Proceedings of the Standing Senate Committee on
Agriculture and
Forestry
Issue 19 - Evidence
OTTAWA, Thursday, June 18, 1998
The Standing Senate Committee on Agriculture and Forestry, to which was referred Bill C-26, to amend the Canada Grain Act and the Agriculture and Agri-Food Administrative Monetary Penalties Act and to repeal the Grain Futures Act, met this day at 9:01 a.m. to give consideration to the bill.
Senator Leonard J. Gustafson (Chairman) in the Chair.
[English]
The Chairman: Honourable senators, welcome. We are pleased to have before us this morning Mr. Barry Senft from the Canadian Grain Commission. I know Mr. Senft well, and he knows a bit about farming. I will ask you to introduce the people with you and to give us a statement. Then we will go to questions.
Mr. Barry Senft, Chief Commissioner, Canadian Grain Commission: Thank you, Mr. Chairman, honourable senators. I am pleased to have this opportunity to appear before you to discuss the contents of Bill C-26. With me this morning is Marilyn Kapitany, Director of our Corporate Services, who has been quite involved in the development of the special crops insurance program, and Régis Gosselin, Director of our Communications area, who has worked on both the script and the Grain Futures Act.
I will give a brief description of the Canadian Grain Commission and then move into the content of the bill.
The Canadian Grain Commission was established in 1912. The CGC administrates the provisions of the Canada Grain Act and the Grain Futures Act. The main responsibilities of the CGC are to regulate grain handling and to establish and maintain standards of quality for Canadian grain in order to determine a dependable commodity for both our domestic and our export markets. The CGC employs about 700 people in 24 different locations across Canada. The majority of our employees are in Winnipeg.
The CGC considers it critical that legislation that it administers reflect the evolving needs of the grain industry. Within Bill C-26, there are three major themes: the special crop security, the Administrative Monetary Penalties Act and the Grain Futures Act.
Bill C-26 encompasses changes to the licensing, security and regulatory system for the special crops industry. These provisions were developed by a committee representing the stakeholders of the special crops industry. The Canadian Grain Commission worked in support of the committee and then moved the provisions forward as proposed legislation. The need for changes to the legislation governing special crops is largely due to a 300-per-cent increase in special crops production in the last 14 years.
Apart from being an important component in diversifying farmers' income, the special crops processors are also important employers in the towns where they are located. For example, Sedley, Saskatchewan has a population of 342 people. It is bordered by the municipalities of Francis and Lajord. The seed company located seven miles out of town employs eight people on a permanent basis, four of whom are town residents. It also employs approximately 15 people during the pre-seeding and post-harvesting seasons. Vigro Seed & Supply, located right in the town of Sedley, permanently employs 12 people, seven of whom are town residents, and it employs approximately 30 people in the peak seasons.
As regular elevator systems rationalize and close facilities, special crops processors located throughout the west will provide alternative delivery options that will service the producers and also provide employment opportunities.
The committee advised that the future development of the industry would be adversely affected unless the requirement under the current system for grain dealers to post security was eliminated. Special crops dealers will be required to be licensed by the Canadian Grain Commission and to demonstrate financial ability in order to become licensed. Special crops licensees will not have to post security to cover payment obligations to producers. Individuals and companies buying and selling standard crops such as wheat, barley and canola will continue to be licensed under the current provisions of the Canada Grain Act. They will not have to obtain a special crops licence to deal in the special crops.
Commission licensees buying special crops will be required to participate in the insurance program. Security in the form of bonds and letters of credit currently posted by the licensee to cover liabilities for the special crops will be reduced accordingly. The producer insurance program will provide coverage to special crops producers who sell to a licensed dealer or elevator that is later found to be unable to pay for the grain. The program is voluntary, and coverage is extended only to producers who choose to participate. Farmers who do not want to participate will have to opt out.
At the outset, all producers will be considered participants in the insurance program and will be eligible for coverage. Organizations buying special crops will collect a levy from all producers from whom they buy special crops. The levy will be 38 cents per $100 of sales, and will be remitted to the commission. This works out to between 50 cents and $1 per acre, depending on the crop price and the yield.
The 38-cent levy comprises an 18-cent administration fee and a 20-cent insurance premium which would be forwarded to the insurer, Export Development Corporation. Producers who have opted out will receive an automatic refund of their levy deductions. The mandatory-refundable-levy model was recommended by the special crops committee that developed the proposed amendments. The levy model was a compromise between a totally voluntary plan and a mandatory plan and was considered the best way to ensure the plan's viability.
The committee wanted to encourage maximum participation while retaining the plan's voluntary nature. This model will make the plan cost-effective, administratively effective, and efficient for the dealers. This model will not leave some producers unknowingly without coverage. An advisory committee will be established to advise the Minister of Agriculture and Agri-Food on the operations of the special-crops program. Each province and industry sector will be represented, with the majority being producers.
It is anticipated that the above changes will allow more companies to be licensed to deal in special crops, increasing competition and providing further impetus to the evolution of the industry.
The committee proposed that special crops initially include beans, buckwheat, corn, fava beans, lentils, mustard seed, peas, safflower seed, soybean, sunflower seed, and triticale. A list of special crops will be set out in the regulations of the proposed act. Special crops can be added or removed from the list following consultation with the affected parties. The proposed legislation excludes standard crops from the plan. These are wheat, barley, oats, rye, flax seed and canola.
I now move on to the second part of the proposed act, the Administrative Monetary Penalties Act. This proposed legislation will provide the commission with a more appropriate system of enforcing the Canada Grain Act and penalizing violations of the act, regulations, and orders of the commission. Current enforcement tools are either suspension of the licence or criminal prosecution. These options are often considered too clumsy and too punitive when dealing with a relatively minor violation.
The third area is the repeal of the Grain Futures Act. This will allow the Province of Manitoba to assume sole responsibility for regulating the Winnipeg Commodity Exchange. The need for the repeal of the Grain Futures Act is largely due to the intention of the Winnipeg Commodity Exchange to move to non-grain commodities. Enabling Manitoba legislation provides for the regulatory oversight of all of the activities of the Winnipeg Commodity Exchange. Repeal will prevent both overlap and duplication of the regulatory oversight and potential federal-provincial conflict arising from joint jurisdiction. It will also enhance the level of confidence in the Winnipeg Commodity Exchange and its clearing house. A transition plan will be developed by the Canadian Grain Commission and the Manitoba Securities Commission to minimize any disruptions and ensure continuity.
Extensive consultation with all sectors of the special crops industry clearly showed significant support for the licensing and security provisions within Bill C-26. Stakeholders involved in the trading of grain futures and options were also consulted, with the vast majority expressing support for the repeal of the Grain Futures Act.
In closing, the main elements of the bill were developed in close cooperation with the affected industry groups. The commission recommends that the bill be supported.
The Chairman: I have one question which I asked you earlier. Is there anything in this bill that would restrict a farmer from selling a pulse crop into the United States?
Mr. Senft: No.
The Chairman: There is not.
Mr. Senft: No. They would not be involved in the program. No security would be provided on that sale but it does not limit the sale of that commodity across the border.
The Chairman: Is the opt-out a one-time provision? Will farmers who have opted out be able to get back into the program?
Mr. Senft: No, farmers would opt out once, and until the administrator heard otherwise, they would be considered out of the program. At the beginning of the new crop year, if they have decided to be involved in the plan, they have that opportunity; but, once they have opted out, they would have to opt back in.
Senator Hays: I think I understand pretty well the general thrust of the bill. Thank you for your presentation here and for your earlier briefings. I have a question on the futures-trading legislation. Perhaps you could elaborate on why the option of having a conforming federal act was not considered as a viable option instead of doing away with the federal legislation.
Mr. Senft: I would ask Mr. Gosselin to comment on that.
Mr. Régis Gosselin, Acting Manager, Corporate Information Services, Canadian Grain Commission: The fundamental reason for doing away with the legislation is that the current legislation is seriously out of date. It has been on the books since 1939 and basically has not changed since that time. It does not reflect the realities of futures trading anymore. Leaving that legislation on the books in its current state really was not a viable option.
Senator Hays: I understand that. I also understand that the Province of Manitoba has what is considered by international standards to be a viable futures-trading framework provided for in its legislation and in its regulations. It seems to me that one of the options that the federal government had was to have its legislation simply brought up to date, using the Manitoba legislation as a framework or guide of what would be satisfactory by international standards. This would leave the federal level present which is consistent with what seems to be the federal objective in the trading of securities generally. This trading is now governed by provincial legislation -- essentially, the legislation of the Province of Ontario because it is the largest trading area. The question is, was that option considered?
Mr. Gosselin: Yes, it was. In fact, we spent a considerable amount of time and resources developing a new piece of legislation, working very closely with people in Winnipeg, in the grain trade and with the exchange itself. We were contemplating coming forward to the government with a new piece of legislation. However, the exchange decided it needed to develop new products. At that point, it felt it would not want to commit more resources to developing a piece of legislation which, in effect, would duplicate some of the things that would have to be done at the provincial level.
To answer your question, we considered that and the consensus within the grain trade was that there was no value in going forward with a federal piece of legislation given that the Province of Manitoba would have to get involved anyway.
Senator Fairbairn: Judging from what you have said and from what I have read, this is a piece of legislation that is produced with the approval and concurrence of those most closely involved. Were there any major dissenters in the process or with respect to certain parts of the bill? If there were, could you let us know who they were?
Mr. Senft: The larger grain handling companies that deal in both commodities had concerns about the bill. Under the current system, the cost of security can be spread over a larger volume of grains and oilseeds handled. However, many special-crops dealers are low-volume, specialized dealers. Some felt that it was unfair to ask for a different security system for special crops. Part of the reason that the legislation was developed was to create more competition and to allow for a different security system. That would be one area.
Another situation is that it was perceived to be the downloading of a security cost to producers. However, we need to understand that security as it stands today is within the tariffs of companies or within the basis of the price offered, so producers are paying for it under the current system. Also, producers have a choice in this. If they decide that they do not need or want the security, they can opt out.
Senator Fairbairn: Apart from those concerns, I gather that the overwhelming consensus was that this was a good thing with which to proceed.
Mr. Senft: For the pulse industry, yes.
Senator Stratton: With regard to the Free Trade Agreement, is there anything in this legislation that is going to cause the folks down south to come back at us?
Mr. Senft: I do not see on what basis there could be criticism because the producers are funding the program. Again, it is the producers' choice whether or not they want to participate. There is no government involvement other than the administrators, but we are recouping our costs through the fees. To my knowledge, anything that is funded by producers should not have an effect on trade.
Senator Stratton: What is the anticipated growth in these pulse crops? Is it increasing?
Mr. Senft: I would be hesitant to say exactly what it is. As the agronomic situation changes, markets dictate that growth. There will be fluctuation within those acreages. We see in the history of this industry and of these commodities that there is an important need for producers to be involved in the industry. To what extent there is a need for their involvement will depend on market prices. The impact of plant breeding and biotech on not only the special crops but also the traditional crops is a factor. I would be hesitant to say where it might end up in five or 10 years, but it is going to be a strong component of the industry.
Senator Stratton: How much has it grown in the last ten years?
Mr. Senft: Over the last 14 years, it has grown 300 per cent.
Senator Fairbairn: Do you have an idea how many farmers or how much acreage that involves?
Ms Marilyn Kapitany, Director, Corporate Services, Canadian Grain Commission: We know approximately how many farmers are involved in the three provincial pulse crop agencies: 6,000 in Alberta, 15,000 in Saskatchewan and 5,000 in Manitoba. Although those numbers are relatively representative, they do not capture all of the farmers that would be producing special crops. The numbers appear to be growing over the years.
The Chairman: On that point, I spoke with pulse growers from Regina yesterday by telephone. They indicated that the pulse crops are now the second largest crop grown. I understand that does not include canola. There is no question that it is certainly a growing industry. Do you know how many small processors there? How many grain dealers or pulse dealers are being set up?
Ms Kapitany: We had a consultant look at the industry and estimate how many new licensees could come in under the provisions of Bill C-26. They estimated that approximately 125 new dealers would be licensed.
The Chairman: Obviously, this might cause a little irritation to some of the larger grain companies.
Ms Kapitany: Yes.
The Chairman: Personally, I see it as a good thing, because I know about the examples that you gave, and they are very efficient operations. Honourable senators, do you have any further questions?
Senator Spivak: No, thank you, Mr. Chairman. We had a good briefing earlier.
The Chairman: I want to thank you for appearing this morning and for bringing us up to date. I especially appreciate having a neighbouring farmer as the head of the grain exchange. I think that is a good move. Thank you, Mr. Senft, Ms Kapitany and Mr. Gosselin, for appearing this morning.
Honourable senators, the committee shall proceed with the clause-by-clause study of Bill C-26.
Senator Hays: Mr. Chairman, since we have dealt with this bill mostly in the briefings that we have received outside of the committee and today's hearing and since it is not really controversial, I would move that we dispense with the formal clause-by-clause process and deal with the matter, as from time to time we do, as a general report from this committee back to the Senate. We would simply deal with the legislation as part of our report, to the effect that it is reported back without amendment.
The Chairman: Are we in agreement?
Senator Stratton: Yes.
The Chairman: Senator Spivak?
Senator Spivak: Yes.
Hon. Senators: Agreed.
Senator Hays: I move that we report Bill C-26 back to the Senate without amendment.
The Chairman: Is it agreed, honourable senators?
Hon. Senators: Agreed.
The Chairman: Carried.
I want to say a word to the committee. It has been a privilege for me to chair this committee. You and the staff have been excellent participants in the committee. I think it has been a good committee. We dealt with Bill C-4 and other issues. I look forward to the fall, when we must deal with very serious matters in agriculture. There are some storm clouds forming now with the drought situation. There was a bit of rain last night and the day before in some of the areas but it is still a serious situation in much of Saskatchewan and Northern Alberta.
Senator Hays: Perhaps storm clouds are a good sign for us then.
Senator Fairbairn: Ironically, we are getting drenched in Southeastern Ontario.
Senator Hays: From our side, Mr. Chairman, it has been a pleasure to serve under your leadership on the Agriculture and Forestry Committee. Thank you for your consideration and patience during your work with the committee. I look forward to working with you in the fall.
Senator Fairbairn: May I also say it has been a pleasure for me to be reinstated with a committee on which I served for a number of years, certainly, with Senator Hays and Senator Spivak.
Senator Spivak: It is great to have you back.
Senator Fairbairn: It was a good baptism of fire to start back with Bill C-4. It strengthens one's resolve. I appreciate your chairmanship.
The Chairman: We sent get well wishes to Senator Whelan. Has anyone heard specifically how he is?
Senator Hays: I have not.
Senator Fairbairn: Not since last week.
The Chairman: Mr. Armitage says that he has returned home and he is resting.
Senator Spivak: I certainly concur with all the remarks about your chairmanship, Mr. Chairman. It has been wonderful. Could you outline whether anything is going to be looked at during the summer in preparation for our work in the fall? There is a small item that I would like to see if the researchers and the steering committee could look at it.
Senator Hays: Mr. Chairman, before we do that, perhaps we could excuse the witnesses and go into an in-camera session to discuss the future business.
The Chairman: I want to thank you for coming.
The committee continued in camera.