of a plan to establish a general-purpose wheat class for non-milling wheat. This would include varieties that would be suitable for feed, ethanol, or perhaps other industrial uses.
Our plan is to protect the KVD requirements on our Canadian western red spring and our Canadian western amber durum, as these are both very high-premium markets and make up about 85% of the current production in western Canada. We plan to increase the flexibility for breeders for the ethanol or feed, this general purpose class, by creating some flexibility using the kernel types of the minor classes, and we are hoping that we'll be able to announce more details on that in the very near future.
The next issue I thought I'd like to address with you is with regard to finances and service provision. Certainly we have had a number of challenges in this area. Our revenues have steadily declined over the last number of years. Part of this is a result of the shift in production. With the demise of the Crow subsidy, producers have looked for lower-volume, higher-value grains to produce in order to ship fewer tonnes for export. As a result, there has been an increase in special crops. But for the Canadian Grain Commission a lower volume means less revenue, because our revenue is based on the inspection and weighing on a per-tonne basis of product going into the ports and again as it's loaded onto vessels. Our revenues have declined because of grain volumes.
We have also had a decline in revenues or a problem with revenues as a result of our fees. Our fees on services have not risen since 1991, so we're operating under the fee schedule of the 1991 timeframe. So you can see why our revenues are declining. At the same time, our costs have continued to climb, largely because of inflation and because of the contract settlements we have with our staff.
This has meant a growing discrepancy between revenues and expenses, and the difference between these two has been accommodated by a series of interim appropriation dollars over the last number of years, the last two years being $21 million for the 2005-06 year, and $30 million for the 2006-07 year. A $30-million appropriation, along with the revenues we'll generate, will give us a budget of about $70 million. We feel this is a doable budget, but it's going to be very tough. We're going to be keeping a careful watch on our expenditures, but it is going to make things a little bit difficult.
We intend to do our very best to manage within these anticipated revenues. We have done some streamlining, we are focusing on our mandated services, and we are working with industry to best meet their needs. Obviously, it would be very nice if we could provide services on demand at all times, but this would require staffing to peak levels which would mean staff at other times would have nothing or very little to do. We do not feel this is reasonable, given the high cost of that type of staffing.
Instead, we have encouraged industry to work very closely with our managers to alert them to the need for services. With this, we anticipate having very minimal problems providing services. That doesn't say there won't be times when it will be difficult.
In conclusion, I would like to say there's no question the industry is changing. We are facing numerous challenges, both as the Canadian Grain Commission and as an industry as a whole. We are seeing quality is continuing to be very important, and likely more important now than it has ever been in the past. The Canadian Grain Commission's research and quality assurance forms the cornerstone of the Canada brand for Canadian grain. It protects the reputation of Canadian grain, it bolsters international competitiveness, and it assists producers in industry to better meet customer needs.
I thank you, Mr. Chairman, for the opportunity to present to you and to the standing committee members. It is a pleasure to share information with you, and we look forward to your questions.