Agriculture Committee on Dec. 6th, 2012

[The Chair, Conservative, Merv Tweed]

Thank you.

Mr. Allen.

[Malcolm Allen, NDP, Welland, ON]

Thank you, Chair.

Mr. Hursh, both you and Mr. Boehm have said the same thing, and we've actually heard it from a number of folks using the same term: CGC and the public good. Would you take a moment to give me a sense of what you believe is that public good which the government should basically fund, if I can use that term, rather than having your organization and your members or farmers having to pay for that particular piece? Then I'll ask Mr. Boehm to do exactly the same thing.

You may have divergent viewpoints on other things, but you certainly seem to have the same viewpoint on what is determined as a public good. I'd like to see if you both agree on what you determine the public good to be.

[Kevin Hursh]

The grain research laboratory is a real gem that the Canadian Grain Commission has. It does a lot of great work and puts quality parameters around each year's crop. For instance, if that were moved from the Canadian Grain Commission to Agriculture and Agri-Food Canada, and considered a research mandate and funded as research, that would take that cost out of the system. Maybe it shouldn't be; you would have to work closely with the Canadian Grain Commission. But either way, if it were funded entirely through government contributions, that would take that cost out of the system.

The Canadian Grain Commission has to do things related to food safety. It has to do things related to policy development. All of those things should be considered part of the public good. If you went through all of that, rather than 7% or 8% or 10% of the budget being considered public good, it should be 20% or 25%. It would take millions of dollars of costs out of the system that then wouldn't have to be collected from shippers and farmers in user fees. I think other countries have done a better job than we have in getting those costs out of the system.

[Malcolm Allen, NDP, Welland, ON]

Terry?

[Terry Boehm]

I think the Canadian Grain Commission with the grain research laboratory, etc. is a very low-cost institution. It has an annual budget of about $80 million. Up until this year, about $25 million was contributed by the federal government. The function of the grain research laboratory is extremely important to the Canadian Grain Commission and the country in the determination of grades, quality factors, and ultimately the end-use quality of grains. Critical in all of this is if you hive off pieces of the Canadian Grain Commission to other areas like Agriculture Canada, then it's also subjected to those same cutbacks, etc., and you risk losing it entirely. This is critical.

Critical to the Canadian Grain Commission's is that mandate, in the interest of the grain producers. That grain research laboratory, all of those pieces, are fulfilling that mandate. What the grain producers do is in the public interest. If we benefit economically, it gets spread throughout the country. The Canadian Grain Commission should be financed by tax dollars, at least a portion of it, because it's for the public good.

[Malcolm Allen, NDP, Welland, ON]

Kevin, you mentioned earlier that you would like to see the removal of the outward inspection. You'd rather see it be a commercial enterprise. I think that's a commercial contract between buyer and seller. If that were the case—and in the inward situation it is the case—if CGC offered that commercial service, would you be pleased that this might be an alternative beyond SGS or anyone else who's in the private system?

[Kevin Hursh]

I guess the position is that mandatory outward inspection should be removed.

The Canadian Grain Commission should and could still have an accreditation role for any third-party inspections. If you have a country, let's say Brazil, and they decide that this customer in Brazil wants a certificate from some third party, and that's what they desire for the grain purchase, why do you mandate that the Canadian Grain Commission also must charge, under the new user fees, $1.60 per tonne, when that cost is much higher than what the private inspector will want and it's not desired by the purchaser?

In cases where it isn't required, or isn't useful, let the buyer and seller decide what service it is. Let the Canadian Grain Commission oversee it. But the Canadian Grain Commission charges under the new user fees of $1.60 per tonne are about four times what a private inspector will charge to do the same job, because the Canadian Grain Commission has all these overhead costs that must be recouped through user fees.

[The Chair, Conservative, Merv Tweed]

I have to stop you there.

Mr. Zimmer.

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

Thank you for presenting today to the committee.

Terry, I have a question for you. In the past the NFU has been a little cautious about marketing freedom for farmers, or dual desk, as you would possibly refer to it.

I'm from the Peace area of B.C., so I've talked to farmers in the west. We have a lot of grain and canola where I'm from, and I've heard a lot of positives on the new system. I just wanted to know, from your and your members' perspective, what has been their response since August 1 to the new marketing freedom for western Canadian farmers?

[Terry Boehm]

I think it's too early to tell in many respects. We've had a unique situation where we have relatively small grade spreads. An awful lot of the crop hasn't been marketed yet, and we're in a situation where we have buoyant prices, the result of droughts in the U.S., Russia, and elsewhere. Our members still understand that the single desk, just like the consolidation that takes place in the fertilizer industry and machine companies and grain companies, gives them economic power and that ultimately their returns over time will likely be diminished.

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

Are they doing worse this year than last?

[Terry Boehm]

The prices are not determined entirely by single desk or no single desk, or voluntary or otherwise. We have droughts that have created relatively buoyant prices. For the moment, farmers are getting high prices, but you can't attribute that to marketing freedom or a voluntary board.

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

It's been a good start, I must say.

Kevin, can you comment on the new marketing freedom or dual desk system? You've made a few comments about opportunities that are out there. Can you comment, on behalf of your members, what their opinions have been on the new system?

[Kevin Hursh]

ITAC members are handlers of Canadian Wheat Board grains, in fact, disproportionately so, because for a private terminal without international connections handling Canadian Wheat Board grains—and the Canadian Wheat Board was doing the marketing—you just get paid for handling. It was a good deal.

Now, with a voluntary Canadian Wheat Board, which I don't think is doing nearly as much business as they had hoped to do as a voluntary board, certainly it's a big adjustment for ITAC members. ITAC members are the ones that aren't associated with a larger grain company and haven't gone and hired a bunch of staff to send them overseas to kick tires and find sales. They make deals with other people at agricultural expositions. There are many mid-size and large grain companies and interests that they can access.

In the transition, certainly, there's been a lot of adjusting and a lot of figuring out how it's all going to work. By and large, grain movement through the ITAC facilities has been fine and they seem to be adjusting well. I don't hear a whole lot of complaints about terminal access for the ones that don't have access to their own terminals.

Those commercial agreements seem to be in place. The transition, frankly, has happened with far fewer difficulties than I would have predicted.

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

I'd like to ask Terry another question that's attached to marketing freedom, and that is, value-adding domestically. You mentioned you had some concerns and that it didn't necessarily benefit farmers.

Value-adding also provides Canadian jobs. I would ask you, is it not a benefit to add to the Canadian job pool by value-adding here domestically? Is that not a positive?

[Terry Boehm]

Absolutely.

What I nuanced was that you couldn't necessarily make a direct link to increased profitability to farms because of value-adding because we're selling at world market prices in general.

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

I'd like to ask Kevin another question and maybe Terry as well if we have time. It's about rail.

Kevin, you mentioned some concerns. I've had personal conversations with Mr. Mongeau of CN. He assured us that they're working on some of the problems that are on the Prairies and tried to allay our fears.

Nevertheless, I hear concerns even today that there are still significant issues on the Prairies. It's not just with farmers; it's with other producers of natural resources, for instance.

Can you comment on what those issues are specifically? You talked about there being 50 cars instead of 100. What is the typical problem on the Prairies that you see? Can you give us a few examples? Maybe you could mention a possible remedy for that as well.

We know some of the car fleet is hurting too, as my colleague, Mr. Storseth, referred to. I suggest that the fleet needs to be rebuilt. Can you comment on some of those problems on the Prairies with railcars, please?

[The Chair, Conservative, Merv Tweed]

I'm going to give you about 25 seconds to do so.

[Kevin Hursh]

It's about communication and coordination. The railways claim that they're very modern and know where everything is happening. They don't seem to communicate when they have a problem. They don't seem to be able to coordinate things. A lot of it has to do with efficiency and getting things where they need to be on time.

[The Chair, Conservative, Merv Tweed]

Thank you.

With that, we'll close the first hour of our meeting.

Thanks, gentlemen, for being with us today. We appreciate your input into our discussions.

We're going to suspend for two or three minutes while we seat our new guests.

[The Chair, Conservative, Merv Tweed]

Welcome back for part two of the meeting.

Joining us now, from the Canadian Grain Commission, are Elwin Hermanson, chief commissioner, and Gordon Miles, chief operating officer.

We have a witness joining us by video conference and I'll introduce him when he gets to his chair.

Mr. Hermanson, please. You know the drill.

[Elwin Hermanson, Chief Commissioner, Canadian Grain Commission]

Thank you, Mr. Chair.

Good morning. Bonjour. We want to again thank the committee for giving us the opportunity to meet with you today.

Allow me to make a couple of introductions. First of all, I'm Elwin Hermanson, the chief commissioner of the Canadian Grain Commission, and I've been in that position since 2008. I'm from Beechy, Saskatchewan, where I have a farm. I'm joined by Gord Miles, who is the chief operating officer for the commission. He coordinates and oversees the delivery of the programs, services, and activities of our corporate services, industry services, and grain research laboratory divisions.

It's only been a few weeks since we last appeared before this committee. I recall I was in a bit of a rush that day because I had to catch a train. I have lots of time this morning, so that's good.

We mentioned at that time that the grain sector is at a pivotal juncture, when public policies and regulatory structures need to keep pace with the rapid changes in the marketplace. I think that message needs to be reinforced again today to policy-makers and legislators such as yourselves. The government has taken significant steps on this front, first with the removal of the Canadian Wheat Board's single desk, and now with the proposed amendments to the Canada Grain Act.

In this spirit, I'm pleased to inform you that on November 30, the Canadian Grain Commission ended a consultation on proposed changes to our user fees. We are now reviewing the feedback received during consultation, and we propose to implement a new fee schedule on August 1, 2013, which will reflect a more streamlined and cost-effective Canadian Grain Commission.

I'd like to put the commission into context within Canada's grain sector. I'll talk a bit about our mandate, our organization, and our role in the areas of grain quality assurance, grain research, and market access.

The Canadian Grain Commission reports to Parliament through the Minister of Agriculture and Agri-Food Canada, the Honourable Gerry Ritz. Our organization is led by three commissioners. As well as myself, there is an assistant chief commissioner and a third commissioner. We are national in scope, with employees across Canada. The amendments proposed in the jobs and growth act will further streamline our operations.

Under the amended Canada Grain Act, the Canadian Grain Commission will continue to be mandated to establish and maintain standards of quality for Canadian grain for both international and domestic markets. We will continue to regulate grain handling in Canada and work to ensure that Canada's grain is a dependable commodity. Our mandate will continue to cover 21 grains. At present, we are funded through a combination of appropriations and user-fee revenues, though going forward we expect our operations to be funded primarily through user fees.

Grain is graded visually by highly trained inspectors. We set grain grades and standards. These have a scientific foundation, based in research conducted in our grain research laboratory . We regularly review standards to ensure their continued relevance. The eastern and western standards committees are a key part of this review. Members include producers, grain handlers, processors, exporters, and representatives from government agencies. The committees consider grading issues and make recommendations to us. Grades are important because they establish grain quality and facilitate fair transactions for producers. They also reflect the end-use characteristics required by our customers and ensure the consistency of product from cargo to cargo and from year to year.

We also play a role in grain safety and grain safety assurance. We screen, monitor, and certify grain shipments to assure that export cargoes meet international safety tolerances. Our laboratory is able to test for pesticide residues, trace elements, mycotoxins, fungi, and moulds.

We also assure that weights are accurate at terminal elevators. The correct weight of grain that is loaded to a vessel is recorded on the certificate final issued at export. Speaking of the certificate final, it indicates the official Canadian Grain Commission grade and weight, and it assures that a cargo meets contract specifications. In 2010-11, we inspected over 30 million tonnes of Canadian grain for export. So far this year, we have inspected 351 vessels of Canadian grain that have gone overseas from various ports in Canada.

Our grain research laboratory, which is located at our national office in Winnipeg, supports quality and grain safety assurance. Our researchers study how grain quality is measured, and they develop new ways to measure grain quality. They also evaluate grain-grading factors. They study new uses for Canadian grain. I can give you as an example the use of durum in Asian noodle products. They develop new technologies and methods for assessing end-use quality, and they also develop new methods for monitoring the safety of Canadian grain.

We take part in the Canadian Food Inspection Agency's variety registration process in which new cultivars are evaluated for disease resistance, agronomics, and quality. As part of quality evaluation, our researchers and inspection experts evaluate the end-use functionality of new cultivars. As well, we designate new wheat varieties into a class. Our work helps to ensure that all registered varieties within a class perform consistently for end-users.

When international market issues arise, we provide technical support through our grain research laboratory and our industry services. We are the official government authority with expertise in sampling, grading, grain safety, and laboratory testing processes. Again, I can give you a recent example of our market access support regarding the Triffid incident with Canadian flax. We work with the European Union, Japan, and Brazil to develop protocols for flax shipments to ensure continued access to these important markets.

A big and important part of our mandate is to protect the interests of Canadian grain producers, and we do this through several activities. Through our “subject to inspector's grade and dockage” service, we give producers a way to solve disagreements about the grade they receive at licensed primary elevators.

We also provide producers with access to producer cars to ship their grain. We work with the railways to negotiate for cars, and this gives producers control over the movement of their grain. In 2010-11, we processed applications for just over 14,000 producer cars. This crop year, and we're about halfway through it, we have processed 6,796 applications to date.

We provide payment protection. Briefly, when producers have delivered grain to a licensed primary elevator and they have not yet been paid, they can make a payment claim. We pay eligible claims out of security posted by the licensed elevator. We cannot always guarantee 100% payment for all eligible claims as liabilities may, on occasion, exceed security. However, the amendments proposed in Bill C-45 would improve producer payment protection by creating the opportunity to move to a new insurance-based system under which protection coverage may be improved.

We also provide services like the submitted sample service and the harvest sample program, which give producers important information about their grain, such as grade, dockage, moisture, and protein.

Finally, we serve a variety of clients by providing information to the grain industry. We publish quality data and statistical information, and we maintain current information on our website. I would encourage all members of the committee that if you have a moment or two—and I know you're very busy—to review our website. We think it's an excellent site that contains a lot of very useful information not only for producers and other stakeholders in the industry, but I'm sure for this committee as well.

Also, our experts are available at trade shows, and we provide a lot of tours at our national office for domestic stakeholders and international visitors.

In closing, I'd like to thank you, Mr. Chairman, for the opportunity to present to you and the standing committee members. The grains sector, as I mentioned, has entered a time of fundamental change. The Canadian Grain Commission is committed to effectively delivering grain quality and safety assurance, quantity assurance, research, and producer protection both now and in the future. We are committed to continued development of new and innovative regulations and policies to serve the interests of producers and the entire grain sector.

It is a pleasure to share that information with you briefly. We're certainly open to any questions from any of the members.

[The Chair, Conservative, Merv Tweed]

Thank you.

Mr. Atamanenko.

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

Thanks very much, Elwin, and thank you very much, Mr. Miles, for being here.

I want some clarification here. According to the new rules for the Canadian Grain Commission, there will be no mandatory inward inspection; however, there will be voluntary inspection if folks want it, under contract with some private people.

Last week Mr. Otto was here. He was asked whether he felt the Canadian Grain Commission could be one of those commercial players. In other words, as I understood it, could it be one of the organizations that a farmer would turn to, to get that inward inspection?

Do you think that's possible? In previous conversations we were led to believe that would not be possible because of the organization's structure.

If farmers and farming organizations would like to have the option of using grain commission inspectors for that, do you think there might be a way of making that happen on a voluntary basis?

[Elwin Hermanson]

Mr. Atamanenko, that's an excellent question.

First of all, when it comes to inward inspection, it's very rare that producers can request an inward inspection because producers have already received settlement for the grain; the grade and price have been determined. The only exception would be producer cars, and that's where inward inspection will be required to establish a grade.

Yes, we've been asked to review the possibility of an optional inward service. That concept has been considered but it's very difficult, given the fact that we expect the amount of inward inspection to be reduced substantially because most grain flows from companies' inland facilities, their primary elevators, to their own terminals. The producer is already satisfied with grade and price, and for us to have a component of staff available on call for a service that would not be required very often doesn't fit with a government agency such as the Canadian Grain Commission. However, you're correct, in that the act does allow for us to authorize others to provide that service.

The key ingredient here is that if there is a problem, if there is a disagreement and either the shipper or the terminal is not happy with the grade assessed by either their own staff or a third party, we have the power under the act, as it's amended, to arbitrate that situation and provide a final grade and dockage in the case of there being a disagreement.