Proceedings of the Standing Senate Committee on
Agriculture and Forestry
Issue 25 - Evidence - Meeting of November 1, 2012
OTTAWA, Thursday, November 1, 2012
The Standing Senate Committee on Agriculture and Forestry met this day at 8:04 a.m. to examine the subject matter of those elements contained in Division 19 of Part 4 of Bill C-45, A second Act to implement certain provisions of the budget tabled in Parliament on March 29, 2012, and other measures.
Senator Percy Mockler (Chair) in the chair.
[English]
The Chair: Honourable senators, thank you for being here this morning. I want to take this opportunity to welcome the minister, the Honourable Gerry Ritz. Before we ask Mr. Ritz to make his presentation, I would ask the senators to introduce themselves and then we will officially introduce our honourable guests.
Senator Mercer: I am Senator Terry Mercer, from Nova Scotia.
Senator Merchant: I am Pana Merchant, from Saskatchewan.
Senator Callbeck: I am Catherine Callbeck, from Prince Edward Island.
Senator Mahovlich: I am Frank Mahovlich, from Ontario.
Senator Plett: I am Don Plett, from Manitoba.
Senator Buth: I am JoAnne Buth, from Manitoba.
Senator Eaton: I am Nicole Eaton. Welcome. It is nice to see you.
[Translation]
Senator Maltais: Senator Ghislain Maltais, from Quebec.
Senator Rivard: Senator Michel Rivard, from Quebec.
The Chair: Today, the committee will begin its study of the subject-matter of those elements contained in Division 19 of Part 4 of Bill C-45, A Second Act to Implement Certain Provisions of the Budget Tabled in Parliament on March 29, 2012 and other measures.
[English]
Honourable senators, the first panel will be led by Minister Ritz. Thank you very much for accepting our invitation to share with us the purpose of the legislative amendments to the Canada Grain Act, which is to streamline and update the Canadian Grain Commission's operations by reducing costs and aligning better with the needs of grain farmers. The government is committed to improving the Canada Grain Act.
I would like to introduce our guest, the Honourable Gerry Ritz, P.C., M.P., Minister of Agriculture and Agri-Food Canada and the Minister Responsible for the Canadian Wheat Board. We also have Elwin Hermanson, Chief Commissioner of the Canadian Grain Commission.
Thank you for accepting our invitation. We will ask the minister to make his presentation and then it will be followed by questions from the senators. The panel is 45 minutes.
Hon. Gerry Ritz, P.C., M.P., Minister of Agriculture and Agri-Food Canada: Good morning and thank you. Let me begin by thanking you for the great work this committee did on Bill S-11. We welcomed those changes. As you know, they were very timely, having been tabled last spring. You did great work getting it through expeditiously.
I would also like to let you know there were some amendments talked about regarding having the Auditor General being able to audit and so on. I can assure you that he can; he has that ability already and can audit any department or agency of the federal government as he sees fit.
Thank you for inviting me to speak today about this important piece of legislation that will strengthen Canada's world-class grain industry.
As you know, Canadian wheat, canola, pulses, barley and other grains are known by our customers all over the world for their unrivalled consistency and quality. More than that, they drive jobs and growth for our economy. On an annual basis, Canadian farmers earn about $16 billion from grain production. Overall, grains are Canada's top agricultural export, with $7 billion in sales on an annual basis.
Our farmers compete in a 21st century marketplace. They need a 21st century grain system that will allow them to drive Canada's economy and feed a growing population at home and abroad.
The Canadian Grain Commission is 100 years old. There have not been substantial changes to the Canada Grain Act in the last 40 years.
Honourable senators, just as the Canadian grains sector changes, the legislative tools required to keep the industry competitive must change in lockstep. That is why our government has been working with the industry to grow their exports by expanding free trade agreements; focusing on staying on the competitive edge through investment in innovation; and capturing new business opportunities through marketing freedom for wheat, durum and barley. Already, marketing freedom is opening up new economic opportunities for our Western wheat and barley growers as never before.
Thanks to our government, grain farmers now enjoy transparency at point of sale. In the new environment of marketing freedom, farmers are no longer responsible for their grain once they dump it in the pit at the local elevator. When farmers deliver their grain, they get paid and they drive away. No longer are there drawn-out demurrage costs, storage or grain changes throughout the pipeline. The benefits of marketing freedom will only be amplified by these timely changes to the Canada Grain Act.
Building off this new reality, these amendments to the Canada Grain Act will help the sector continue to evolve in a direction of greater competitiveness. After all, as I said earlier, the Canada Grain Act has not been altered substantially in more than four decades. These timely changes will help the grain sector meet the challenges of a more competitive and market-oriented sector for the 21st century. This includes maintaining effective regulatory oversight where it is required.
These proposed changes will contribute to a competitive and innovative grain sector by reducing costs, improving regulation and providing choice for our producers and others in the grain sector overall. Specifically, the budgetary amendments that our government is proposing to the Canada Grain Act will reduce the regulatory burden and costs for both industry and government, improve the Canadian Grain Commission's producer Payment Protection Program and eliminate unnecessary mandatory services.
In a nutshell, the amendments we are proposing will reduce regulatory burden and pull some $20 million in costs out of the system — costs that are ultimately borne by Canadian farmers.
Removing duplication and redundancy is also good news for Canadian taxpayers. A more sustainable grain commission will rely less on taxpayer support and deliver better services to the sector overall. Our proposed changes will help the commission continue to build the high-quality brand that has backstopped Canada's stellar reputation for a world-class product.
This proposed legislation is guided by extensive industry feedback we have received from numerous consultations over the past number of years. The sector asked us to remove unnecessary services that are not essential to ensuring grain quality and that only impose extra costs. We delivered with this proposed legislation. The industry also asked for shippers to retain the right to request optional third-party inspection at terminals. We did that as well. They asked us to retain and improve the payment protection for producers. Again, we listened and acted. In fact, we took it a step further by opening a door to an alternative insurance-based model that will take out of the system costs that are ultimately paid by producers.
I would add that the industry has been very receptive to the changes we are proposing. Doug Robertson, President of the Western Barley Growers Association, said:
Since farmers are now in control of their marketing, they don't want to have to be paying for services they do not need or want, and one of those has been inward weighing and inspection charges.
On that topic, let me be clear: In no way do our proposed changes to inward inspection impact food safety as some have said. It is important to clarify to this committee and Canadians that inward inspection is not and never has been about the safety of Canadian food. Inward inspection is a regulatory burden whose cost is ultimately borne by Canadian grain farms. Farmers have asked us to remove this burden, and the proposed changes we are discussing today do just that.
Both the Western Canadian Wheat Growers and the Grain Growers of Canada have also endorsed our government's changes and recognized the benefit of reducing regulatory burden and red tape to the grain sector. Of course, the legendary safety and quality that has put Canadian grain on the map around the world will continue. The CGC will continue to establish and maintain standards of quality for Canadian grains, collect samples of grain from licensed terminal elevators to monitor and test for safety issues, and have the authority to take corrective actions when required.
Again, industry is confident our system is secure.
Rick White, General Manager of the Canadian Canola Growers Association, has said:
We're confident this maintains the integrity of our grading system. Nothing that's been touched here would involve anything regarding grain quality. Our grading system is still in place. That is solid and will continue to be.
To conclude, honourable senators, these changes to the Canada Grain Act and Canadian Grain Commission respond to the realities of today's innovative business environment.
Beyond these budgetary changes, there are further changes that industry has been asking for that we remain committed to delivering. They do so while maintaining the integrity of Canadian grain safety and quality assurance system and the reliability of the Canada brand.
Our government has built a strong foundation for the Canadian agricultural sector across Canada. We have and continue to put farmers first, and this proposed legislation is just one more example of that.
A stronger Canadian Grain Commission will be better placed to ensure that the grain sector can continue to benefit from the quality, safety, research and market access that have always been the foundation of Canada's brand in grain quality.
Honourable senators, I know you will give this legislation your usual careful oversight. I urge you to move it forward for the benefit of Canada's grain industry and Canada's economy overall.
Thank you. I look forward to your questions.
Senator Plett: Thank you, minister, for being here. We certainly appreciate all you have done in the agricultural sector since you have been in your position.
I want to touch on what we did just a little while ago when we dealt with the Canadian Wheat Board and how you moved that system forward and how appreciative we were of that. I was so happy to be able to sponsor that bill here in the Senate. That, minister, was something that we had promised in an election campaign that we would do. As one of my colleagues opposite said at that time, "I may not agree with the proposal that you are making or with what you are wanting to do, but I certainly agree that you committed to doing something and you followed through with your commitment, and you needed to do that.''
Is this something, minister, that we already promised in the spring budget and we are now carrying forward with an implementation? Could you reply to that and tell us how this started?
Mr. Ritz: This particular piece of legislation attached in the second budget bill should come as no surprise. This was highlighted in our budget tabled last March so there is nothing new here. It is simply the implementation bills that follow on a budget. The budget gives you the broad strokes and then the implementation bills, as we saw in the spring and again, there is always one in the fall as well, flesh out exactly what is required, so this should come as no surprise.
This builds on our commitment to revamp the grain sector, starting with the elimination of the single desk. I thank you for sponsoring that bill here, Senator Plett.
What we used to see in the old single desk was that farmers were still the owners of their grain through to port, whether they wanted to be or not. You dumped it in the elevator, you took your initial price and you went home, but you were still at risk for any demurrage charges, any storage charges and any grade changes that happened during that pipeline, during the inward grading and so on. That has now been cut at terminal pit. Whatever elevator you deliver it to, in Western Canada predominantly, it is no longer yours. You take your cash; you have had your grade and dockage, and you go home; you are done. There is no more demurrage.
It is starting to drive efficiencies in the whole system. We are now looking at commercial agreements between shippers, railways and handling facilities, which of course lead to innovation and efficiencies that we did not see when everything was hidden in the pool accounts at the Wheat Board.
Senator Plett: I am fairly clear on most of the legislation. One area I am personally not entirely clear on is the issue of insurance. I would like you to talk about the issue of bonding and security for farmers. Coming out of your negotiations in the Yukon, apparently, with your federal, provincial and territorial counterparts, you said one of the things is for farmers to take a more proactive role in managing their risks. Specifically, you have been touting insurance products as the way to go for farmers. Grain farmers already have access to crop insurance, which insures them for things like loss of crops due to weather, et cetera. Can you please explain the government's commitment to providing the insurance-based risk management tools for farmers and how this is another example of how our government is fulfilling its commitment?
Mr. Ritz: They are two different situations. In Growing Forward 2 we are committing to expand the insurance tools that a farmer can take advantage of from just crops into the livestock sector so they have more timely payouts, more bankable and predictable than we are seeing in agri-stability and agri-recovery and other trigger-type demand-based programming. That is that side of it.
We have seen some examples that have happened in Alberta. Ontario is now talking about a pilot to move forward in the same way on livestock.
In this piece of legislation, we are looking at insurance type of programming on all licensed facilities administered under the Canada Grain Act through the grain commission. Right now they have a system of bonding, where the grain commission does an analysis of the volume and value of the product they handle in a given year. They have to put that amount of cash in a bond aside in case something happens and they are not able to pay their creditors, in most cases our farmers.
We are looking at moving to an insurance-based model rather than the bonding cash set-aside bundle. Cash is king when it comes to business and to tie up that kind of money and not have access to it to build your business makes no sense. An insurance program, too, can accordion up as they expand the amount of volume they do and then shrink back down depending on where they land. With a bond, you go to the high end and it stays there. It is like your power metre. It hits the top and stays there for a month until they reset it.
There is a better way, that again those costs are passed on down through the system to the farmer himself, so if we can come up with a more efficient model, then those costs are not there to pass down to the farmer.
The U.S. has a patchwork quilt. It is all state by state, but the majority of the grain-producing areas are moving to an insurance-based tool. Australia moved to this some time ago as well. It is a much more efficient system. It is easier to manage and it is there when farmers do see a licensed facility in trouble.
Senator Plett: It is just another way of our government ensuring that the farmers are well taken care of.
Mr. Ritz: The whole sector has changed drastically over the 40 years since any last major review. We are into continuous cropping, air seeders, lighter environmental footprints, but our grain act has not corresponded. With the major changes to the Canadian Wheat Board, of course, now we are able to move forward because farmers are no longer held captive or hostage in that situation.
Senator Mercer: This does not seem like a complicated issue, but it does talk about some changes that are of concern. Any time we cut down on the number of inspections of food products, it becomes an issue. You have said, minister, that it is not a question of food safety. I agree with you.
You and Senator Plett were patting yourselves on the back about killing the Wheat Board.
Mr. Ritz: The Wheat Board is still there.
Senator Mercer: The single desk, then; you talked about grade changes that might have happened from the time a farmer dumps his grain in the bin until it hits the port.
My understanding is that the second inspection that happens now will not happen after this bill is passed, or if the inspection is happening, the farmers will pay for it, not the grain commission.
Mr. Ritz: Actually, three inspections are done. As you dump it into the terminal, into the elevator pit, one is done there and that is the one that the farmers want because that sets the price they will get for it. That can be done either ahead of time using the services of the grain commission or at the elevator, and the elevator takes samples of each truckload as it comes in, and then you have the grain commission there as an arbitrator if there is a dispute.
Second to that is inward grading, which is when the elevator companies blend grades 2 and 3 to try to get more wheat into a 2. There are variances in each grade as to a high and low. What was happening was the elevator would have the grain commission folks standing there, hour after hour, saying, "Is this good enough; is this good enough?'' Of course, those costs go back down to the farm gate, because it is reflected in the price they pay for grain.
The third and final inspection is outward inspection as it is loaded on the boat to ensure that the importer around the world gets exactly what they asked for. There were those three inspections.
We are taking out the middle one, which only served the industry: not the farmer and not the importer. It is still available, but it will be done on a cost-recovery basis, either by a private-sector inspection agency that has been adjudicated and authorized by the grain commission to do it or by the grain commission itself.
Senator Mercer: The cost recovery in Ontario is a program, I understand, where the farmers pay a third. If we go to full cost recovery and they continue with the inspection that will be a tripling of their fees. Those fees go to the farmer, so it means that the farmer's bottom line would be directly affected by that or the farmer could, like any other producer, tack that on to the costs of the product and the consumer pays at the other end.
What we have done here is we have added another cost to the system but not to the part of the system that we all want to stimulate, and that is at the farm gate and the export side. It seems to me that we have taken a little stimulus out of the system.
Mr. Ritz: There have not been any changes to the costing for the work done by the grain commission to assure quality and consistency for over 20 years. There has been a moratorium on these fee increases. We are now seeing our grain sector, for the last two and almost three years in most instances, doing quite well. It is time to start to make those changes.
Right now those costs are borne by taxpayers. It has to be from somewhere. The benefit in maintaining that initial grading is for the farmer himself, so we are seeing that there are some costs there that the farmer can bear now, with the increased value to their commodities.
Senator Mercer: If we are to have full cost recovery, someone has to pay and it will affect the bottom line of the farmer, or he or she will pass that cost on to the end consumer.
Mr. Ritz: The numbers that I have seen are less than 1 per cent of the overall value of the product that is exported.
Senator Mercer: In some years that 1 per cent is critical. Things are fine right now, but you have been around —
Mr. Ritz: Then I might be back to see you.
Senator Mercer: — long enough to know that some years 1 per cent may be it.
Mr. Ritz: You are either making money or not. I am not sure the 1 per cent factors into it.
Certainly everyone looks at their bottom line every chance they get. Another thing that would hopefully change, now that we have moved away from the enforced single desk, is some value added in this country, which of course is a separate system. Farmers can move together and start to build durum plants, pasta plants. We have one talked about in Regina. I am hopeful it will go forward this spring. We may see some flour or malt that expanded. That will change the whole cost of grading as well when farmers themselves are adding value to their commodities.
Senator Mercer: When we eliminate one of these inspections it obviously involves people and we are always sensitive to the effects on Canadians, positive or negative, of what we do around here. How many people will lose their jobs because of this?
Mr. Ritz: I do not have that number right in front of me. You can ask Mr. Hermanson that. He may have a better idea. I know we are constantly moving people from one spot to another, depending on the demand. That number, as far as I am concerned, would be in flux.
There will be some changes made and some of them may be hired again by the private sector as they pick up some of the load. To give a net number, I do not have that.
Senator Mercer: Those Canadians who lose their jobs because of this legislation will not be impressed by the fact that it is in flux. If you are unemployed, you are unemployed.
Mr. Ritz: You have to realize there are contractual obligations between the government and the unions that, until these people are notified and given a chance to either rehire in the civil service somewhere, I am not at liberty to give you those numbers.
Senator Mercer: You are asking us to proceed with this legislation without us knowing what the end result might be.
Mr. Ritz: The old line, "Trust me, I am from the government, I am here to help,'' will not do it, certainly, but there are contractual obligations in the union agreements, so people need to be aware of what will happen. Those letters will be going out should this bill pass — when this bill passes — and we will make adjustments accordingly. It is within the contractual agreements that we have between government and the civil service that I am not at liberty to say.
Senator Buth: Thank you very much for being here this morning. I want to go back to export markets. First of all, to clarify that and take a step further back, this legislation only affects farmers in Western Canada. These changes essentially are affecting Western Canada.
Mr. Ritz: The vast majority. There will be some changes to licensing and so on that will affect a few enterprises in Ontario.
As far as the grade changes, the inward inspection was predominately driven by the ownership of the grain under the single desk. The farmers continued to own it through the port and faced all the risks accordingly. Predominantly these changes are in that scope, yes.
Senator Buth: I wanted to confirm that this will not affect export markets in any way.
Mr. Ritz: No.
Senator Buth: We are looking at 85 to 90 per cent of grain and oilseeds exported out of Western Canada.
Mr. Ritz: Not at all, senator. There was a lot of misinformation floating around when we were talking about the changes to single desk that it would be the same as Australia: They lost their grading capacity, their science side. The CIGIthat we are so proud of and the CGC and Western Grains Research and everything were all going to crater because of the changes to the single desk. None of that was true. In the Australian model they were one and the same. In Canada they never were.
There were many things that were talked about that somehow the Wheat Board was in control of when they really were not. They moved into that and were taking credit for things that were not part of their umbrella at all.
Senator Buth: In terms of producer protection, can you talk about producers? When they deliver a product into the elevator system and they get a grade, what happens if they disagree with the grade? Will this legislation affect that at all?
Mr. Ritz: Generally I know in our own operations, and probably yours is similar, in the good old days when I was farming you would take a sampling of your grain. As you haul it in from the combine you would take samples as it went into the auger and up into the bin. You would keep those samples aside and then you would take that sample to elevators and you would go around. There were some you dealt with and some you did not, but you always took our samples around and said, "Is this a 2 or 3? What are you going to call it?'' You could generally shop it around and end up with a better deal by doing that.
The elevator will then check your loads as they come in to ensure what you are showing them is what you are bringing in. It is a gentleman's agreement. We had the odd discussion about grain changes and so on. When and if that happens you then have the ability the take that same wheat to the grain commission, have it tested and graded, and that is your third-party arbitration. Everyone lives by that and it works out extremely well.
Where we used to get caught is somewhere along the line, every once in a while, you would have a grade change between when you dumped it in the pit and three, four, six weeks later, when it got to port, you would get a letter saying your malt barley is no longer malt barley, it is now feed, and you owe us, et cetera. Then you would go, "I am not in control of it. It was malt when I dropped it and you all agreed, so how can it be something different now?
I would get four or five calls a year, as an MP, saying, "I just had my malt barley degraded to 2 and I cannot get it back because it is mixed in and blended and I have to take their word for it that it is not.'' That can no longer happen.
This idea that somehow it got infected with deer feces, these are some of the examples that we saw when we talk about safety. Other things that get added in as it goes to port you are not in control of, but somehow you are the one at risk. That is changing now.
Senator Buth: A producer's ability to challenge what the elevator gives him is still in place then.
Mr. Ritz: Absolutely. That does not change. That is the initial inspection. All we are changing is the inward inspection that was done at the cost of farmers or taxpayers, and industry was the main beneficiary as they blended and went from a high grade 2 down to a lesser grade 2 but still a 2. There is a tremendous amount of value and volume that can be captured that way.
Senator Buth: I want to get back to one other issue in terms of the producers, and that is the licensing program and whether that has changed in terms of this legislation.
Mr. Ritz: As a government and as an industry, you never want to see the assurance side of it used. We want to licence facilities so that we know who is out there and who is buying. Then it is seller beware that the facility you are dealing with is bonded or is insured against your receivables.
There have been a number of situations over the years from one time to another, but not necessarily with the big guys because they are diverse enough that they have their own insurance. If there is a drought in Alberta but not in Saskatchewan or in Manitoba and Ontario has done well, they spread their risk out that way. In most cases it is the smaller players, when you are looking at economies of scale, which have had problems and have been forced into receivership. Of course, farmers rely on that bonding or insurance through the grain commission, depending on what the format is, to pay them out. We never want to use that, but it has to be there.
Senator Buth: That is staying intact, then?
Mr. Ritz: Yes, it is. We are looking at modernizing that, as the rest of the world is doing, and going more to an insurance model rather than tying up cash value. All these industries rely on cash flow and the ability to buy, and so on. When you have to set aside millions of dollars in a bond — or hundreds of thousands in a bond, depending on size — you do not have the capacity to use it in your industry.
Senator Buth: I have been involved with the industry consultations and the industry discussions in my previous role before coming to the Senate. I think the inward inspections came up consistently and constantly from industry. Would you say that that move towards eliminating inward inspection and reducing essentially the costs through the system would be the primary component of this bill?
Mr. Ritz: Of this bill, yes. Second to that, of course, are the changes in bonding and insuring.
Senator Merchant: Minister, my question is regarding the amendments and how they will impact on the shortline producer, the shortline car shippers and the farmer-owned grain terminals. You are familiar with those in Saskatchewan, I am sure.
Mr. Ritz: Yes; I know a number of the owners.
Senator Merchant: These people will now have to hire, on their own, a third party to inspect and weigh their grain. Have your studies shown to you what the costs might be? Have you set a cost that would be appropriate for them to pay? They are concerned now about these changes because maybe their costs will double or triple; they do not know.
Mr. Ritz: First, the ability to order and use a producer car is enshrined in the Canada Grain Act. It is not the Wheat Board. That was a misnomer. They called for the grain to fill the car because that was their role, but you still had the ability to order producer cars. The initial grading going into the producer car by the farmer is still done by the grain commission or can be done by a third party that is adjudicated by the grain commission to do that, depending on which is more cost effective for you.
Senator Merchant: Who sets the cost? What is the cost?
Mr. Ritz: There is no inward grading on a producer car because it is going directly to the end user, whether it is a port or another facility that makes use of the product. When it comes to the inland terminals, they are one group that we consult with on an ongoing basis. They are quite enthused by this because they will continue to handle the product through to port. Farmers own a good portion of some of those inland terminals now, through the Inland Terminal Association of Canada, and they are quite buoyed by this, namely that they will not be forced to pay costs that they do not need to incur. Again, it goes to the farmers' bottom line.
I am not sure who you are talking to that is raising concerns from the inland terminals or short line rail or producer cars.
Senator Merchant: I am talking to people who own the short lines and the producer cars. They seem to think that they had a security blanket when they knew what the costs were. Now, because they have to hire their own third party, they are uncertain about whether these costs will double, triple, or if you will set an appropriate price.
Mr. Ritz: Regardless of who does it, the costs have to go up. We are sitting with a situation where the costs were enshrined some 20-plus years ago and have not moved. There has been a tremendous amount of changes in that regard. It was not necessarily farmers who bore that disproportionately but taxpayers as well. Of course, farmers are taxpayers, so they are getting hit as a farmer and as a taxpayer. We are seeking to remove roughly $20 million in those overhead costs.
Senator Merchant: Are they going to lose their grain commissioner under these new changes?
Mr. Ritz: Who?
Senator Merchant: These same people, the shortline producers.
Mr. Ritz: No, we are not changing the governances or the structure of grain commission at this point. There have been discussions around what is the best model to move forward in a modernized grain commission as well, but that is not in here at all.
Senator Merchant: My next question has to do with producer cars. It is clause 378 of the bill, which amends subsection 87(1) of the act. This section seems to have taken away assurances that producer cars will be made available to producers. The old act stated:
The Commission shall, in each week, allocate to applications made by producers of grain pursuant to subsection (1), in the order in which the applications are received, available railway cars that enter each shipping control area in that week up to such number or percentage of the available cars entering the area in that week . . . .
They want me to ask you if producer cars will be available to those who request them as readily as in the past and where are those assurances in the new bill?
Mr. Ritz: There is nothing that changes that in this bill at all. That is enshrined in the Canada Grain Act since 1919, or something like that, and it is still there. None of that has changed. It is not reflected in here at all. There is still the ability to call a producer car. Based on the criteria you have outlined, none of that has changed.
Senator Eaton: Minister, with all the free trade agreements that you are presently negotiating with the EU, Japan, India and, I guess, China, is there a role for the Canadian Grain Commission to play in terms of the excellence of Canada's brand abroad so that if I am in India or China and I have ordered malt barley or red spring wheat, I am getting what I ordered and it is up to the quality that I expect?
Mr. Ritz: That is the outward inspection function that the grain commission does at port. They make sure that what is going on the boat or in the container to whichever importing country is to the spec that that country has ordered.
Senator Eaton: It will still play a role in the branding, in the Canada brand?
Mr. Ritz: Not so much the Canada brand, but in the quality assurance, which leads to the Canada brand, working in conjunction with the Canadian International Grains Institute, CIGI, who do a lot of baking tests. They will actually help a country design the grade and the type of product they need in order to fulfil their baking requirements, or pasta, or whatever. They will helpful fill that and then give those specs to the import country, which then asks for that grain to be delivered through whichever line company, whether Cargill, or Viterra, or Richardson, or the inland terminals. The grain commissions' role at port is to ensure that that spec is there on the container or on the boat.
Senator Eaton: You still have a role.
Mr. Ritz: Yes, a very important role.
Senator Callbeck: Minister, you mentioned there is a $20 million saving with this legislation in the grains sector. Could you break that down? What percentage is the farmer going to get of that $20 million and where are these savings coming from?
Mr. Ritz: It is not that there is going to be money to disburse; it is that the costs will not be ongoing once the bill passes. There will no longer be that inward inspection that comes off the value of the product to the farmer, because industry wants to capture it, because they will pay it, or it comes out of the taxpayers' pocket. That is the amount of cost that there is there right now that will no longer be required to be done. If industry decides they want to blend and use some number 3 grain to lower the value of the number 2 grain, but stay within the parameters of a 2 grain, they can still do that but will have to pay for that service.
Senator Callbeck: You are saying that we are eliminating an inward inspection and that that will be most of that $20 million?
Mr. Ritz: That is the value of that inward inspection right now. That is the cost. Whether it comes out of a farmer's pocket or taxpayers' pockets, that is the cost of doing that operation right now.
Senator Callbeck: On the payment security program, this legislation we are talking about is going to an insurance- based model as compared to the bonding model. Do we have any idea whether that will cost less or more?
Mr. Ritz: Everywhere that it has been implemented, the costs are less because they are more predictable. Business today runs on cash flow. To tie up a big portion of your day-to-day assets in the value of a bond, which they are forced to hold now at a higher rate of whatever value they are doing, is counterproductive. If you are able to buy insurance, you will pay far less in a premium. As you do not use the insurance, of course your premium goes down, as is the nature of insurance as you shop around. Every other jurisdiction that we have identified and looked at has seen some success in moving to an insurance-based model as opposed to a bonding or cash-held model.
Senator Callbeck: Everywhere else it has been used, it has been cheaper?
Mr. Ritz: Significantly, from the studies that we have seen and so on. Australia has done it. In the U.S., it is a patchwork quilt. Some still use bonding, some are moving to insurance, and some have insurance, so they are in flux. You are not going to implement this overnight. You have to maintain the bonding as people do acquire insurance and they switch over to that, so it will take a period of time to make that move.
Senator Callbeck: I want to clarify the grades. Currently, there are three, and we are going to eliminate the second one.
Mr. Ritz: Three inspections, not grades.
Senator Callbeck: On the first one right now, is it inspected by people who are hired by the Canadian Grain Commission?
Mr. Ritz: It can be.
Senator Callbeck: But it does not have to be?
Mr. Ritz: No. If you as a farmer agree with the grade that Viterra is giving you, it is a done deal. If you question Viterra, if you have got your grade or what you think it is and Viterra says no, it is a 3, not a 2, then you can take that to the grain commission and have it adjudicated. They will say the sample shows this is a 2.
Senator Callbeck: This is what the legislation will do?
Mr. Ritz: No, it does it now. That does not change.
Senator Callbeck: How is that changing?
Mr. Ritz: It does not.
Senator Callbeck: It does not change at all?
Mr. Ritz: No. That initial grading system stays intact exactly as it has been for a number of years.
Senator Callbeck: I was reading about the regulations. When regulations are developed or changed, the resulting new legislation would be a further opportunity for the public to comment. How will the public have an opportunity to comment?
Mr. Ritz: We have had significant consultations on this for a number of years. This is the third reincarnation of this particular change being talked about. One died on the Order Paper, one was hoisted by the opposition, and now we are coming back again. In some cases, the other was because of other issues that were part of the legislation. This is a straightforward change that has been talked about for years by industry, by farmers and by government, so we put it in as simple terms as we can to show that there is value here for everyone.
Senator Callbeck: Two years down the road, if the regulations change, how do the people affected get an opportunity to comment?
Mr. Ritz: It would depend on the regulation and whether it requires gazetting or consultation. We have done a tremendous amount of consultation on every move we make. We are not about to do something that will set the industry back. As a global player, we have to keep step with our trading partners so that we are not holding our farmers back or pushing them further than they should. We look at everything through that lens. Is this in the best interests of the farming community and the industry overall? Then we start to tailor regulations to that end. Everyone has a chance to have their say.
Senator Callbeck: I have one more question, and it is on the weigh-overs. What was the purpose of having them, and why are we eliminating them?
Mr. Ritz: I would point to Mr. Hermanson for that, as a technical question. Things like shrinkage and moisture and other things are standard in grains and can change, and the value of your product can change significantly if you go from 13 per cent moisture to 7 per cent moisture or vice versa, and then you are talking spoilage and so on. It is more of a technical question.
Elwin Hermanson, Chief Commissioner, Canadian Grain Commission: The best way to explain it is that weigh-overs and also a process called registration and cancellations are meshed in with inward inspection. Of course, inward inspection is when rail cars primarily are unloaded at terminals. With the elimination of mandatory inward inspection by the Canadian Grain Commission, it became redundant to do registration and cancellation and to require weigh-overs by the terminals. That is another way to bring efficiencies into the grain handing system.
[Translation]
Senator Rivard: Welcome, minister. Thank you for being here.
I am not from out west; I am from Quebec. I have heard a number of conflicting stories about the monopoly held by the former Canadian Wheat Board. So I would like to take advantage of your being here today to set the record straight on four points.
[English]
The first one allocates producer cars to farmers that request them in order to bypass inland terminals. The opposition has been adamant that it was the old Canadian Wheat Board.
Second point: Will farmers retain the option of getting a re-inspection and second look from the Canadian Grain Commission at grades determined at inland terminals? The opposition has tried to confuse the grain appeals tribunal with the chief grain inspector of Canada. Does the grain appeal tribunal not deal with inward inspection and the chief grain inspector review disputes between farmers and grain companies?
Finally, does inward inspection have anything to do with food safety? The opposition has never found an issue that more bureaucracy and more red tape could not save.
[Translation]
Minister, the committee members and those Canadians who are wondering about these issues would benefit from hearing what you have to say.
[English]
Mr. Ritz: Producer cars have always been a creature of the Canada Grain Act. They were filled by call from the Canadian Wheat Board, so they tried to take ownership in that regard, but the very existence of producer cars is enshrined in the act going back to the early 1900s, almost 100 years ago. Since that time, there have been a number of producer cars called for.
The vast majority of producer cars, in the high 90 per cent range, were for Wheat Board commodities. There was a small amount from canola, oats, pulses and so on, going from Point A to Point B, to a value-added processer, but the vast majority were cars of Canadian Wheat Board commodities moving to port because there was a basis or differential there in handling fees. On the canolas and so on, with the handling fees with the competition in the industry itself, we are down to a point where it was not economical to use a producer car. There just was not that extra dollar there.
Producer cars are still enshrined in the Canada Grain Act and will remain enshrined in the Canada Grain Act. The bylaws that Senator Merchant read out are still pertinent and are still in play today. Producer cars are very much a creature of whether a farmer decides he can take advantage of that or not.
Second to that, there are cars that are called for by shortline rail. Again, the railways and shortline rail are making commercial agreements as to the availability of those.
On re-inspection of grades, yes, that is still available at primary elevators. If you have a dispute with any line company or a privately owned buyer, you have the right to go to adjudication with the Canadian Grain Commission. That is still there and will continue to be there.
The tribunals were fixated on disputes on inward grading only. Once you move away from mandatory inward grading, there is no more need for the tribunal to handle any disputes because it is no longer mandatory to do that.
Inward inspection really has nothing to do with food safety and never has had anything to do with food safety. Some people have tried to connect those dots, but they are not the same at all. Inward inspection was still focused on grade to ensure that the quality was there, and the reweight and so on was to ensure that the volume was still there. Once you move away from mandatory, then the industry itself will start to adjudicate that.
Again, it has absolutely nothing to do with food safety. This is raw material product, not food.
Senator Mahovlich: Thank you, Minister Ritz, for appearing. I have one easy question. Unlike Australia, we have the United States of America border all along our Western provinces and many of our farms are right on that border. What is the percentage of farmers who will take their wheat to an elevator in the United States?
Mr. Ritz: It is a very small portion. Some of that has been going on over the years already. There are farmers who farm in spite of the 49th parallel, and it runs right through their field, so there is a certain amount of that "slippage'' back and forth already. There are differences in grade that act to deter that, but a certain amount of product has always gone south and sometimes coming north, as well. It is done already.
There was a huge uproar last winter that there would be a tremendous amount of product going south to block that market and flood that market. It is a very valuable market to us. It was felt that this would somehow be a detriment. That has not and will not happen as long as we have a logistical system that gets our product to port. Whether east or west or south, farmers will make that decision based on the best interests of their bottom line.
However, we have not seen an increase in product going north and south that I am aware of. We hear all the stories about trucks lining up and so on, but I cannot find the trucks.
Senator Mahovlich: A lot of farmers were very concerned. I was here when they were witnesses, and they were concerned that shipping that wheat up to Churchill would be too costly for them. Has that happened?
Mr. Ritz: Churchill had a good year. We kept in place over the next five years — four to go now — the subsidy that was in place to ensure that grain companies used Churchill. The Canadian Wheat Board was the predominant shipper through there, but this year we saw Richardson take a good chunk of that action and some smaller players take advantage of that, as well as some specialty crops, moving up to Churchill. The first reports I saw showed a year that was above average.
Senator Mahovlich: Let us talk about the quality of the grain. I know that the Japanese demand a certain quality. Are they able to check that before it leaves Churchill?
Mr. Ritz: Japan does not order a lot of grain through Churchill. The predominant shipper for them would be Vancouver or sometimes Prince Rupert, depending on whether it is containerized or something else. Those would be their two main ports out of Canada.
Having said that, yes, they are very strict in the grades they want. They recognize the value of the grain commission and what it brings in terms of assurance to them. They continue to buy and are a premium buyer of Canadian product, and we welcome that.
[Translation]
Senator Maltais: Welcome to you, Mr. Minister, and to you, Mr. Hermanson. Canada has an excellent reputation globally when it comes to grain exports. This bill will only bolster that reputation. That aspect will be vital in order to achieve better prices in international markets.
I am from the north shore of Quebec, where Calgon Grains has huge grain elevators, in Baie-Comeau and in Port- Cartier, for the very good reason that St. Lawrence Seaway access to the Great Lakes is closed in the winter. The grain is largely from Thunder Bay, Ontario.
How is that grain inspected, and how do you, as agriculture minister, have assurance that once the grain leaves Baie- Comeau or Port-Cartier to be exported, it has been graded as being of the highest quality?
Is there a specific inspection system in place for that stored grain? Or is the grain inspected out west or in Thunder Bay and never mentioned again? Before it leaves Canada, how do you, as Canada's agriculture minister, know for certain that the grain is of the highest quality?
[English]
Mr. Ritz: The best assurance I have is that as I travel the world and promote Canadian product, I have without exception had tremendous responses from everyone who buys our grain products, whether the oilseeds or grain products themselves. They talk about Canada's quality and consistency being number one in the world. They always gripe about the price — that is the nature of buyers and sellers — but at the end of the day, I have never, ever had an instance where someone has said the quality was not what they had ordered. Never.
We know that industry plays a big role in this because they have very valuable customers around the world they want to sell to again. Having said that, we do adjudicate through the Canadian Grain Commission, and there are other private-sector entities that do inspections as well that are recognized by some buyers internationally.
Predominantly, though, it is the grading standards that are set by the grain commission that even the private-sector groups then adhere to.
Senator Plett: Minister, you have already alluded to part of what I was going to ask, but I will just say this: Senator Mercer very rightly stated at the beginning that I was patting you, our government and myself on the back because when someone does a good job, they need to be commended for that. It certainly is not my colleague opposite's job to compliment us, and I appreciate that.
I was in Kindersley on August 1, as you were, and saw 1,000 happy farmers. I was in Churchill later that month when the first vessel was loaded and I saw Richardson grain go onto a ship. I was with the mayor, who was jubilant about how the town of Churchill was doing. I was with the owner of the Port of Churchill, who was happy with the grain that was going out.
To me and to you, minister, the end story is our farmers. I believe our farmers have been well served by the elimination of the single-desk marketing — not the elimination of the Canadian Wheat Board, and that needs to be emphasized. As a matter of fact, the CWB was also with me in Churchill on that ship and they were doing well.
Minister, the end game here, the end result and the end motive for us should be the farmers. How do the farmers feel about the changes that we are planning on implementing with the Canadian Grain Commission?
Mr. Ritz: Overall, farmers in Western Canada had a tremendous year. The yields maybe were not what everyone thought they should be in that rain did not come at the right time, or there was too much or not enough. Those are the vagaries of dry land agriculture.
Having said that, I will give you two examples. I had two phone calls over the last month. One was from a young farmer who said, "I was one of the few. Everyone says it is an old farmer who wanted the CWB and young farmers did not.'' He is 40 years old so he is considered a young farmer. He said, "I was in the other camp; I did not believe in what you were doing. I thought we needed the assurance of the single desk in order get into world markets. However, I just harvested my wheat and I took 20,000 bushels from the combine right to the elevator. My net cheque to me was $9.17 a bushel.'' He got 58 bushels to the acre. He said he had never seen that much cash from his wheat.
He said, "I was able to hang onto my canola — it had dropped a buck a bushel and I will hang onto it now. Other years I would have been forced to sell my canola because my wheat was not going.''
By the last reports I have seen, we have moved some 40 per cent of the Canadian Wheat Board commodities to market already. Under the old CWB marketing plan, they would only do 12 per cent a month, so that they would not get ahead of themselves and never get stuck in the basement or at the high. That is called mediocrity.
Under the new marketing plan, the board is running a pool, as well. They are buying or selling. They are moving forward. Farmers are seeing more cash upfront; they are not waiting for a final payment, interim payments and top- ups; rather, they are taking that money home.
The only complaints I am getting from grain farmers today, Senator Plett, are that they want our tax rules changed because they will pay too much. That is a good fight to have.
Senator Plett: Thank you, minister.
The Chair: The minister went beyond his 45 minutes and I know that he has additional responsibilities in the other house. For those who have additional questions, please keep them for the second panel.
Minister, as chair of the committee, your presence here this morning was very informative. Thank you for taking the time for meet with us and share your opinions, and also the leadership that you are providing.
I would like to take this opportunity to thank you for taking the time this summer to visit northern New Brunswick, where you put industry leaders together, regardless of political party, and where you shared information with them and they shared information with you.
If you have closing remarks, I will accept them and then honourable senators will move to the second panel.
Mr. Ritz: Thank you for allowing me to be here this morning. I certainly enjoy sharing opinions with everyone. As you rightly point out, Mr. Chair, when you get together with farmers you talk farm, not politics. Everyone is interested in how they further their bottom line. I am certainly buoyed by that.
The Chair: Honourable senators, before we introduce our second panel, I would like to inform you that before we adjourn the meeting I would like an in camera five-minute meeting so that we can complete the list of witnesses identified by senators for the coming weeks.
For the second panel, we have the following witnesses: Elwin Hermanson, Chief Commissioner of the Canadian Grain Commission; Frédéric Seppey, Director General, Policy Development and Analysis Directorate, Agriculture and Agri- Food Canada; and Gordon Miles, Chief Operating Officer for the Canadian Grain Commission.
Witnesses, thank you for accepting our invitation so that we can continue to study the section of the budget.
I am informed that Mr. Hermanson will make a presentation. We have received copies of documents. They have been distributed.
Do you have documents to share or is it a verbal presentation?
Elwin Hermanson, Chief Commissioner, Canadian Grain Commission: I will give a verbal presentation and explain the documents.
Good morning, senators. It is a pleasure for the Canadian Grain Commission to appear before you. We thank you for this opportunity to speak today on Bill C-45 and also on user fees.
Before I begin my statement, I will take this opportunity to introduce myself. I am Elwin Hermanson, Chief Commissioner of the Canadian Grain Commission. I originally hail from Beechy, Saskatchewan. I have a farm background and have been in the position of chief commissioner since 2008.
I am joined by Gordon Miles, Chief Operating Officer of the Canadian Grain Commission. He has a long history within the industry. He is responsible for coordinating and overseeing the delivery of programs, services and activities of our corporate services, industry services and grain research laboratory divisions.
I am also joined by Frédéric Seppey. He is the Director General of Policy Development and Analysis Directorate in Agriculture and Agri-Food Canada.
Today we find ourselves at a pivotal juncture in the grain sector where public policies and regulatory structures need to keep pace with the rapid changes occurring in the marketplace.
Modernization of the sector is an important priority for this government and it effectively began on August 1 of this year with the removal of the Canadian Wheat Board single desk monopoly for wheat and barley. We are now building on this initiative, and the government has proposed amendments to the Canada Grain Act as part of the jobs and growth bill that was tabled recently. These reforms will advance the modernization of the grain sector and I will elaborate on these amendments later in my remarks.
I would also like to inform the committee today that the Canadian Grain Commission has launched, as of November 1, a 30-day consultation on changes to its user fees. The proposed fees reflect the streamlined services the Canadian Grain Commission would perform if Bill C-45 is passed. Ultimately, we need to develop a cost recovery structure that will give the Canadian Grain Commission the resources it needs to deliver services to producers and the industry. I have provided the clerk with copies of our consultation materials for your consideration.
As I do not think I nor any of my colleagues have appeared before the Senate committee, I thought I would begin by telling you a bit about the Canadian Grain Commission and what it does.
We administer an act of Parliament called the Canada Grain Act, established back in 1912 by Parliament. Our mandate, as set out in the act and in the interests of producers, is to establish and maintain standards of quality for Canadian grain and regulate grain handling in Canada to ensure a dependable commodity for domestic and export markets. This mandate involves delivery of a national grain quality assurance system with many employees located across the country.
The Canadian Grain Commission is organized around four key activities that reflect our planned direction and the daily delivery of our programming. Those activities are, first, quality assurance, to ensure consistent and reliable grain quality assurance to meet the needs of domestic and international grain markets; second, quantity assurance, to ensure consistent and reliable quantity assurance of Canadian grain shipments; third, research on how grain quality and safety is measured, developing new technologies and methods on how to assess and use quality; and, fourth, producer protection, to support the producers' rights to ensure fair treatment within the grain handling system, including things like producer cars and other subjects discussed this morning.
Our underpinning legislation, the Canada Grain Act, has not been amended in any significant manner since 1971. That is a long time in this industry. During the interim period, we believe we have delivered our mandate in a relevant manner. We have achieved this through various policy and regulatory initiatives and prioritizing resources to emerging issues. For example, we have established variety deregistration protocols to aid the sector in transitioning away from kernel visual "distinguishability''; strengthened grain safety assurance by developing new and improved objective testing methods for toxic substances; and resolved grain-related market access issues and enhanced our licensing and security program, by ensuring that the companies handling Western Canadian grain are in compliance with their legal obligations.
While we continue to deliver our mandate, our sector has undergone fundamental change. We now see high throughput concrete elevators, the removal of transportation subsidies, different transportation patterns, increasing demands for grain quality and safety, and evolving end-user needs and preferences. Of course, there is a change now in marketing with the removal of the Canadian Wheat Board single desk monopoly. With these changes there is a general view among most stakeholders that a revised Canada Grain Act is needed to make us modern, competitive and profitable in the grain sector. This view was confirmed when we engaged with stakeholders on this subject earlier this year.
The amendments the government has proposed are an important start to addressing the concerns of stakeholders. The amendments would streamline our operations and services; reduce regulatory burden and sector costs by about $20 million; and improve producer protection, all while maintaining a strong grain quality assurance system.
Specifically, the Canadian Grain Commission would no longer provide inward inspection and weighing services when grain is received at terminal elevators. In today's environment, these services are not necessary, particularly when a prairie grain elevator is shipping to an elevator at a port that it already owns. If a shipper or grain elevator deems these inspections to have value, they still will be available from service providers authorized by the Canadian Grain Commission. In the event of a disagreement, these inspections would be subject to review by the Canadian Grain Commission. The amendments would also give recourse to shippers in case a terminal elevator operator does not have the grain inspected or weighed when the elevator receives it.
The elimination of mandatory Canadian Grain Commission inward weighing and inspection necessitate further amendments. To start, the Grain Appeal Tribunal, whose job it is to make final and binding decisions on inward inspections, would not be needed. Weigh-overs would be redundant, as terminal operators will have entered into commercial agreements with their shippers. The original purpose of weigh-overs was to ensure accurate weighing and reconciliation of stocks stored in terminal and transfer elevators. Without weigh-overs, there would be no reason to continue registration and cancellation. All of these operations can be eliminated.
The industry asked us to provide and deliver services that respond to the changing needs of the industry and have value. None of these amendments alter the Canadian Grain Commission's role in collecting and disseminating data. Service providers and grain companies will gather data and supply it to the Canadian Grain Commission for publication on our website, just as we do today.
It is important to keep in mind that these changes will not alter the Canadian Grain Commission's mandatory role in inspecting grain for offshore export shipments from terminal elevators. The quality and reliability of Canadian grain shipments will not be compromised.
Our grain safety programming will continue. The Canadian Grain Commission will continue to sample, test and monitor for grain safety risks, including the presence of toxins, heavy metals and pesticide residues.
Finally, producers have signalled to the government that producer payment protection does have value. Amendments would improve the program by creating the opportunity to move to a new insurance-based system, where licensing costs may be reduced and protection coverage improved. Opening the door to an insurance-based model will take costs out of the grain system — costs that are ultimately paid by producers.
These changes will go a long way in repositioning the Canadian Grain Commission. Our minister has indicated that there is still further work required to ensure the organization can optimally serve the grain sector. We want to continue to work with all our stakeholders to develop a grain research program that supports our grain quality assurance system. We must continue to develop new ways to measure grain quality — it never ends — and evaluate grain grading factors, identify new uses for Canadian grain and continue monitoring the safety of our product. The marketplace is becoming more and more stringent for various quality and safety factors. We must be ready to provide the assurances that our stakeholders can use to successfully access markets.
Similarly, in a post single desk world where new commercial relationships are developing between producers and grain companies, new forms of oversight may be required. We will continue to work with producers and grain companies to put the right policy instruments in place so that transactions — that means grain deliveries — will remain fair and transparent to all.
I think that gives you the broader context. Maybe we have gone into more detail than in the previous hour, so I hope that will prepare the ground for informative discussion. I turn it back to you.
The Chair: Thank you Mr. Hermanson. There is no doubt that you have excited interest because there are six senators who wish to ask questions.
Senator Plett: First, gentlemen, thank you very much for being here. It is exciting to see the document that you have given us and to be among the first. Obviously, today was your launch date for this and we are excited about that. My first question is on user fees.
In your remarks, Mr. Hermanson, you referenced the savings that the grain commission will achieve with these legislative changes. You also referenced that user fees have been consulted upon for quite a while now and you have provided us with a copy of the changes.
When I look at that briefly, I see some fees go up while other fees will decrease for farmers. In laymen's terms, could you explain what this will mean for prairie farmers? I will use an example of canola at around $650 a tonne. How much is the farmer currently paying in user fees on that $650 a tonne, and how much will he be paying when the new fees come into effect? Maybe we will start with that.
Mr. Hermanson: You are correct in that there will be a savings to the industry of approximately $20 million. The majority of that savings is as a result of eliminating the mandatory use of inward inspection. To be clear, inward inspection occurs at terminal elevators when rail cars are being unloaded and does not affect the outward movement of that grain from those facilities.
Another component to this whole issue must be put on the table, and that is the fact that our fees have been frozen since the levels that were established in 1991. Everyone, including people in the industry that will have to pay the bill, recognizes that we cannot have frozen fees forever. Looking forward, it became obvious that we needed to restructure our funding model to make us sustainable but also ensure that we are providing the services that the industry needs, wants and what is required.
You are right. Some of the fees will be increased, and that reflects the fact that our costs of providing those services have increased. The cost of doing business today in 2012 is different than it was in 1991. On the other hand, if we can eliminate services like inward inspection, and if we can economize and make better use of the security program so it costs less to the industry and eventually less to producers, then that will provide a savings to the industry.
We have two forces at play here. The inflationary process says you must increase your fees to be realistic and to be fair to taxpayers, and also you must ensure that you are focused and doing what you should be doing in 2012 rather than doing what was more appropriate back in 1971 when our act was last given a major overhaul.
Mr. Miles has the exact numbers for the canola issue that you mentioned.
Gordon Miles, Chief Operating Officer, Canadian Grain Commission: I do not have the exact numbers on the canola issue but, by comparison, if we were not making these changes to our user fees, under our previous consultation, costs per tonne would have gone to over $3. With these changes, we are looking at under $2 a tonne, and our current costs would be in the range of $1.20. That gives a sense of the magnitude of the impact of the change. As Mr. Hermanson said, it is recognized through our consultations that increases are necessary after 20 years of fees being unchanged, but this will help minimize that impact on producers.
Senator Plett: Coming from a farming community in rural Manitoba, Western Canada, my concern of course is always for the farmer. Given the streamlined improvements, streamlining the process, who will receive most of the savings? Will it be industry? Will it be farmers? Will it be the people who are buying our product overseas? Who will benefit from these savings?
Mr. Hermanson: Savings will be accrued by Canadian taxpayers, farmers and other industry stakeholders. Industry stakeholders obviously have the ability to pass on costs to producers in many cases, so if we can save the industry money, they have the opportunity to save the producers money. If we can eliminate costs from the system and provide a more efficient and cost-effective security program for producers, then that also will save them money. We see this as a win-win proposal, where we are not seeing one sector lose at the other's expense. There is a benefit for all of our stakeholders, starting at the farm. Obviously, if we have a more efficient and effective system, even the end-use customers will see some benefit.
Senator Plett: I asked the minister, and you were here at the time, about the bonding. In my previous life, I was a small business person and struggled with bonding issues many times when we did not have a good year. The previous year needed to supply bonding. They sometimes gave us a bit of a hard time. I have heard from farmers that the current system of posting security in the form of a bond, letter of credit or other financial instrument to cover all liabilities is a substantial cost on the industry as a large amount of monetary capital must be tied up. I am certainly familiar with that. I also believe that the current program does not guarantee payment of any set percentage. I know the minister explained it briefly, but maybe you could give us a more in-depth explanation of what the insurance does versus the bonding.
Mr. Hermanson: Let me begin by explaining the current security program. All of our licensees are required to provide some financial instrument, as you mentioned, that would cover all of the liability that producers are exposed to at any given time. It is a silo system. We have over 130 licensees that buy grain from producers. Each one of those has to have in place a financial instrument that would pay producers 100 per cent of the liability should they be unable to pay.
We currently have at our disposal, not in our bank account, as that is not allowed, but at our disposal, over $600 million of capital that could be applied to working capital to expand the industry if our licensees were free to use it in other ways, but they are not. They have to maintain that fund or those moneys as available to the Canadian Grain Commission should they not be able to pay producers.
When you go to an insurance model, rather than measuring producer liability, you are measuring risk and you are looking at a basket approach, because that is what insurance is. It looks at averages and probabilities rather than assuming that the worst will happen, because it will not all happen at once. Our information tells us that the cost to the licensee will be substantially less if we measure risk rather than total producer liability.
There is another big winner in this proposal in that the administration involved in the current system is immense. All of our licensees are required to table monthly liability reports to the Canadian Grain Commission. That means they have to assign staff to go through their records on a monthly basis and provide us information as to what the producer exposure is for that particular month. It also means we have to have staff to go through all those same documents to determine whether, first of all, they are doing it correctly and, if they are doing it correctly, whether they have adequate protection in place for producers. From time to time, we actually have to audit our licensees. Sometimes we can do a desk audit, and sometimes we are required to travel to points all across Canada to audit our licensees to ensure that they are complying with the act and have the proper security in place.
If we move to a more insurance-based security program, the administrative burden will be substantially reduced. That means that not only will capital not be tied up in security, but human resources will not be as involved in maintaining the security program that we currently are administering.
Senator Plett: Wonderful. Thank you very much.
Senator Mercer: First of all, gentlemen and chair, at the beginning of the meeting we were handed a document of 53 pages in English and 60 pages in French. This is a little much.
Chair and clerk, it is impossible for us to fathom what is going on in 53 pages or 60 pages in French. I think we need to be clear here. We are good, but not that good. That is by way of comment, chair, and I hope that we can correct this in the future. It does not make any sense for us to try to make sense out of this document.
Back to what we are actually here to discuss, which is Bill C-45 and the amendments to the Canadian Grain Act, when you and Senator Plett were having an exchange about the insurance issue, you talked about the potential savings to farmers. However, you also talked about the fact that that will now mean there will be an elimination of the need for people at the Canadian Grain Commission to do the monthly reports and there will be an elimination for the producer to do the same reports; there is a fairly large human resources component we are talking about here at all levels.
Do you have an estimate of how many people will lose their jobs because of this change? At the same time, do we have an estimate of the profits that will be made by the insurance companies as they market their product to the industry?
Mr. Hermanson: First, we want to recognize that we are here to discuss Bill C-45. I want to make it clear that the document was dropped off here as a courtesy to the committee, because this information is being made public today by the Canadian Grain Commission and we did not want you to be the last to know; we thought it would be better if you were the first to know.
Second, as far as the human resources impact to the Canadian Grain Commission, we anticipate there will be one. That is certainly not finalized and there are certain procedures that the Government of Canada requires us to adhere to. We will be using the workforce adjustment directive, and that is out of respect for our employees who will be impacted. We would, as much as possible, want to communicate with them.
At this point, we cannot give you that information, but as soon as we can and as it is available and appropriate to make it available to you and to others, we are happy to do that.
You are correct in that the Canadian Grain Commission would have a smaller footprint going forward. We think that is appropriate, because there are other parts of the industry that also have a smaller footprint. As I said, we are concerned that we are relevant and that we will be in place in the long term to provide that grain quality assurance that will ensure our access to the market and producer protection and all of those responsibilities that I indicated we have responsibility for under the current Canada Grain Act.
Senator Mercer: Senator Maltais asked the minister a question in the previous round to which I do not think we got an accurate answer. I am not sure whether everyone understood the question. If I understood my colleague's question, it was about the quality of grain being delivered to Baie-Comeau from Western Canada and the need for assurance.
We understand the inspection when we are exporting the grain and we understand the inspection when the grain is delivered by the farmer. We are eliminating now the middle inspection, which we understand. However, I think the question was: How can the end user in eastern Quebec be assured that the quality is what he or she expects it to be?
We have a great reputation for the best grain in the world — I do not want to call that into question. However, I wanted to follow up on Senator Maltais' question because it did not seem to be answered.
Mr. Hermanson: Those were excellent questions. As a side comment, I have been to the terminals at Baie-Comeau and Port-Cartier, and they are tremendous facilities. We have staff on site there who are helping with the grain quality assurance.
It is a good point to bring up because with this act, one of the changes that occurs is the designation of either a terminal elevator or a transfer elevator. It is changed to just a terminal elevator.
By the way, the elevators at Baie-Comeau and Port-Cartier and other elevators on the St. Lawrence River are now classified as transfer elevators. Since they are transfer elevators, they are receiving grain from other terminals. Primarily, the grain comes from Thunder Bay. It is loaded on vessels — often lakers — shipped through the St. Lawrence Seaway system, unloaded at Baie-Comeau or Port-Cartier into what we call a transfer elevator, then the big salties come in and load the grain.
At these transfer elevators, under the current act, there is no inward inspection; it has already occurred. There is no change. The fact that inward inspection is not a mandatory service of the Canadian Grain Commission going forward will have no impact on the transfer elevators. They will still be doing outward inspection because that is the critical one; that is where the Canada brand is at stake and that is where customer satisfaction is preserved.
Therefore, outward inspection currently done at our transfer elevators, which will be reclassified as terminal elevators after the amendments are passed, would still see outward inspection carried out. That brings along all the good stuff we talked about that is associated with outward inspection.
Senator Mercer: In my other life around here I am a member of the Standing Senate Committee on Transportation and Communications. A number of years ago we did a study on containerization. I want to go back again to a reference the minister made in his testimony about the use of containers for shipping grain and shipping all agricultural products. It is a much more common thing than most Canadians appreciate, and I think it is a way of the future.
However, one thing we identified then — and this was a couple years ago and I want to see if we have had improvements here — is regarding the availability of containers, where and when they are needed. There are a huge number of empty containers floating around this country. Having them in the right place for the agricultural community is not necessarily the priority of the railroads, or it has not been in the past. Has this improved, or is it something that we still need to be concerned about?
Mr. Hermanson: It probably is something you need to be concerned about. It really does not fall under our jurisdiction at all, so I do not feel at liberty to comment because it is not an area about which I have enough knowledge and it is not an area I should be speaking about.
That being said, for the information of the committee, I can tell you that the container movement of grain is increasing. We now guesstimate that volumes around 10 to 15 per cent of the total grain exported from Canada go by containers, which is an increase from the past.
Your point is relevant and important, but I am not in a position to comment.
Senator Mercer: I will ask my final question. You talked about the need for price increases because it has been 20 years since prices have gone up. You talked about decreases in prices. Earlier, we talked about $20 million in savings by eliminating the second inspection. At the end of the day, when you add in all the increases and account for some of the decreases, has the $20 million vanished in this other document?
Mr. Hermanson: That is an excellent question. I will give a few pieces of information.
First, the ad hoc appropriations we receive from the Government of Canada — because our fees were not as high as they should be — were in excess of $30 million. We have about an $80 million budget, or higher. Therefore, almost half our appropriation was either ad hoc or another appropriation, which was considered to be totally out of line because the majority of what we do is beneficial to stakeholders within the industry. That is why we are trying to correct that component and help taxpayers.
On the other side of the equation, because our act had not been overhauled for 41 years, some of what we are doing is not relevant in today's world. That is where we believe we can save the industry about $20 million.
A caveat I should bring to your attention is that just because inward inspection is eliminated by the Canadian Grain Commission does not mean it could not happen if a shipper wanted it to occur. However, now it is a commercial or business decision. Would we add value having an inspection of our grain going into a terminal? Is it required? Much of the time it is not required, but if it is required they still, under the current act, would have the right to negotiate inward inspection and pay whatever cost would be associated with that. That is a commercial decision like the cost of elevation of grain or the cost of cleaning grain or whatever that they would have to determine.
That cost would then be reflective of what the commercial need was. It would not be an imposition of a regulation by government that was not required. We do not know what that will be. We do not expect it will be significant, but that is the call of the shipper and the terminal.
Senator Buth: Thank you for the detailed information. It really clarifies what the impact will be.
I have one question only and it relates to the fees. What type of consultation have you already done on the fee increases? Will this be a real shock to the industry and growers or have you done consultations already?
Mr. Hermanson: We have done a consultation when it was determined in Budget 2010, I think, that our fees would have to reflect costs more closely. We did a very extensive consultation with the industry. That is where I referred to the fact that all of our stakeholders recognized that we could not continue to have our fees frozen. That was just unreasonable. Stakeholders had different opinions as to how much our fees should increase and whether we should be fully cost-recovered and whether we should recognize more or less public good. Those are debates that may now continue now that we are doing a second, although lesser, consultation, because we now have to do the consultation for the fees for our services as they would be established with the amendments that we are considering in Bill C-45.
There has been extensive consultation. There is recognition from that consultation that what we do has value and is required. There is recognition that we had better review our services and ensure, because the costs are going to increase, that we are doing what we should be doing, and if there is something that we are doing that we should not be doing, whether it should not be done at all or whether someone else should be doing that, that should be reflected in legislation.
By reviewing our user fees and also reviewing and changing the legislation, we hope to accomplish the best of both worlds.
Senator Callbeck: Are you responsible for coming up with the insurance-based model?
Mr. Hermanson: Yes, we have already begun work in developing models. We have looked at several models. That process is not complete, but the initial information that we have received is very promising. Obviously, there will be cost savings and there will be administrative savings. The exact model that we would use has not yet been determined, and when we determine what we should propose, we will need to consult further on that.
Senator Callbeck: It looks as though it will be cheaper for the farmer?
Mr. Hermanson: It definitely looks like it will be cheaper. "Cheaper'' is a bad word to use; better value.
Senator Callbeck: We talk about this $20 million and you said the majority is for eliminating inward inspection. What is the rest of it attributed to?
Mr. Hermanson: The security program, the elimination of the Grain Appeal Tribunal, the elimination of registration and cancellation, the elimination of the need for weigh-overs, would all reduce costs.
Senator Callbeck: You mentioned there are gains for all here — the taxpayer, the farmers, the industry stakeholders. Roughly, what are the gains to be for the farmers?
Mr. Hermanson: The gains for the farmer are twofold. They will still have the service they need. They will still have the right to submit a sample. They will have the right to subject to grade and dockage. I am using some technical terms and I apologize for those, but subject to grade and dockage is what the minister referred to as the first inspection. We do not usually call it that, but that may be a better way to describe it. Producers will still have a security program so they will be guaranteed payment. They will still have the protection that we offer through outward inspection, which should assure our markets.
In other words, being a reliable supplier in the marketplace is one of the best attributes you can have as an exporter. Countries that are less reliable get lower prices for their grain and eliminate many of their market opportunities. If we can maintain that market access, that certainly benefits farmers. By eliminating the cost of mandatory inward inspection, they do not have to worry about the companies that pay those fees passing those costs on to them, the producers. There are probably many others. I have been pulling them off the tree, and those are the ones that came to my mind.
Senator Callbeck: When we talk about the $20 million that it will save in the entire sector, are farmers going to save 50 per cent of that? Do you have any figures on that?
Mr. Hermanson: That is impossible to determine because, as I mentioned, there still is available inward inspection at the wishes of the parties involved. There would be some cost to that and we do not know how much that would be. I think that we are probably wiser to look at the global amount and recognize that at this point it is impossible to say where all of the savings will be. The farmers will definitely receive some. Other industry stakeholders will receive some. We should be more competitive in the marketplace, which means that we should maintain or perhaps increase market share.
Senator Callbeck: On the inspection side, you said that you are ensuring quality meets export and domestic markets. You have cut out the inward inspection, so you are going to inspect for shipments that are exported outside the country. I live in Eastern Canada. If grain is coming from the west to the east, it will not be inspected as it would if it were an export. Why is that?
Mr. Hermanson: The Canadian Grain Commission has this inward and outward inspection currently for exports, but we have a much greater role that encompasses both domestic and foreign implications in that we are responsible to monitor grain in Canada.
I mentioned briefly that we are responsible for grain safety. We are continually monitoring grain samples across Canada. We begin at harvest time with something called the Harvest Sample Program where we receive samples from grain farmers, not only in Western Canada but right across Canada. We analyze these samples to ensure that the grain is safe, that levels of micro-toxins are not above the tolerance, that pesticide residues are not present in the grain and that heavy metals are not excessive. This is a role that we have played and will continue to play. It will not be affected by the amendments in Bill C-45. That is why you can be confident you are getting high quality, safe grain going into your food products right across Canada.
Senator Callbeck: I still do not understand why it is done for exports and not for domestic shipments.
Mr. Hermanson: Mr. Miles has a comment he would like to make.
Mr. Miles: In terms of what the Canadian Grain Commission does, we establish a Canadian Grain Grading Guide, so when producers deliver into primary elevators, those transactions are on the basis of what the Canadian Grain Commission has established again through science-based information as grain grades for every product for which we are responsible.
That transaction takes place when a farmer delivers to a primary elevator. It is then in the hands of the grain company, the grain handler, which ships it from the primary elevator to a terminal position. The producer has already received the benefit of the grain commission's grade. If there is a dispute at the primary elevator, then there are clauses, as Mr. Hermanson referred to, subject to inspector's grade and dockage, where a representative sample can come to the grain commission and we will do a binding decision around the grade for the producer and for the primary elevator.
When grain arrives at terminal position, that is inward inspection. The grain company has already bought it at the primary elevator. In many cases it is shipping to its own company and they are doing that same assessment.
In the past, 20 years ago, grain was shipped from a multiple of elevators across the country and it would often be pooled in port positions, so grain could be coming from one elevator company to another elevator company and they wanted a third party to establish that the grade that had been determined in the country was fair.
That is not the case today. In many cases, with bigger high-throughput elevators and multiple rail car spots shipping 50 and 100 cars, companies are shipping from themselves to themselves. They are doing that assessment when the grain arrives in terminal. Therefore, from an inward inspection and weighing standpoint, it is deemed to be a duplication of effort that is not required. From an export standpoint, the grain commission will still be doing the inspection and the evaluation of that grain to ensure that customers are getting what they have ordered. That is how grain moves through the system and where the Canadian Grain Commission plays a role.
[Translation]
Senator Maltais: Welcome to you, Mr. Hermanson, and to your colleagues. This is a morning of surprises. I was surprised to learn something that appears on page 24 of the English version of your submission: it costs less to move wheat via eastern ports than via the Pacific seaboard. The differential is three tenths of a percentage point. It is not very big. I am having a hard time wrapping my head around that because, if we are talking about shipping wheat from Saskatchewan, Manitoba or Alberta, it is closer to move it via the Pacific seaboard than via the St. Lawrence ports and store it. The difference is fairly significant when you look at the volume. How do you explain that? I thought it was cheaper to move it by rail than by boat, especially given the storage costs. How do you explain that difference?
Frédéric Seppey, Director General, Policy Development and Analysis Directorate, Agriculture and Agri-Food Canada: I understand the mathematical point you are making. You are referring to the fact that the cost is actually lower to ship wheat westward from a mid-point as regards the Prairies. It is cheaper to ship out west, if the proposed shipping fees to Western Canada are $1.82. If those costs are lower, that $1.82 represents a higher proportion of the shipping cost westward than eastward.
Let us consider a mathematical example. If the shipping cost via the Pacific seaboard is $2 and $3 via the eastern route, and we say, for calculation purposes, we will have costs of $1, that represents 50 per cent of the westward shipping costs, but only a third, or 33 per cent, of the costs to move it eastward.
Your instincts are actually correct; it costs less to ship westward than eastward.
Senator Maltais: Perhaps you should have included an appendix, because a reporter will not have the benefit of your explanation when looking at the report. I think it is important to correct or clarify that point, because it could represent a great deal of money. It could also give Canadians a bad impression. I think it would be worth the trouble of including an appendix with the explanation, because the press will certainly have a field day with it when they get a hold of the report.
I was not aware that grain from Eastern Canada could flow out west. Senator Callbeck said it, if I understood correctly. I thought that grain grown in Ontario and Quebec stayed in Ontario or Quebec and was stored in either Montreal or Quebec City, or a port in Toronto. I did not know that it flowed that way. This is the first time I have heard about it. Could you shed some light on that for me? The idea is new to me.
[English]
Mr. Hermanson: I think perhaps there was a misunderstanding. There is very little grain that flows from Eastern Canada to Western Canada, not because it cannot. There are economic reasons why it does not happen. I think the discussion has been the fact that Western grain flows east through the St. Lawrence system. Also, Eastern grain tends to flow either east or south from Eastern Canada. The grain can move west, but it is almost never happens.
Senator Mahovlich: The future is very unpredictable, and I was wondering what this government or the commission will do about global warming. We are threatened with windstorms, flooding and dry spells. This year up in northern Ontario, the quality of corn just was not there. We never had a drop of rain all of August; for five weeks there was no rain. After seeing what happened in New York with the storm hitting, we are reminded that things are very unpredictable. They are all concerned now about global warming.
Does the government have any concern about global warming?
Mr. Hermanson: I am not a climatologist and cannot speak to global warming. However, you have given me an opening to talk about the fact that we do assess new varieties that are brought forward for registration for use in Canada. We consider the role the environment plays on new varieties that are brought forward. We must ensure that they would be effective and serve not only producers well but also end users.
I am happy to mention that because many people do not recognize that the Canadian Grain Commission does the evaluation of new varieties as they are brought forward. New variety registration is the responsibility of the Canadian Food Inspection Agency, but we are very involved on the science side in assessing the environmental impact of new varieties. It helps us to put in the farmers' hands the varieties that will serve them best.
Senator Mahovlich: What about the construction of elevators? Are they away from the water, near rivers, or away from the rivers or lakes? Is there a rule or any law?
Mr. Hermanson: No, elevators are put where they need to be to handle grain. Primary elevators tend to be located on the Prairies. There are also elevators in Central and Eastern Canada to serve producers there. When talking about terminals in place to load vessels, they have to be at seaports, of course.
Senator Merchant: I have a clarification. Maybe you could tell me quickly why the elimination of the Grain Appeal Tribunal was necessary. Also, will that reduce the rights of the producer to get a fair process?
Mr. Hermanson: That is an excellent question. The Grain Appeal Tribunal actually reviews almost no producer requests for re-inspection and change of grade.
The Grain Appeal Tribunal is composed of three people. The chair of the tribunal is a senior grain inspector from the Canadian Grain Commission who is not involved in the day-to-day inspection processes that we do. That person is somewhat removed from the other inspectors. The other two members of the Grain Appeal Tribunal are drawn from a pool of senior inspectors and are from the private sector. They come from companies like Cargill, Viterra, Richardson, Paterson, Parrish & Heimbecker, and a number of others.
Since we are currently doing the inward inspection, we put the first grade on a delivery of grain. If one of the parties is not happy with the grade that we have assigned to that grain, they can appeal. They would appeal first to our regional office, of which we three: There is one in Vancouver, one in Thunder Bay and one in Montreal.
If they are still not satisfied with the grade we have assigned, they can further appeal to the Chief Grain Inspector for Canada, who has a small office with very senior grain inspectors. If they are still not satisfied, they can appeal to the Grain Appeal Tribunal, and that is the final body that would make a determination.
At the tribunal, if the two private-sector inspectors agree on the grade, that settles it; whatever grade they assign is the final grade. If they do not agree on the grade, then our chair would establish what the final grade is.
Inward inspection will no longer be a mandatory service of the Canadian Grain Commission but still might happen. Now it will happen because the companies will be assessing the grade or will hire a private-sector third party to do it. Due to that, the appeal process is just changed around: Instead of the private sector having the final decision, now they are involved in the original establishment of what the grade is at inward inspection. If there is a dispute, the Chief Grain Inspector for Canada, not the Grain Appeal Tribunal, would assert the final grade. Frankly, I think that is the better order and the better way to do it.
What is in place now works, but I believe that having the Chief Grain Inspector, who is the most competent inspector of grain in Canada, is probably the appropriate person on whom to place that power.
The Chair: Before we conclude and go in camera, I want to bring clarity to the issue Senator Mercer raised at the beginning of the meeting, with the second panel. This is a consultation process document.
Mr. Hermanson: Right, and it became public today.
The Chair: We are the first to receive it. Thank you. The objective of the consultation is on page 5, both in French and English.
Thank you, witnesses.
(The committee continued in camera.)