Agriculture Committee on Nov. 6th, 2012

[Elwin Hermanson]

I'm suggesting that the insurance would be set up in such a way that the total liability would be based on the risk of failure, and if there is a failure, then 100% of that risk is covered.

[Malcolm Allen, NDP, Welland, ON]

I'd like to see what the policy fee for that one is going to be, especially for the risky players, because that one is going to be a premium plus a premium plus.

In any case, the inward inspection piece, which is optional...your amendments are such that you're saying that CGC isn't going to look at that optional piece. I guess the question of why we wouldn't go down there has been asked in a couple of different ways. You're suggesting there is some sense of uncertainty to it—it's perhaps expensive, or it's a few other things.

I noticed in your overview that you talk about the risks involved in inspecting grain, and grading grain, in particular, is a skill requiring expertise and training that a court would not have. You talked about if you went to court, which is a different piece. I'm looking at the expertise you say your inspectors need, which I absolutely agree with, by the way. It's an absolutely true statement.

Where will the third-party private inspector get this expertise? You have suggested you can't keep it because of the uncertainties of the market that will ask for this inward inspection, because it's now going to be optional. So where will the private sector get those folks from if you can't get them? You're the experts, and I say that with all sincerity, sir. You're regarded around the world as being at the top of the class. Where are we going to find these folks to do this when folks ask for it? I'm sure someone is going to ask.

You're right that it won't happen as often as a mandatory piece, but certainly it's going to be asked for. Where will we find them?

[Elwin Hermanson]

There are actually a lot of inspectors, and they're competent inspectors in all components of the private sector right now, as well as companies that operate solely to perform inspections. So all of the major grain companies have their own inspectors. They cooperate and they consult with us, and they will be able to continue to do that if this bill is passed.

Right now, if there is an inward inspection done by the CGC, we're involved through the process right until you reach the grain appeal tribunal. The majority of the members on the grain appeal tribunal are inspectors from the private sector. They are company inspectors.

What this act would propose is changing that order around so that it would be the companies or a private sector business—

[Malcolm Allen, NDP, Welland, ON]

The boss is telling me I have 10 seconds, so I have to sort of nip it there. Sorry, sir.

The other piece becomes that they're already employed doing something. That being the case, how do they become the optional piece if they're already working doing something else? How do they get freed up to do that?

I'm not sure you can actually tell me that. It's going to be up to the individual companies as to whether they free them up or not, so I'm not sure you can tell me there is an answer to that, to be perfectly frank.

The other piece is, are you aware that CFIA actually has an optional inspection system for folks if they want it? You could perhaps have modelled yours after theirs. You could have had an optional model to follow and not have to recreate a wheel. You actually would have had an optional system for inward inspection when it is requested through your agency.

Are you aware that there are other agencies within the federal government that have a model now?

[Elwin Hermanson]

What I'm saying, Mr. Allen, is that those inspectors are already there within the companies. There is not going to be a change because they are already inspecting on behalf of the company. The companies have to have those inspectors.

I was also saying that at the current time there are companies that are already doing inward inspections and other inspections. That's their business, and if there is a problem, they'll talk to us to get something resolved.

By eliminating mandatory inward inspections, we're proposing that if there is a dispute, if the inward inspection is not satisfactory to one of the parties, there is still an appeal mechanism. Now the appeal mechanism goes to the Canadian Grain Commission, which I think is the right place to put it. It gives us the last word rather than the first word if there is a dispute over grain. So it's actually our inspectors, if there is a dispute, who make the final determination of what the grain dockage is on an inward inspection.

[The Chair, Conservative, Merv Tweed]

Thank you.

Mr. Lemieux.

[Pierre Lemieux, Conservative, Glengarry—Prescott—Russell, ON]

Thank you, Mr. Chair.

A major part of what's being proposed is the elimination of the inward inspection, so I just want to make sure that we all understand exactly what's going on.

We have a farmer who sells his grain to a company, let's just say Viterra, which moves the grain throughout the system, perhaps from elevator to elevator and eventually to a port. Under the existing act, the Canadian Grain Commission would have to do inward inspections every time Viterra moved it. Would that be correct?

[Elwin Hermanson]

Not quite. Right now, if a farmer delivers grain to a Viterra inland facility, an elevator on the prairies, normally they would agree on the grade, because there's not a CGC inspector on location at an inward elevator. But if there's a disagreement and the farmer says he's not happy with the grade he's been given, the farmer has the right under the act, which right continues under the amended act, to call for what we call “subject to grade and dockage”. A representative sample from that grain is collected and sent to the Canadian Grain Commission. We grade it, and our decision is final and binding. That is a protection that the producers currently have, and there is no change proposed there whatsoever.

The inward inspection occurs when railcars are unloaded at terminals—Thunder Bay, Vancouver, Montreal, Baie-Comeau, or wherever. That's what I call a commercial arrangement. It's between a couple of companies. That's what it is, and that's what we would propose to eliminate, which is what this act would do.

The final inspection is when the vessels are being loaded, and we will still have CGC inspectors on site inspecting the grain as it's loaded onto the vessel. I don't have the time to go into.... We go through a pretty extensive process to make sure that the specifications in the contract, or the grades in the contract, are met. We're pretty flexible. Whatever is in there is met, and then we sign a certificate final for the vessel that states the contract has been met. This way, when the vessel leaves, the shipper feels pretty confident that the customer is going to be happy.

[Pierre Lemieux, Conservative, Glengarry—Prescott—Russell, ON]

One of the advantages of eliminating the inward inspections is a savings to farmers.

[Elwin Hermanson]

Absolutely.

[Pierre Lemieux, Conservative, Glengarry—Prescott—Russell, ON]

It's a simple streamlining of effort on behalf of the Canadian Grain Commission, and therefore there is less cost being borne by farmers.

[Elwin Hermanson]

It's not required as a mandatory service, but it costs money. So if we can eliminate it, there will be a savings.

[Pierre Lemieux, Conservative, Glengarry—Prescott—Russell, ON]

Canada has high-protein, high-quality grain, so let's talk about outward inspection. Can you tell the committee about the role the CGC plays in outward inspection, and what impact that has on our ability to sell our grain internationally?

[Elwin Hermanson]

It's pretty extensive. We have something at a terminal called a crosscut sampler. It goes across the belt that carries the grain to the vessel. It takes a continuous sample of grain from that belt and sends it directly to a CGC office where CGC inspectors collect that sample. After 2,000 tonnes are loaded on the vessel, we do a cut-off on that one and start the next one. We set that sample aside and inspect it to make sure it meets the specifications of the contract. If there's a problem, we'll notify the terminal right away so they can correct the problem. If the specs of the contract are met, that's when we sign the certificate final, which gives confidence that the grain quality assurance is there.

You said “high quality”. Yes, we are known for high quality, but it's not necessarily high quality. It's the quality that the buyer wanted. If the buyer wanted number three, and that met their needs, it would be three or better. It would not be below the specs of the contract.

[Pierre Lemieux, Conservative, Glengarry—Prescott—Russell, ON]

We want consistency. You're guaranteeing the specs and consistency.

[Elwin Hermanson]

Absolutely, consistency is an important word.

[Pierre Lemieux, Conservative, Glengarry—Prescott—Russell, ON]

Right, and there are no changes to outward inspection. This is a critical role. This is still being offered. It's still being mandated.

[Elwin Hermanson]

Absolutely, there is no change.

[Pierre Lemieux, Conservative, Glengarry—Prescott—Russell, ON]

All right, good.

Thank you, Chair.

[The Chair, Conservative, Merv Tweed]

Thank you.

With that, I'll thank our guests for being here tonight.

We have another set of witnesses to come forward.

We appreciate your time. I know that you have to get on the road. We thank you very much.

We're going to take a two- to three-minute recess to allow our guests to leave and our new guests to join the table, and then we'll get back to it.

[The Chair, Conservative, Merv Tweed]

Welcome back to the second part of tonight's meeting.

Joining us at the table now, from the Canadian Special Crops Association, Pulse Canada, we have Mr. Gordon Bacon, chief executive officer; from the Canadian Federation of Agriculture, we have Humphrey Banack, second vice-president; and from the Canadian Canola Growers Association, we have Richard White, general manager.

You know the routine. I would ask you to keep your comments reasonably brief and we'll get to questions.

Who is going to start? Gordon.

[Gordon Bacon, Chief Executive Officer, Canadian Special Crops Association (Pulse Canada)]

Thank you for the opportunity to appear before the standing committee to express the views of the Canadian Special Crops Association.

The CSCA has 110 members, ranging in size from large multinational companies to single-plant processors of the four pulse crops, as well as sunflower, buckwheat, canary seed, and mustard. The CSCA brings the voice of the trade and the processing industry to Pulse Canada.

I am here representing the views of the CSCA, but we, at CSCA, are a very strong and important part of the Pulse Canada organization. All of you as elected members will be receiving a letter from Pulse Canada outlining our strategic plan and inviting you to view it so that you can get an idea of the partnerships that we see in the pulse industry, in the special crops industry, where government, the trade, and farmers can work together to make this a stronger industry.

My task here today is to share the views of the CSCA on how we build a stronger industry, and more specifically the framework we can use to look at how changes proposed by this act will impact the operations of the Canadian Grain Commission and thus impact Canadian processors and Canadian farmers.

Trade members have always stressed the importance of being competitive. The pulse and special crop trade wants to focus on optimizing costs and diversifying our revenue streams. Achieving these outcomes will ensure high returns for growers, competition in the Canadian marketplace, and will give farmers in Canada a reason to continue to grow pulses and special crops.

The CSCA has a diverse membership base. The majority of CSCA members are small and medium-sized enterprises operating across Canada. All members are responsible for creating jobs in processing and handling in rural areas, adding value to commodities, and they are responsible for ensuring that Canadians can meet the needs of our customers who are residing in more than 150 countries.

Canadian farmers and processors can be competitive when we focus on keeping costs low and strive to ensure that we compete on a level playing field at home and abroad. When we have fair and level competition, we grow, create jobs, diversify the market base, and help create a stronger, more stable agricultural sector.

Let’s use this framework as the criteria against which we can compare the proposed changes to the operation of the Canadian Grain Commission. The move away from the requirement for bonding of grain companies as a condition of being licensed by the Canadian Grain Commission is seen as a positive step. The trade has been assured that this move will lower costs and free up capital to be put to use growing the businesses. However, we aren’t so certain it also ensures there will be a level playing field between Canadian companies. There are no answers as to whether there will be differences in the insurance costs among companies, and, if there are differences, how significant these differences might be. Without these facts, questions remain as to whether we have optimized the change in policy. While costs are expected to be lower, we need to understand whether the changes will also shift the competitiveness among companies.

This is particularly important, in our view, when it is a government regulation that may be unlevelling the playing field.

Members of the CSCA recognize that farmers want payment security. Outside of trade in agricultural products that occurs in facilities licensed by the Canadian Grain Commission, government-mandated security programs do not exist within the rest of agriculture.

We all recognize that there are approaches to payments today that didn’t exist 10 years ago, when cheques had to be issued, sometimes mailed, and might even take a few weeks to clear through financial houses. Today, with options that include immediate electronic transfer of funds, there are a wide range of settlement options against which the value and costs of insurance-based security programs need to be considered. The question that should be considered is whether it is necessary or in fact desirable to implement the provision of the act that would continue to require licensees to have a security provision prescribed to them by the CGC. A provision that would create an unlevel playing field between companies or disadvantage small and medium-sized enterprises would not be seen as a positive move for government to impose on the trade.

The move to full cost recovery of the Grain Commission is also an important issue. All fees come off the bottom line of farmers. The CSCA recognizes that fee changes are needed, especially when the fees have been frozen for so long. But CSCA members also suggest that the costs of the Canadian Grain Commission must be driven down further through a more comprehensive streamlining of operations than the current amendments in this bill propose.

This bill does not address all of the recommendations that have been made in the past, and until things like modernization of the governance structure and elimination of other costs from the Grain Commission structure are done, a mandate to recover all costs will result in CGC operational costs that must be funded or recovered through higher fees charged to grain companies, which are then passed on to farmers. Therefore, the CSCA encourages this committee to look at what additional changes need to be made to the CGC to ensure that it is as cost effective as possible. The CSCA would also encourage all the political parties around this table to agree on the approach that will eliminate these costs, and in the process help the trade and farmers through cost reductions before the cost recovery is implemented on August 1.

The CGC currently plays some important roles that Elwin spoke about in his remarks, including cargo monitoring for pesticide residues, heavy metals, and mycotoxins. If the CGC's role will change with a reduction in funding from government of, I understand, over $40 million, the CSCA is asking for a clear indication of what changes to fees or services will be made. He did talk about the consultation that is under way in the month of November.

The timelines are very tight for these changes to be made, and clarity is needed on what the existing charges are and what the charges will be under a cost-recovery system. The CSCA is asking that the committee ensure that the answers on the changes to both mandatory fees and optional services are made clear, noting both the existing and proposed new fees in a side-by-side comparison.

The complexity of trade is increasing as food security, food safety, and quality assurance continue to be important while the ability to test becomes more sophisticated. The role of the Canadian Grain Commission in playing a role in Canada's quality reputation needs to be recognized. The value that all Canadians receive from high standards of quality assurance also needs to be recognized.

In closing, I want to thank the committee for the opportunity to present the views of the Canadian Special Crops Association.

[The Chair, Conservative, Merv Tweed]

Thank you.

Mr. Banack.

[Humphrey Banack, Second Vice-President, Canadian Federation of Agriculture]

It's a pleasure to be here this evening to present to the committee.

I'm Humphrey Banack. I'm the vice-president of the Canadian Federation of Agriculture. We farm 4,500 acres of grains and oilseeds in central Alberta. We market between 4,000 and 5,000 tonnes of grain per year though CGC-licensed facilities and others, so these changes are very important to our operation. The costs of those fees are also very important to us. They're a huge part of what we need, and producer security is a part of that.

Thank you for the opportunity this evening to appear before the standing committee to discuss the changes to the Canada Grain Act.

Founded in 1935, the Canadian Federation of Agriculture is Canada's largest farm organization. Our members include provincial general farm organizations as well as national and interprovincial commodity organizations from every province. We represent over 200,000 farmers and farm families in Canada.

As you are aware, the Canada Grain Act and the Canadian Grain Commission are the cornerstone of the grain quality control system in our country. For over 100 years, it has served as the national entity overseeing the grain industry and protecting producers' interests within the system. This regulatory function has provided Canadian producers the framework to continually produce and supply high-quality, safe food to Canadians and our international customers. This should remain the focus of the changes today, from now until August 1, 2013, as the CGC evolves into its new role, and any future changes to governance and amendments to the act.

The CFA generally supports the changes to the Canada Grain Act and the role of the CGC, but continues to have reservations about the changes to the producer payment security program. In regard to repealing CGC inward inspection and weighing, the changes will better reflect the structure of the industry and modernize the current system. The option to appoint a third-party inspector is important to ensure an open and transparent system and to protect the shipper. The CFA supports the use of third-party service providers that are certified and accredited by the CGC. A monitoring system should be put in place to ensure results are consistent and uniform among the different service providers available. We also appreciate that the CGC will remain involved in the collection of inward inspection and weighing data, as access to this information is important to a well-functioning industry.

The elimination of the Grain Appeal Tribunal and its replacement with a one-time binding ruling by the chief inspector for Canada streamlines the appeal process and still provides the necessary course for compliance to appeal in an inward inspection decision at terminal position. In a case where a producer and operator don't agree, producers are still able to request a grading and dockage decision from the chief grain inspector. Paragraph 61(b) of the Canada Grain Act and section 36 of the Canada grain regulations will continue to provide legislative authority and to outline the procedure. There are no changes proposed to this important producer protection.

The current producer payment security program provides an insurance that allows farmers to utilize the full range of grain marketing tools that are available to them. The program ensures that farmers are financially protected and paid for the grain they deliver. We have confidence in the system, and the CGC regularly makes available a list of licensed companies and their relevant details. This assurance must continue.

The proposed amendments to subsection 45(1) of the Canada Grain Act replaces the current bonding system with an insurance-based third-party program. While the insurance-based program has merit, additional details are required prior to CFA’s fully endorsing the change and the new program. Details on the actual cost to run the program, cost savings to producers, percentage of grain covered, premium calculations, the structure of the insurance, or how the program will be operating have not been forthcoming. The concept and details of the program are first required prior to determining whether the industry will benefit under the new program.

To be successful, the CFA urges the CGC to work with provincial farm groups to ensure that the program details and implementation needs meet the needs of producers. These details will determine whether the insurance program can provide the cost savings to the industry and be a viable replacement to the current program.

We would like to stress that security coverage must be a mandatory prerequisite for a licence, no matter the size or structure of the licensee. No company should be exempted by regulation or by order of the commission. The CGC should continue to manage the program, including designating third-party security providers, auditing companies to ensure adequate coverage levels, and keeping producers informed of that coverage.

We would also like to comment on licences on feedlots, which are not in the scope of the proposed changes and are intended for further discussion. The feed industry has changed in recent years. Industry consolidation and economies of scale have led to larger lots and stock levels.

While the design and application is complex, developing a second class of licences or extending the security program to larger feedlots would be beneficial to farmers.

Recent experiences with Puratone in Manitoba filing for bankruptcy and Big Sky Farms in Saskatchewan entering into receivership have had negative ripple effects on producers and the grain industry.

The Grain Commission has indicated their desire to implement the changes being discussed this evening in conjunction with an increase in user fees. A 30-day public consultation on an initial user fee increase for 2013-14 and a subsequent 1.6% increase per fiscal year from 2013-14 to 2017-18 on all CGC services was launched November 1, 2012.

As previously indicated to the CGC, the CFA strongly believes the services of the commission are integral to ensuring high-quality, safe grain for Canadian and international consumers and as such should be considered a public good. Producers should not be saddled with these extra costs, and the CFA opposes the increases. While considering and enacting these changes, the government should ensure that the CGC is adequately funded to provide its various services.

In conclusion, the move to privatize inward inspection and weighing and to more wholly reform the CGC’s role in the system is a significant departure from the current system. It is important that the government work with producers and their producer groups to ensure that the implications are fully understood and that the producers benefit from the changes.

Thank you very much for this opportunity this evening.

[The Chair, Conservative, Merv Tweed]

Thank you.

Mr. White.