Agriculture Committee on Nov. 6th, 2012

[Blake Richards, Conservative, Wild Rose, AB]

Right. So really, in a sense, it was eliminating duplication.

I'm wondering if you think it would be better then to focus on your role in what we call outward inspection. I think that is when the grain is actually at port and it ships from there. For the committee's benefit, could you just tell us a little bit more about outward inspection and how that works?

[Elwin Hermanson]

I'm happy to do that.

We have very professional grain inspectors located at all the ports where vessels are loaded with grain for export from Canada. The major west coast terminals are Vancouver and Prince Rupert. We have a large component of staff at Thunder Bay, where they inspect grain on salties and on lakers. We have inspectors at the ports in the St. Lawrence system, right through as far east as Port-Cartier. Then we have seasonal staff in Churchill. They will continue to be located at those ports if these amendments are passed, and they will continue to do the outward inspection.

As I mentioned in answer to an earlier question, that's to maintain the Canada brand, to maintain our reputation as being a quality provider. The Americans do the same thing. The Australians do the same thing. If you don't provide that assurance of quality, you lose sales. That's why it's important that we focus on where the need is and do not focus on where.... If in fact inspection is needed, there should be a commercial arrangement between the shipper and the terminal.

[The Chair, Conservative, Merv Tweed]

Thank you.

Ms. Brosseau.

[Ruth Ellen Brosseau, NDP, Berthier—Maskinongé, QC]

I'd like to thank you for being with us.

I would like to thank my colleague who started off the questioning.

You look at the part of the section that changes the Canada Grain Act, it says in French, “emploi et croissance”. In English, it's “jobs and growth”, but then we hear there are going to be job losses. We're hearing about a lot of positives. Are there any negatives? It all seems to be fine and dandy, but do you have any worries about these changes, or are you just all gung ho?

[Elwin Hermanson]

It's an excellent question.

Obviously, we have concerns about whether this act will work, and that's why we did an extensive engagement with the industry before it came before Parliament. You are correct; the footprints of the CGC will be smaller after this act comes into force. That's a reality we have to face. That's not pleasant, because we have excellent employees; we have very professional people working for us, and their number will be reduced.

Nevertheless, if we look at the threat to our organization if we work in areas that are irrelevant, that casts a bad light on the entire agency. That would start to put into question whether we should be doing the things that I really believe we should be doing. We have excellent staff who we want to maintain to provide outward inspection. We have excellent staff who are doing research. We have scientists, chemists, and others in our labs who are world-class and are renowned around the world. We want to do whatever we can to maintain those necessary services. If we bury our head in the sand and refuse to change with the industry and stay relevant, then we start to put into question whether we've got a handle on things. I believe the commission does have a handle on things. We know what has to stay and what needs to change. Every time you change, most of it is positive, but you are correct, some things won't be as pleasant as we'd like. That's the world we live in.

[Ruth Ellen Brosseau, NDP, Berthier—Maskinongé, QC]

The minister has said that these changes will save up to $20 million. Would any of these savings be downloaded on to farmers?

[Elwin Hermanson]

No. Farmers will save the $20 million. The only way there would be increased costs to the industry would be if they decided to do a lot of inward inspection. We don't anticipate there will be a lot. If companies start using other facilities and they want to pay the fee...they're telling us they don't want to do a lot of inward inspection on an optional basis, but if they do, that cost would come back into the system.

Of course, farmers and others in the industry are taxpayers. Taxpayers were footing a bill lately of over $30 million a year in subsidies to the Canadian Grain Commission. As I mentioned, a lot of that was for private benefit. Taxpayers are also saving some money, as well as the direct $20 million that's being reduced in cost to the system.

[Niki Ashton, NDP, Churchill, MB]

Mr. Hermanson, do you know who is losing their jobs? What kinds of demographics are we talking about here? Can you give us some information on what kind of employee that is, besides a job title? Who are the people who are going to lose their jobs first?

[Elwin Hermanson]

We're analyzing that. We have to comply with the workforce adjustment directive that the government has put in place to provide benefits and assistance to any employees. It gives them options as to how they move forward. As soon as we can make that information available to you, we will. We also have to respect that we should probably be talking to our employees as soon as we can and not talking around them. For that reason, until we know for sure, it's probably not wise to speculate. These are people who have lives and concerns, and we're trying to do the very best for all our employees.

[Niki Ashton, NDP, Churchill, MB]

In a community like Churchill, as you understand—you've been there—there are very few options, and certainly none in the public sector. The public sector is gone. From our information, most of the employees are actually young people, and many are from equity-seeking groups, new hires, and people who, in the current job market, will probably have a great deal of difficulty finding another job, unfortunately.

We'd be keen to hear information about the people who will gone from the CGC and which Canadians they are.

[Elwin Hermanson]

We have a good contingency of seasonal workers in Churchill. Because we will still be doing outward inspection, there may be opportunities for many of them to continue to work with the commission.

[The Chair, Conservative, Merv Tweed]

Mr. Hoback, go ahead.

[Randy Hoback, Conservative, Prince Albert, SK]

Thank you, Mr. Chair.

Thank you, gentlemen, for being here this evening.

I appreciate you tolerating the votes and burning the late-night oil with us. Mind you, Elwin, I know you're a farmer, so you're used to working late at night—or you used to be a farmer—so I'm sure this is nothing new for you.

One of the things I'd like to talk to you about, sir, is to get an idea of the consultation process you used to come about with these amendments, and how you went about consulting with the stakeholders to make sure we got this right.

[Elwin Hermanson]

Thank you, Mr. Hoback.

We sent out a letter of engagement to producer organizations, industry stakeholders, the grain companies, and our licensees. It was very broad. We got an excellent response. I should have had those numbers at my fingertips. Something in the neighbourhood of 70 organizations strikes me, but I could be out a little. Some met with us. Some wrote pretty extensive briefs to us. We analyzed all of them very carefully, and then we consolidated that into a report to see if there were any themes and a common direction that was supported by most of the industry. We found that was the case.

We also did a poll—maybe polls are bad words, I don't know, but government agencies do them from time to time—and we polled producers in particular. We found that producers respected the commission and they said that we do provide value. They wanted us to make sure we were providing the right services. Things like security were highly valued by producers. The fact that Canada has a good grading system was valued.

[Randy Hoback, Conservative, Prince Albert, SK]

I'm going to cut you off, sir. I only get five minutes. There are other things I want to get to here.

[Elwin Hermanson]

On a limited budget, we consulted by this letter of engagement and got a good response.

[Randy Hoback, Conservative, Prince Albert, SK]

So you are comfortable with the stakeholders' opinion on this.

You talked about increased protection for producers. In my view, when I look at that, it's the bonding system we are using today versus something new in the future. Can you talk a little more, expand on what your plans are in that area? Maybe give us a little history on why we need to make some changes there.

[Elwin Hermanson]

Certainly, Mr. Hoback.

The current system is what I call a silo system. Every licensee has to make security available in the name of the Canadian Grain Commission. It's not money we have on deposit, but money that is set aside through bonds or other financial instruments for the Canadian Grain Commission should they be unable to pay producers. They have to cover off their exposure to producers at any particular time. The entire producer liability in July could be a substantial amount.

They have to do all the paperwork and all the accounting to provide us with monthly liability statements. There's the cost of providing these bonds. I shouldn't say bonds, because there are a lot of things besides bonds. If you add together all the value of these instruments, over $600 million is tied up at the present time. They haven't paid us $600 million, but it's tied up. It's capital they can't use to grow their business. There's no basket approach. There's no insurance component to this at all. It's costly, and it's an administrative nightmare for them. It's a lot of work for us. We have to go through all those statements.

[Randy Hoback, Conservative, Prince Albert, SK]

It's also fair to say that it's a little misleading to farmers because their situations...as we have seen in the past, the bond has not been sufficient to cover the needs.

[Elwin Hermanson]

I'm going to get to that. It's very costly. The administrative burden on the licensee is huge. We have to do audits, and we have to go through tons of paper. You are absolutely correct. We're supposed to have 100%. Normally we do. We checked, and in the last 12 failures over about the last eight years, we had full payment from two-thirds of them. There have been a couple of others where it was almost 100%. There have been a couple of cases where the producers got only a few cents—30¢, 40¢, or 50¢ on the dollar—because licensees weren't reporting correctly or they made some deal that really went south on them, and their exposure was far higher than it had normally been. Producers were left holding the bag and weren't fully paid for that. We suggest that if you went to an insurance system where your coverage was based on risk rather than the producers' actual liability, you could then take the basket approach. We know not all of our licensees are all going to go broke at the same time. That's not the way things work in the real world. There are economies as far as cost is concerned, and also a lot less administrative burden on everybody.

[Randy Hoback, Conservative, Prince Albert, SK]

So we can bank—

[The Chair, Conservative, Merv Tweed]

Thank you. I have to stop you there.

Mr. Allen.

[Malcolm Allen, NDP, Welland, ON]

Thank you, Chair.

Maybe I can follow up with Mr. Hermanson about what you just said about this idea of—we had a dozen places that had some issues, and you had some players who exceeded their bond capabilities, whatever they happened to be, whether it was a bond or whatever securities they have. Can you explain to me how buying an insurance policy would mitigate that risk if somebody decides they want to go beyond their ability to pay or the ability of the insurance company and the policy they took out? How do you stop that with an insurance policy versus a bonding, or do we not?

[Elwin Hermanson]

The way an insurance program would work is that the chance of the licensee not paying would be evaluated. If it was felt that this was a properly operated business and it was viable, they would get insurance and the full benefits to producers would be covered if there was a failure—

[Malcolm Allen, NDP, Welland, ON]

Let me stop you there, sir, because that's not actually what I asked.

You referred to the fact that there were some players out there who said, “I've got $100 in here as security against your need for $100.” We'll use small numbers that make sense for me. But they play to $110, even though they own $110 there. So I buy an insurance policy for $100, but I play to $110.

Can you tell me how that $100 insurance policy will backstop the $110 of risk I actually participated in? Your explanation to Mr. Hoback was about somebody who played beyond his security. Well, you can play beyond the insurance policy. The insurance policy is security as well. What you're suggesting is that it's a security instrument. So how does the insurance policy stop someone from playing beyond their security? I don't follow that one. You're suggesting it can, unless there is a different answer now.