Agriculture Committee on Nov. 6th, 2012

[Richard White, General Manager, Canadian Canola Growers Association]

Thank you, Mr. Chairman, and good evening to members of the committee. Thank you for inviting me here today to speak about Bill C-45 and changes pertaining to the Canada Grain Act and the Canadian Grain Commission.

I'm here today in my capacity as general manager of the Canadian Canola Growers Association, but I'm also a farmer actively involved in our family grain farm in southeastern Saskatchewan.

Canola is grown by well over 43,000 farmers from coast to coast. The canola industry is an incredibly important economic and agronomic contributor to the farms of Canada and to the broader Canadian economy, creating jobs, growing exports, and improving the health of Canadians.

Canola is a Canadian success story, going from minimal acres in the early 1980s to the largest cash crop in Canada today. But to continue this path of innovation, canola farmers need a reliable regulatory system that ensures our products meet the quality standards and product specifications required by our customers.

Reforms to the Canada Grain Act, and thereby the CGC, are necessary to maintain a world-class institution that is efficient, cost effective, and respected not only by our producers but by our customers around the world.

This year the government announced that the CGC would be moving to a cost-recovery model fully funded by farmers through increased user fees. As a national voice for canola growers, we strongly contend that reforms must be made to the CGC before implementation of the increased fees on August 1, 2013.

The changes introduced in Bill C-45 are a good first step, but more needs to be done. Removing the mandatory requirement for the CGC to conduct inward weighing and inspection is necessary and will help reduce the CGC's operating costs. Providing new options around security is also a positive move.

However, there are a number of areas the legislation fails to address, including governance and licensing. Changes to the CGC governance structure are imperative and should be included in the legislation that strives to modernize the CGC. Therefore, CCGA supports a modernized governance structure that maintains strong ties and accountability to both industry and farmers. In our submission to the Canadian Grain Commission, we advocated for a governance model that included vice-presidents reporting to a president, all of whom would be appointed by the Government of Canada. Additionally, our proposed model would eliminate the COO position.

Licensing is another area where change is needed. One of the provisions in the act currently gives farmers the right to ask the CGC to determine the grade and dockage of their grain delivered to a primary elevator if they disagree with the grade and dockage received from that elevator. The service is known as “subject to inspector's grade and dockage” and is not currently available at process facilities such as crush plants. With a significant portion of the canola crop now being delivered directly to crush plants, this provision should be extended to process facilities so that canola farmers are afforded the same rights, whether delivering to a processing elevator or to a primary elevator.

CCGA would also like to see flexible language included in the legislation that would allow for a third party to conduct outward weighing and inspection. While the legislation does allow for a CGC-accredited third party to conduct outward weighing, CCGA would like to see it extended to outward inspection as well.

A final important area that needs to be considered is public good versus private good. The CGC provides a large number of services that benefit the good of Canada, and these costs should not be included in the proposed increased user fees that will be paid solely by farmers. For example, the grain research laboratory, policy development, the maintenance of grain quality standards and assurance system, to name a few, should continue to be funded by the government, since we believe they are there for the public good, not simply for the benefit of farmers. It is our estimation that at least 25% of the CGC's budget should be funded from tax dollars, as these services benefit all Canadians. It is currently proposed at only 9%.

While we are pleased the government has taken a step forward with this legislation, we urge you to introduce another bill this coming spring to complete the CGC's progress toward modernization. In the end, it is farmers who will be paying for the majority of the costs of the CGC, so they should have an institution that is lean, modern, efficient, and that advocates for them and understands their business.

Thank you for your time. I look forward to answering your questions.

[The Chair]

Thank you very much.

Mr. Atamanenko.

[Alex Atamanenko, NDP, British Columbia Southern Interior, BC]

Thank you to the three of you for being here.

To put this in perspective, it is my understanding that the Grain Commission was created to protect farmers, obviously, as a result of abuses that probably took place in those days. We have now an institution that has been able to do that.

It would be important, if we make changes to the Grain Commission, to maintain this protection. Obviously, any changes should be good changes that won't potentially tarnish our reputation on the world stage. Also, there should not be a significant increase in cost for farmers, and farmers should not be more vulnerable. We want to make sure that we not only maintain the quality but that our farmers are protected.

You folks are on the ground. I'm still trying to wrap my head around this whole inward inspection thing. Currently, the law requires that the grain be inspected by government officials when it arrives at a terminal or a transfer elevator. If there's an infestation or something is discovered at this stage, it can be identified. The CGC alerts the elevators and growers and they try to isolate it. That is my understanding, and correct me if I'm wrong. Then it does not go any further.

If this inspection doesn't take place, is there not a potential for this infestation to go unnoticed? Is there not a potential for the ships being loaded to be loaded with contaminated grain, which would then be exported and would tarnish our image of quality? That is my question. I'm asking you folks on the ground to explain that to me.

Maybe, Richard, we can start with you.

[Richard White]

Thanks. That's a great question.

On the inward inspection and weighing, when a farmer delivers to a country elevator, it's looked at by the elevator agent. It's graded by the elevator agent and accepted into that primary elevator. That's the first inspection. They look it over pretty carefully. They don't send it to a lab to really look at the microbial aspect. However, it's already in the system. It's graded. Farmers have done their due diligence, usually when they grew the crop. There are not a lot of problems that occur in the production of grains and oilseeds. There are some issues, possibly, that could creep up, but again, they're not going to be caught, if there are any, at the primary elevator or necessarily at the terminal.

The real inspection that has to happen is the one on the outward part, before it goes to the customer. All the mechanics behind that, between the farm gate and the primary elevator and between the primary elevator and the terminal, are all contained within Canada. There are checks and balances along that system. Most of those have to do with the companies that do not want to buy grain that has a problem or may be contaminated. They look it over pretty well. It's in their best interest not to buy anything they aren't comfortable buying.

The end check, though, is the final inspection before it goes out of the terminal and into the customer's hands. You are correct. That needs to be maintained, but we can loosen up operational constraints, overlap, and duplication without jeopardizing food safety for our customers and without jeopardizing quality issues for our customers as well.

[Alex Atamanenko, NDP, British Columbia Southern Interior, BC]

If grain comes in, and it's in a smaller-quantity car, for example, and it is inspected inwardly and something is found and isolated, that's looked after. But if it's not, and if it is mixed with other grain that comes in, is there not a potential for a whole shipload to be classed as contaminated if something is found during the outward inspection? Do you understand what I'm saying?

[Gordon Bacon]

The terminal operator is still going to have people who are doing an inward inspection and evaluation.

The real change—and I think Mr. Hermanson talked about it. When you no longer have a Canadian Wheat Board involved.... You would have, in the past, had grain that might have come from Viterra or Cargill that might have been unloaded at a UGG or a Richardson, depending on what era of the grain industry you go back to. That changed. Now you have companies that are shipping from their own country elevator to their own terminal facility. This made the need for inward inspection somewhat redundant, because it was staying within the company. That's the biggest change.

The terminal operators will have the same interest in ensuring the integrity of the product they're bringing into their facility as they would have in the past. That is something that doesn't change by not having the Canadian Grain Commission there. That's why you're not hearing a lot of concern from the industry about moving away from that inward inspection. As Rick has pointed out, the farmers cover it off at the primary elevator. There are still terminal operators who want to run a good operation. What's changed is this settlement of the finances, which were based on unloads, in terms of when the Wheat Board was involved. But we've moved beyond that now.

[The Chair]

Thank you.

Go ahead, Mr. Zimmer.

[Bob Zimmer, Conservative, Prince George—Peace River, BC]

Thanks for coming tonight, everybody. We've seen some of you before at committee; it's good to see you again.

I just wanted to talk about bonding in the legislation. We're moving from a mandatory bonding to an insurance-based model, as some of you spoke to tonight.

But for illustration for the committee, what are your issues with the current system of bonding, each of your organizations?

[Humphrey Banack]

In the current system of bonding, as has been explained to us, it's fairly expensive for companies to be involved and to be bonded. It's a cost to companies.

Not all companies have a bond. There are some companies out there, as Elwin said in his presentation, that are not bonded. They have different methods and different types of security.

For us, the cost of bonding is part of a basis that we pay on having every tonne of grain out there. Insurance of deliveries is absolutely important. For me to move 4,500 or 5,000 tonnes of grain a year...I'm moving 80 tonnes a week on average. For me to maintain that payment on $500-a-tonne grain, I'm looking at $30,000, $40,000, or $50,000 a week in grain sales. For me to just allow...on those kinds of things, I need assurance that those sales are there.

We do some bonding to unlicensed companies. A small portion is there. But it's very important.... Bonding, in the past, was felt to have been a holdback to small companies trying to get in. The bond can be prohibitive to them to enter into the industry, or that's what we've been told. The insurance may be a different thing. But from our perspective, the security for.... As our grain farms grow, it's going to be a very important part of managing that. As I said, I put a lot of that on the line every week.

[Bob Zimmer, Conservative, Prince George—Peace River, BC]

Yes.

I'm going to continue along, and then have your opinions, but can you also speak to the false sense of security that is often there with bonding? It doesn't happen all the time, but there's certainly a risk there that you're not going to get what you should. Perhaps you could speak to that, too.

I'll move to Gordon.

[Gordon Bacon]

The bond is seen by the grain companies as a cost of doing business. As Elwin pointed out, $600 million is tied up. It's not put to use. It's not building a business. The grain companies were adamant that we needed to move away from the system.

We have questions about the insurance-based model because we don't know what the cost is. We don't know how it will change the competitiveness. It is difficult to endorse a change when we don't really know whether it's going to unlevel the playing field between companies.

Many grain companies will say they're concerned with having to be paying an insurance premium when the beneficiary is the farmer. Many grain companies will say it's not needed; bonds weren't needed, and we don't need to have an insurance program either.

[Bob Zimmer, Conservative, Prince George—Peace River, BC]

Just to get specific, though, your organization would probably agree with us that there are some questions about the current bonding system and its effectiveness. Is that accurate?

[Gordon Bacon]

It's only as good as the reporting. You can have circumstances arise that leave farmers without full coverage, which is the intent. But it's an expensive program and it wasn't foolproof.

[Bob Zimmer, Conservative, Prince George—Peace River, BC]

Richard, please.

[Richard White]

The bottom line is that we need producer security, so they get paid, whether it's bonding.... That may work for some companies and it may not for others. It's very expensive. It ties up a lot of capital. Farmers pay, ultimately, the cost of that through the basis, as Humphrey pointed out.

Moving to an insurance-based model...we like it because it's an option. It's not one-size-fits-all for every company. It's more market responsive. If a company can cover its liability with insurance cheaper than it can with a bond, we hope it would do that. That creates competition and a better deal for farmers in the end. There's not an excess cost to the system.

[Bob Zimmer, Conservative, Prince George—Peace River, BC]

You're already getting to the good answer. What I wanted to know, first of all, is what issues your organization had with bonding. You did talk a bit about the costs of it, but can you dig into that a little more?

[Richard White]

I guess we were always looking for the lowest-cost vehicle to provide the producer security. We could hear from several companies that bonding was very expensive and it tied up a lot of their capital, and it was costing us farmers money. In the absence of any options, we had to support bonding because it was either bonding or nothing.

Now, at least, there's an option for companies to pick. We're happy because we're confident that the security will be there, and it will be the most cost-effective security, company by company.

[Bob Zimmer, Conservative, Prince George—Peace River, BC]

So your organization definitely is in favour of the insurance-based model.

Do I have much time, Chair?

[The Chair]

No time.

[Richard White]

I would say we're in favour of an insurance-based model as an option.

[The Chair]

Mr. Valeriote.

[Frank Valeriote, Liberal, Guelph, ON]

Thank you.

Thanks, gentlemen, for coming in.

You all talked about the user fees, and you heard Mr. Hermanson talk about user fees in response to my question. Although he said it was a good question, his response was vague, in a sense. I'm not suggesting that he was being evasive; it just looks like it's still in process.

You mentioned, as did you, Humphrey, in your letters to us: grain research laboratory, maintaining a grain quality assurance system, maintaining grain quality standards, food safety, policy development, traceability, and monitoring. These are all in the public good.

The farming industry is the only industry that I'm aware of in Canada where, when there are extra costs, they don't get passed down to the consumer; they get passed down to the farmer—all the time. It just seems to be a consistent trend.

I'm concerned that all these costs are going to get pushed right down to the farmer again. You heard his answers. Did you feel assured that you are being listened to and that these fees are not going to include those things that really are in the public good? Are you satisfied with that? Rick, you said there has to be some reform before these fees get established.

Can we just go down the line? This seems to be the biggest concern.

[Humphrey Banack]

Through the consultation that was held earlier this year, we did raise the same concerns as Rick about governance and how the organization was run. You mentioned public good and services. There are a lot of things the Canadian Grain Commission provides that are of benefit to the public good, such as inward weighing and inspection. Some of these things are very specific to the operation of the grain industry.

Outward weighing is grain industry-specific, but our organization and our member organizations truly feel that there is a huge amount of public good in some of the fees and some of the structures around the CGC. We feel we should be able to not bear the entire cost of those. We're all involved in food safety programs in all of our industries, and those costs constantly keep coming down to us. You're right in that. We are bombarded by increasing costs, constantly. There are demands from people for food safety, for those kinds of things, and they are an issue for us. There is a bottom line to us, and it's only so low. That bottom line is drastically affected by increasing costs.

[Gordon Bacon]

I think the numbers I heard recently were that the Grain Commission was receiving over $40 million, and if you're just cutting $20 million out of a cost by changing things like inward inspection, you are going to have significant increases in licensing fees and other costs, perhaps a four to six times increase in the cost of a licence. Those costs will be passed by the grain companies back to farmers, which is why we were in agreement that we needed to have more streamlining of the Grain Commission as you move to cost recovery, so that farmers' costs are not driven up.

[Richard White]

Yes, and directly on the public good question, Mr. Hermanson has heard us, and I noted in his comments that the consultation is coming up and they are proposing a public good component. I believe he did say something along the lines of “we will see how this pans out in the consultation period”.

So they are very aware of it. They know...I think he said it was hotly contested. My point here now is that the public good number that is currently being proposed is only about $5 million, and that's about 9%, I believe, of the operating costs of the CGC. In my presentation we're suggesting that the government should be paying closer to 25% of their cost structure going forward. We would estimate, maybe even guesstimate, that that's the public good component of the CGC.

So it's coming in low. We will be consulted and we will express our concerns during the consultation process.