Review of the Canada Grain Act and the Canadian Grain Commission in response to the Legislated Requirement in the Canada Grain Act

Review of the Canada Grain Act and the Canadian Grain Commission in response to the Legislated Requirement in the Canada Grain Act Solicitation number...
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Review of the Canada Grain Act and the Canadian Grain Commission in response to the Legislated Requirement in the Canada Grain Act Solicitation number 01C15-05AJ01/A

COMPAS Inc. Public Opinion and Customer Research August 15, 2006

Review of the Canada Grain Act and the Canadian Grain Commission: Report to Agriculture and Agri-Food Canada, Number 01C15-05AJ01/A

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Review of the Canada Grain Act and the Canadian Grain Commission: Report to Agriculture and Agri-Food Canada, Number 01C15-05AJ01/A

Contents Executive Summary .....................................................................................4 1.0. Introduction..........................................................................................18 2.0. Setting, Challenges, and Opportunities ...............................................23 3.0. Mandate and Stakeholder Interests.....................................................31 4.0. Governance: Board and Executive Structure ......................................39 5.0. Funding, Public Goods, and Private Goods.........................................43 6.0. Quality and Quantity Assurance ..........................................................47 7.0. Weighing and Inspection Services ......................................................54 8.0. Liability, Misrepresentation, and Certificate Final ................................62 9.0. Contractual Security ............................................................................67 10.0. Licensing ...........................................................................................72 11.0. Dispute Resolution ............................................................................77 12.0. Research Services ............................................................................82 Appendix I: Itemized Summary of Recommendations................................87 Appendix II: Stakeholder Responses to the COMPAS Survey .................105 Appendix III: Partial List of Invited Stakeholders and Experts ..................114

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Executive Summary Background ‰

COMPAS Research was selected to lead the independent review of the Canadian Grain Commission (CGC) and the Canada Grain Act (CGA).1 Conrad Winn Ph.D., president of the public opinion and customer research firm, led the team, which was assisted by Saskatoon agricultural consultant Tom Halpenny (www.triticumconsulting.ca).

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Selected in February, COMPAS sought counsel from almost 500 stakeholders and experts, elicited written feedback from almost 100, had direct talks with about 60, issued a discussion paper in May, and held public fora in eight cities in June.

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Canada is a grain powerhouse and leading exporter of many products. Our grain system has been valuable to foreign food brands as varied as flour that is guaranteed as “Manitoba” or “Super Manitoba” in such countries as Italy and Greece, pasta marketed in Poland as 100% Canadian durum, sundry brands of mustard based on Canadian ingredients, and Tsingtao beer, guaranteed to Chinese consumers as made from at least 50% Canadian barley. Our achievements have been made possible by: unique prairie land and climate; industrious, trustworthy farmers; astute elevator and grain companies; modern, effective shippers; brilliant scientists and breeders; excellent seed companies; and high quality public and industry officials and the systems they oversaw.

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The selection was made through a competition carried out by Public Works and Government Services Canada on behalf of Agriculture and Agri-Food Canada as mandated by Bill C-40 from the 28th Parliament. ,

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Review of the Canada Grain Act and the Canadian Grain Commission: Report to Agriculture and Agri-Food Canada, Number 01C15-05AJ01/A

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The Canadian Grain Commission is a regulator and service provider. As a service provider, it supplies inspection and other services. As a regulator, it licenses most of the private sector players and specifies grain and grain player standards.

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As a regulator, the CGC has a mission that is made difficult by the increasing complexity of grains thanks to new varieties and uses for food, feed and fuel. For the Canadian Grain Commission, the problem of increased complexity is compounded by increased uncertainty.

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A few of the big uncertainties relate to balancing conflicting interests. At various times, the CGC may have a quandary about how to balance • • • • • • •



its attention among the many currently and potentially regulated grains, the somewhat different interests of those who produce our historic exports, the Canadian Wheat Board’s wheat and barley, vis-à-vis those who produce potentially significant non-Board grains and organic wheat, the interests of those whose livelihood depends on Canada’s reputation for human-use grain exports vs. those who would satisfy the increasing demand for feed and fuel use grain, Canada’s traditional protection of quality through its grading system vs. increasing overseas demand for product based on specific traits that may not correspond well to our grades, farmers’ needs for security against grain handlers’ bankruptcy vs. the grain handlers’ needs to limit bonding and other security costs in the face of global downward pressure on prices, husbanding the CGC’s meager budget for inspection and other services while minimizing the financial impact of inspection delays on handlers (terminals) and shippers, whose margins are thin, serving the needs of other agencies that impact on grain, for example, by carrying out services at port for the Canadian Food Inspection Agency, vs. persuading other agencies to help service the CGC’s needs, and impacting on the twin overseas demands for ever pricier health and safety standards and ever lower prices. ,

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The grain sector is at a cross-roads. The single most important prospect, a once-in-a-lifetime opportunity, involves biofuels. Like animal feed grain, the ideal ethanol grain is low protein, high carbohydrate—the opposite of what is most desirable for human consumption.

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Ethanol represents a present and future opportunity for the U.S. corn belt. But it is not entirely clear to what extent Canadian farming, suited to its own kinds of crops, can benefit. Nor is it clear how our ability to profit from ethanol demand will be affected by Canada’s system of grading and quality assurance for grains. Some fuel-grade varieties of wheat could be visually confused with high quality varieties and could damage our reputation if accidentally co-mingled in transit. Canada would be able to accommodate safely the production and export of such new varieties for non-food use if we had either swift, economical DNA technology to distinguish the visually indistinguishable at port or a bullet-proof system for tracking the identity of grain in transit from origin to destination. But we have neither.

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An impediment to Canada’s ability to respond successfully to the preceding challenges is a heritage of mistrust among the agricultural players and stakeholders. One confidant described Canada’s grain industry as a kind of Hobbesian “a war of all against all.”2 There is certainly mistrust between farmers and grain companies that has historic roots. In the absence of survey data, it is a challenge to estimate to what extent the mistrustful voices heard at our forums, especially in Saskatchewan, reflect the sentiment of grain farmers as a whole.

Reasoning and Recommendations ‰

Our review offers nearly one hundred recommendations along with their underlying reasoning. Major changes in the global and domestic setting 2

Private conversation with a longtime observer of the grain sectors in Canada and the United States, June, 2006. The phrase itself is from the description (1651) by British political philosopher Thomas Hobbes of human existence in the absence of government and civil society. ,

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of the grain sector do require major changes in the Canadian Grain Commission. But a sector as apprehensive, mistrustful, and disharmonious as this one may have difficulty embracing change. Respectful of the sector’s apprehensiveness, we place as much emphasis as possible on the reasoning that underlies our recommendations as the recommendations themselves. ‰

Our recommendations and reasoning will be guided by longstanding Government of Canada Regulatory Policy, including but not limited to these provisions: “the limited resources available to government are used where they do the most good,” ”information and administrative requirements are limited to what is absolutely necessary and that they impose the least possible cost,” “ the special circumstances of small businesses are addressed,” and “parties proposing equivalent means to conform with regulatory requirements are given positive consideration.”3

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We urge readers to explore the reasoning in tandem with the recommendations, located near the end of each section, just before a concise review of impacts on stakeholders. For ease of review, a partial listing in the section that follows and a lengthy itemization in Appendix I.

A Partial Selection of Recommendations by Section of the Report 2.0 Setting, Challenges, and Opportunities ‰

As container use grows, the CGC need to launch a special accreditation process, authorizing independent service providers to inspect and certify product to a declared standard or set of buyer specifications.

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Government of Canada Regulatory Policy - http://www.pco-bcp.gc.ca/raoicssrdc/default.asp?Language=E&Page=Publications&subGovernmentofCanadaRegula. ,

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3.0 Mandate and Stakeholder Interests ‰

We recommend that paragraph 13 of the Act be modified to read as follows: Subject to this Act and any directions to the Commission issued from time to time under this Act by the Governor in Council or the Minister, the Commission shall: 1) establish and maintain the standards of quality for Canadian grain and regulate grain handling in Canada, to ensure a dependable commodity for domestic and export markets, and 2) in the interests of producers, provide the right of delivery access by grain producers to primary or terminal elevators, provide the right to third party grade and dockage verification, provide the right of a grain producer to access a producer car for shipment of grain and to have third party weighing and inspection of that unload, provide the right of grain producers that their commercial grain transactions with licensees under this Act be secure.

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The last provision in the list is intended to afford the CGC freedom to consult with stakeholders to select the most appropriate form of security protection for any given transaction at any given time.

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We recommend that the Canadian Grain Commission require all contracts between farmers and licensees to remind farmers of their rights under the Act in a form prescribed by the CGC, of which we provide a sample in section 10.

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We recommend that the CGC invite the Canada Grains Council or another such body to recommend draft wording for a CGC requirement in all sales contracts of a simple, clear statement in the form of unit pricing (e.g. price offered or paid per tonne/bushel with all costs factored in. We recommend this because farmers told us that they were confused by the allegedly purposeful complexity of grain company valuations. ,

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We recommend the CGC approach Industry Canada about more frequent elevator scale monitoring for the next few years until survey evidence confirms that farmers are confident in the accuracy of such scales.

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As detailed in the report, we recommend that the Act strengthen accountability and transparency provisions relating to staff beyond the general constraints on public servants as a whole so as to reinforce the Canadian Grain Commission’s credibility with producers and other stakeholders.

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We recommend throughout our report the creation of stakeholder-driven, CGC-funded roundtables on the model of the consultation program of the Canadian Food Inspection Agency (CFIA) to enhance the ability of stakeholders to work well with each other and the ability of the CGC to work well with its stakeholders. We recommend this because we see the Canadian Grain Commission’s consultation efforts as inadequate and largely so for budgetary reasons. 4.0 Governance: Board and Executive Structure

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We recommend the creation of a single President/CEO/Chief Commissioner, supported by Vice-Presidents and other senior executives, for reasons explored at length in the body of the report.

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The Canadian Grain Commission has six “Assistant Commissioners.” The continuance of these ambiguously defined positions is in our estimation incompatible with principles of modern government. For reasons of clarity, we recommend creation in their place of an Office of Grain Farmer Advocacy with a mandate to ensure that farmers understand their rights under the Act and to advocate for them in disputes with handlers, the CGC, or other stakeholders. The future of this Office and its budget should be evaluated every three years on the basis of evidence for the need of its services as shown in annual surveys of farmer behaviour, knowledge, and perceptions undertaken by Agriculture and Agri-Food Canada (AAFC). As an alternative to an Office of Grain Farmer Advocacy, we would recommend that AAFC hold a competition, ,

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inviting proposals from non-governmental organizations, to supply such services. 5.0 Funding, Public Goods, and Private Goods ‰

We recommend that the federal government defray all basic infrastructure costs of the CGC, assigning cost recovery to the incremental or marginal costs associated with individual services necessary for commercial transaction. We define infrastructure broadly to include the costs of physical establishment and ongoing management, as discussed in the report.

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In the case of inspection, we recommend that the overtime portion of salary costs (i.e. the portion exceeding normal non-overtime costs) be absorbed by the CGC through federal government subsidies as if this were the equivalent of basic infrastructure cost. 6.0 Quality and Quantity Assurance

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We recommend a slight reduction in the number of Canadian Grain Commission appointees on the Standards Committee insofar, as a regulator with staff and influence, its impact on its Committees is necessarily larger than its numerical representation anyhow.

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We recommend that the impetus that prompted the Canadian Grain Commission’s introduction of a new class of wheat extend to future CGC efforts to balance the interests of those who would priorize protection of export brands with the interests of those who favour new varieties for feed and feedstock.

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We recommend that the CGC consult annually with stakeholders about criteria for benchmarking and assessing its effectiveness in grading and monitoring risks to Canadian grain quality, and that the CGC make annual reports to stakeholders on its effectiveness on the basis of these criteria.

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We recommend that the CGC report to stakeholders each year on its past performance, or that of its contractors if inspection is contracted out, in accommodating purchases by specification and requests for customized services, and its plans for the future.

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We recommend that the Canadian Grain Commission collaborate with current or potential independent providers to provide such customized services, where necessary under CGC license to the extent that customized services can be outsourced.

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The Canadian Grain Commission should continue to work with stakeholders in the oilseed sector to develop and implement a grading system with factors for oil content that meet stakeholders’ needs.

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Our recommendation for reducing irritants is for the Canadian Grain Commission to receive adequate funding for a sustained program of consultation on the model of the CFIA. In the spirit of the CFIA, the CGC would subsidize consultation efforts. Like the CFIA, the CGC would delegate to stakeholders much of the responsibility for organizing such consultations in order to give them the confidence that consultation was genuine. CGC-funded and stakeholder-led consultations will greatly improve the two-way flow of information, improve CGC’s responsiveness, and enhance stakeholders’ understanding of some of the unavoidable limitations on the ability of the Canadian Grain Commission to meet their needs as fully as they might wish.

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We recommend that the CGC approach CFIA and Health Canada for the purpose of discussing the merits of jointly sponsoring and funding stakeholder-led roundtables on the issue of food safety. 7.0 Weighing and Inspection Services

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We recommend that inward inspection become optional.

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We recommend that the Act require the Canadian Grain Commission to ensure that a capacity for carrying out inward inspection be maintained at public cost since both the availability of inward inspection and its ,

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practice do benefit Canada as a whole by helping to sustain both producers and smaller handlers, who need such services for transactional purposes. ‰

We also recommend that samples of grain taken for grading be retained for a prescribed period of time for all grain receipts even in a setting of inward optionality because of the public benefits in terms of quality, safety, and potential traceability.

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We recommend that the price of such optional inward inspection services continue to be subsidized, particularly at port, because of the public benefits of an optional system.

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We recommend that the CGC use roundtable stakeholder consultation to identify the best administrative methods for provision of optional weighing and inspection services.

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We recommend continued mandatory outward inspection and weighing. Our view is that Canada’s reputation and the brand of our products require outward inspection.

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We recommend that CGC’s inspection services be contracted out under CGC license except for CGC’s retention of an essential capability to conduct appeals. Our report provides a detailed discussion of optimal processes for carrying out such changes so as to satisfy such diverse criteria as ensuring competition among providers and efficiency in the provision of service. 8.0 Liability, Misrepresentation, and Certificate Final

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We recommend that the Canada Grain Act be amended to hold the CGC, and the federal government as its underwriter, responsible for up to 33% of the harm incurred by a revision to the Certificate Final. We recommend that the Canadian Grain Commission be liable because in a modern democratic society government agencies must meet the same standards of responsibility as required of businesses and ordinary citizens. By assigning clear but limited liability on the CGC, the change ,

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would assert an onus on the CGC, terminal operators, grain handlers, marketers and farmers to help ensure that appropriate systems are in place to mitigate reasonable risks prior to the final stage of vessel transfer to a customer. ‰

The magnitude of the harm from a revision to the Certificate Final would be determined by an Arbitrator appointed by the Minister, as detailed in our report.

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We recommend that the Act be modified to allow the CGC to impose fines and that regulations be modified to permit the Canadian Grain Commission to assign penalties for misrepresentation of grain and for failures to observe other regulations, as detailed in our report.

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Prior to preparing regulations, we recommend that the Canadian Grain Commission consult stakeholders for the purpose of identifying factors that would be taken into consideration when deciding the magnitude of a fine. 9.0 Security

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We recommend that the CGC: • •

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consult with accounting and risk management experts to explore the costs and the benefits of operating a clearinghouse mechanism to reduce efficiently the transactional risk to farmers, and subsequently launch a stakeholder roundtable on the CFIA model to involve all stakeholders in developing solutions that provide optimal security at optimal prices and with maximal clarity to producers about the true assurance being provided. We recommend deletion in the Act of Section 49.1(2), which eliminates liability to the CGC if a licensee fails to fulfill payment to a producer. In keeping with the accountability and transparency principles discussed in section 2, we do not believe that any regulatory body ought to receive legislated immunity from court action in the event that it fails to perform its heavily advertised functions. ,

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We recommend that the surveys of farmers previously suggested in this study measure the actual demand for transactional security once farmers understand the system costs of compulsory security.

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In the Venture Seeds and Naber’s bankruptcy cases, we believe very strongly that the Canadian Grain Commission should fully compensate the affected farmers, pay their legal costs, pay interest for the affected period, and pay a penalty for causing needless distress. Our view is that government agencies have no less obligation than businesses or ordinary citizens to carry out their responsibilities to customers adversely affected by their failures. The duty of the Canadian Grain Commission and hence the government of Canada to fulfill obligations implied by CGC promises is a matter that is separate from the obligation of the CGC to provide security. 10.0 Licensing

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We recommend that the Canadian Grain Commission consult with the CFIA and other agencies as well as stakeholders as to whether facilities (e.g. producer car loading facilities, farmer-owned processing) that do not conduct transactions for the purchase of grain or incur liabilities for unpaid grain should be exempted or placed into a separate class with few, if any, requirements other than a license. Licensing would have value, in our view, if CFIA and/or other agencies saw CGC licensing as a valuable, supplementary tool for influencing the health and safety practices of such facilities or collecting statistical data.

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The CGC should ensure that there is clear understanding of grain company fees and charges by supporting the extension activities of the recommended Office of Grain Farmer Advocacy given that farmers have indicated frustration at certain fees charged by grain companies, and the lack of regulation. The CGC should be able to fine or penalize licensees for overcharging or not disclosing all fees to be charged to a farmer prior to settlement.

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We recommend that the CGC commit itself to introducing greater uniformity, transparency, and clarity to its patchwork quilt of licensing regulations, as discussed in our report.

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We recommend modifying the rules to allow farmers to request CGC inspection and dockage up to 24 hours after delivery of the grain to the elevator.

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We recommend that every grain contract from every class of licensee contain the following words in the footer of the first and every page in a font no smaller than the average font in the contract: “Under the law, every grain producer is entitled to receive the opinion of the Canadian Grain Commission (800 number) on the grading of this grain and on dockage, and is entitled to contact either the Commission or the Office of Grain Farmer Advocacy (800 number) for their advice.” 11.0 Dispute Resolution

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We recommend that the Canada Grain Act be modified to allow stakeholders to use arbitration services as set out in the arbitration process outlined in the Canada Transportation Act and mediation services akin to those that support the Farm Debt Mediation Act. In keeping with this recommendation, we further recommend eliminating Section 92, authorizing Commissioners to act as arbitrators.

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Arbitration and mediation would be available for disputes relating to the Canadian Grain Commission’s policy applications and for any dispute involving stakeholders in the grain sector in Canada.

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The Canada Grain Act should provide for both mediation and arbitration, albeit outside and independent of the Canadian Grain Commission. Both processes would be administered by the AAFC, as detailed in our report.

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The scope of disputes to be presented for mediation or arbitration should be limited to commercial activities between Canadian parties. The CGC Grain Appeals Tribunal would continue to address grading disputes. ,

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We recommend that the Canadian Grain Commission be required to participate in any mediation or arbitration that seeks the Canadian Grain Commission’s engagement.

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In the event that a grain producer requests mediation or arbitration with a licensee, we recommend that the licensee be required to participate under CGC regulations. 12.0 Research Services

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We recommend that the federal government embark on a long-term (710 year) plan to increase grain research spending four-fold. A long-term plan is essential to enable the GRL Grain Research Lab to attract strong replacement researchers in a successful succession plan. A key purpose is to develop fast, economical technologies for testing.

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We also recommend that AAFC establish a special fund for the development of such technologies with such resources available to AAFC researchers and on a competitive basis to private sector and university researchers in order not to put all the federal government’s eggs in the same metaphorical basket.

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We recommend that both the CGC and AAFC make annual reports to stakeholders on the effectiveness of their research efforts and their forthcoming research plans.

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The Canadian Grain Commission should create a roundtable of federal and provincial research funding agencies and post-secondary departments along with university Agricultural units to maintain a watching brief on grain research during these key years.

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The GRL should maintain its reporting role through the CGC, and its funding be listed as a separate appropriation through the CGC.

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The CGC and GRL should be encouraged to co-locate in the mooted Centre of Excellence. ,

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The GRL should collaborate with stakeholders to encourage university and private sector research in support of stakeholders’ needs.

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To protect the perceived impartiality of the Canadian Grain Commission, the GRL should refrain from accepting research contracts from licencees except in exceptional circumstances when university and private sector suppliers are unavailable.

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1.0. Introduction 1.1. The Study—Its Subject and Purpose Authorized by the Canada Grain Act (CGA), the Canadian Grain Commission (CGC) reports directly to the federal Minister of Agriculture and Agri-Food. The CGC describes its organizational vision as being “a leader in delivering excellence and innovation in grain quality and quantity assurance, research, and producer protection”.4 Specific functions of the CGC are to: ‰ Establish grain grades and standards; ‰ Regulate the handling, transportation and storage of grain in Canada; ‰ Provide producer protection services, and ‰ Undertake and sponsor research in grain and grain products. The value chain for the Canadian grain sector includes scientists, breeders, seed companies, tens of thousands of producers, Canada’s own domestic grain and oilseed and special crops processing industry, transportation companies, millers, and export markets. The main grain industry players own inland elevators and terminals at port, and are represented by associations such as the Western Grain Elevator Association and the Quebec Grain Dealers Association (Association des Négociants en Céréales du Québec). Producers are represented by such diverse organizations as the Canadian Wheat Board, the National Farmers’ Union, Pulse Canada, the Alberta Canola Producers Association, Keystone Agricultural Producers in Manitoba, and the Ontario White Bean Producers. Buyers are represented by such varied groups as the Canadian National Millers Association and the Manitoba Pork Council. Some organizations are a

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blend of producers and industry players, e.g. the Canadian Organic Association. Terminals on the coasts are necessarily linked to transport systems. A consortium-owned terminal at Prince Rupert is served by CN Rail. Eastbound export shipments are made possible by a network of terminals at Thunder Bay, which discharge primarily to laker vessels that carry the cargo across the Great Lakes through the Welland canal and a series of locks to the St. Lawrence Seaway. From Montreal to Baie Comeau along the St. Lawrence, a number of transfer elevators deliver to salties or ocean-going vessels to carry the cargo to final destination. Much of the production from the eastern region reaches the export pipeline or its final Canadian destination by truck. The Canadian Wheat Board (CWB) in Western Canada provides marketing services for wheat and barley for export and for domestic human consumption. In Ontario, the Ontario Wheat Producers Marketing Board, the Ontario Bean Producers Marketing Board and the Seed Corn Growers of Ontario offer collective marketing services for those products for which they are responsible. The Canadian special crops industry is represented by the Canadian Special Crops Association while legume crops are represented by Pulse Canada, made up of provincial administering bodies. Research for the sector is undertaken at the CGC’s Grain Research Laboratory (GRL), AAFC, the Canadian Food Inspection Agency, selected universities, and certain private sector organizations. The CGC provides research for grain and grain products through the Grain Research Lab. The Canadian Grain Commision’s Lab undertakes grain quality, phytosanitary and mycology research for industry players and for the general benefit of the industry. With its lab’s assistance, the CGC does a post-harvest survey and evaluates the quality of the samples to ensure the predictability of the grade standards that are set for the year. The GRL ensures that shipments of Canadian grain meet high grain safety guidelines. Independent of the CGC but co-located, the Canadian International Grains Institute (CIGI) provides market development support and international education with respect to the Canadian grain system, the quality of Canadian grain, and how to use Canadian products for further processing or feed. The Canadian Malting Barley Technical Centre (CMBTC) provides a similar function focused on malting barley and brewing technical support. The professional and ,

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technological resources of the CGC’s Grain Research Lab, the CMBTC and CIGI help create an enviable team. On the subject of grain standards, the CGC plays a role by recommending the primary (i.e. domestic) and export standards for grades for Canadian grains and oilseeds. The Canadian Grain Commission participates in an industrybased process to register varieties for the recognized grains in Canada. The Prairie Grain Development Committee in the CWB-designated area and the Eastern Expert Committee on Cereals and Oilseeds recommend varieties to the Variety Registration Office of the Canadian Food Inspection Agency (CFIA). On the subject of handlers, the CGC is responsible for licensing and security requirements for all primary, terminal, and process elevators and grain dealers in the region west of and including Thunder Bay. East of this port city on Lake Superior, the Canadian Grain Commission regulates licensing and security for transfer elevators and grain dealers involved in western grain. For other handlers in Ontario and Quebec, regulation is carried out by the provincial governments. A significant portion of each year's crop in central Canada is sold directly to domestic processors or trucked to the United States. Grain farmers in Ontario and Quebec tend to be closer to their customers in terms of geography and business relationships. Greater proximity fosters a more intimate relationship between suppliers and buyers, hence more individual accountability for quality and quantity control and a less pressing need for a strong CGC role. The Canadian Grain Commission provides some certainty and clarity with respect to the processes for the receiving of grain into a primary, process, transfer, or terminal elevator. Farmers receive various forms of protection including provision for dispute settlement in the event of grade conflicts between grain seller and buyer. The CGA requires any person who operates a primary, process, terminal or transfer elevator and acts as a grain dealer to be licensed by the CGC. The CGC certifies the quality and quantity of shipments of grain for export. This provides overseas markets with a high level of assurance of Canada’s reliability as a supplier of grain, enhancing the appeal of our products. Such documentation is referred to as the Certificate Final. This process has provided benefit to Canadian exporters of grain in disputes with foreign ,

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purchasing bodies. For producers who wish to know their grade prior to delivery to an elevator, the CGC will provide a fee for service grading of samples. The Canadian Grain Commission monitors grain imported into the licensed elevator system. The CGC plays a role in discussions respecting the transshipment of foreign grain through Canada, ensuring that the process does not compromise Canadian grain quality. COMPAS was contracted by AAFC to review past analyses, hold forums, consult stakeholders, and provide its own assessment of how the CGC and its Act ought to be modernized. Our task is limited to the CGC and its regulatory role and system. Our task does not extend to such matters as the future of the Canadian Wheat Board or protecting the income and livelihoods of grain farmers. Such concerns are entirely legitimate ones but fall outside the mandate of this regulatory study.

1.2. The Team COMPAS is an independent, non-partisan, national public opinion and customer research firm based in Toronto. The grain companies, farmer organizations, seed companies, and inspection companies are not among our past and present clients. Our major weakness as consultant on this project is that we are not experts in the subject. Our major strength is equally evident— we have no bias by dint of experience or economic interest, and we strive to show respect to all stakeholders in the process. The team leader is Conrad Winn (Ph.D. Wharton School, University of Pennsylvania). COMPAS President, he is author of many books and professional articles outside agriculture and a professor at Carleton University. Our efforts on this project have been ably assisted by Tom Halpenny (www.triticumconsulting.ca), a Saskatoon agricultural consultant with 20 years’ experience in the grain industry, working previously as a farmer and on the staff of the Canadian Wheat Board.

1.3. The Organization of Individual Sections Each of the ensuing sections is organized into (a) the issue, (b) recommendations and reasoning, and (c) impacts on the stakeholders. Impacts ,

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on stakeholders are elucidated in the form of a matrix on the model of the ensuing table.

STAKEHOLDERS

INTENSITY OF IMPACT (HIGH/MED/LOW)

CHARACTER OF IMPACT

Producers-Food ProducersFeed/Fuels Grain companies Independent inland terminals Dealers and brokers Transport Breeders and Seed companies AAFC Ag researchers and scientists Other (incl. governments, taxpayers, consultants

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2.0. Setting, Challenges, and Opportunities 2.1. The Four Key Features of the Grain Setting— Memory, CWB, Transportation, and Turbulence An assessment of Canada’s grain system needs to take into consideration four key features of the system: ‰ Memory—How memory of conflict between grain companies and grain farmers on the prairies a century ago forms a legacy affecting collaborative decisionmaking today; ‰ Canadian Wheat Board—The role of the CWB as “single desk” or monopoly seller of wheat and barley, our main grain exports; ‰ Transportation—Prairie farmers’ distance from port, greater than the corresponding distances for their foreign competitors, and the rising costs for shipping grain; and ‰ Turbulence—The challenges posed by an unusual pace of change in global markets, including new (i) grains, (ii) uses for grain in feed and feedstock, (iii) low cost, foreign competitors, and (iv) health and safety demands, reviewed below in section 2.2. The historical roots of grain are in the 1901-1911 period. The Prairies experienced immense population growth with settlers flocking west to earn a living from agriculture. Wheat was the dominant grain, and Canada was becoming a significant global exporter. The first third of the 20th century on the Prairies involved a wide variety of ethnic tensions along with economic tension between grain producers and grain companies. Many of the ethno-social tensions lessened or dissolved with the passage of time. The persistence of some tension between farmers and ,

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companies is therefore noteworthy. A century ago, grain farmers felt victimized by colluding buyers and railroads. Public concern about oligopolistic grain buyers and railways led to a Royal Commission in 1899, the resulting Manitoba Grain Act, the Grain Inspection Act in 1904, and the Canadian Grain Commission under the Canada Grain Act in 1912.5 Memories of hard, mistrustful times continue to affect attitudes towards grain companies and the CGC today, particularly among farmers who attended our public forums in Saskatoon, Regina, and Brandon. While the legacy of early 20th century conflict remains a feature of the grain sector, another key feature of the sector is the Canadian Wheat Board (CWB) as “single desk” or monopoly seller. Having just celebrated its 70th anniversary, the CWB is the dominant player in foreign sales thanks to the importance for exports of Board grains wheat and barley. Any change to the Canadian Grain Commission and its regulatory system needs to consider the role of the CWB. Admittedly, the latter’s importance may not be as great as it once was and could be modified by both changes in federal agricultural policy and the CWB’s own strategic objectives. Until the 1980’s the Canadian Wheat Board coordinated the delivery quota for all grains, and there were about six major grains. Today’s crop is widely diversified with 21 grains listed under the Canada Grain Act along with canary seed and others that are not listed. While the legacy of mistrust and Canadian Wheat Board pre-eminence are two key features of today’s setting, transportation is a third. Farmers have long been concerned about the service and cost of railway transportation. The end of the Western Grain Transportation Act in 1995 added to the stress by removing subsidies. The end to subsidies coincided with and may have also contributed to some key changes: ‰ The corporatization of farmer-owned Prairie Pools, which had provided producers with farmer co-op alternatives to the large grain company handlers, ‰ Increased concentration among grain companies, and

5

J. Blanchard, A History of the Canadian Grain Commission (Ottawa: Supply and Services, 1987). ,

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‰ The emergence of new, efficient, high throughput, inland or primary elevators. The creation of the modern primary elevator was accompanied by a fall in the number of primary or inland elevators6 and spur railway lines. Farmers faced new direct costs for trucking and new indirect costs for road maintenance. Another consequence of the decline in the number of inland elevators was a drop in storage capacity—down from 6.7 million tonnes in 1995 to 5.1 million tonnes in 2005.7 To successfully process traditional volumes of grain with reduced storage and segregation capacity has required greater coordination among all the services necessary for terminals to function effectively. The system has managed to achieve higher levels of coordination and synchronization. But improved coordination alone would seem insufficient to satisfy the emerging increase in world customer demand for specialized and distinctive products, whose trans-shipment requires continuous segregation. The various changes to our transportation and elevator systems have been taking place during a period when demand for Canada’s grain exports has not been relentless.8

2.2. Opportunities in Grain—Feed, Feedstock, and Quality Grains for Human Consumption Grain farmers have responded to the cost pressures affecting their businesses by diversifying the applications of their product. The production and sale of non-Board grains have increased. More grain is directed for domestic consumption as feed. Grain farmers have benefited from an approximately 10 percent increase in Canadian cattle inventory as a byproduct of BSE-related impediments to cattle exports. Grain farmers have also benefited from an even larger jump in the hog inventory, as shown in fig. 2A.

6

Down from 1340 in 1995 to 352 in 2005. Source: Canadian Grain Commission. Grain Elevators in Canada, 2005-06, Canadian Grain Commission 8 Among stakeholders responding to the COMPAS online survey for this study, about half foresee a moderate weakening in Canada’s competitive position. See Appendix III, below. 7

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Fig. 2A

Cattle inventories are expected to continue rising, and Prairie farmers are seeding more acres to grass and pasture land. Increased feed requirements draw grain from export. The redirection of sales from foreign to domestic markets may help farmers but not grain companies or the Canadian Grain Commission, whose incomes rises and falls with the amount of handling. Feedstock may represent an even greater opportunity than feed. Ethanol and biodiesel capabilities are being fostered by governments in response to a basket of concerns that includes environmental protection and security of supply. Canada’s recent announcement of a national biofuels strategy of a 5% renewable standard for transportation fuels by 2010 will foster increased ethanol and biodiesel production. Our country has significant production of canola, a preferred oilseed for biodiesel production. Meanwhile, wheat-based ethanol has been showing strong competitive returns compared to corn-based ,

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ethanol. The cost effectiveness of wheat-based ethanol is partly the result of the value of the wheat based dried distillers grain that emerges as a byproduct. The biofuels industry seems ready to explode. Canadian consumption of gasoline and diesel fuel are about 40 billion litres and 23 billion litres, respectively.9 The 5% biofuel standard entails a regulated demand for 2 billion litres of ethanol. If satisfied by wheat, such demand would require over 5 million tonnes of the grain. This would amount to 22% of Canadian non-durum wheat production of 22.4 million tonnes that is forecast for 2006.10 The demand for ethanol feedstock is being made possible not only by regulated requirements for ethanol in gasoline but also by government financial supports for ethanol production.11 The demand for biodiesel is expected to rise to 1.15 billion litres by 2010 as a result of federal and provincial regulation. If from canola, such demand has been estimated to require about 115 million bushels or 2.6 million tonnes, representing about 32% of 2006 estimated canola production of 8.1 million tonnes.12 The United States is ramping up ethanol production with several dozen ethanol plants in production, increased acreage devoted to corn, and increased productivity per acre. Some doubt has been expressed in industry publications about how easy it will be for the United States to meet its own demand: Each time a new ethanol plant opens it creates new demand for 1.5 to 3.75 million bushels of corn a year. A dozen new ethanol plants will open in 2006 and another 25, already under construction, in 2007. Many more plants now only in conceptual stages will be built in 2007, 2008 and 2009. There is absolutely no reason to expect that the rate of ethanol expansion will slow. Between now and the end of 2009, the time at which the futures market is currently pricing corn at $3.30 a bushel,

9

Saskatchewan Ethanol Development Council. AAFC Grains and Oilseeds Outlook, June 27, 2006. 11 “Way to Go,” Agri-Week, June 26, 2006. 12 Ibid. 10

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ethanol demand will nearly double to at least 4 billion bushels a year.13 Feed and feedstock appear to represent the greatest present and future opportunities but quality grains for human consumption ought not to be discounted. Incremental increases in domestic and international consumption of non-CWB grains and special purpose, high nutrient value CWB grains can add up to substantial value. Opportunities for sales of special purpose Canadian Wheat Board grains will likely be helped by gradual increases in the use of containerization as Canada continues to emulate world trends.14 It is admittedly unclear to what extent containers can fully compete with bulk shipments. It is therefore difficult to know whether container use will grow any more quickly than it has. For the grain sector, containerization represents an additional method, involving individual responsibility, for segregating grain in transit. As container use grows, the Canadian Grain Commission may need to adopt new procedures to facilitate and monitor quality assurance by this method. The CGC may need to launch a special accreditation process, authorizing independent service providers to inspect and certify product to a declared standard or set of buyer specifications.

2.3. A Need for Collaboration and Consultation as the Key Feature of the Regulatory Setting Paradoxically, the Canadian Grain Commission matters enormously to the grain sector and also hardly at all. It matters enormously insofar as it is the grain sector’s primary regulator. It matters hardly at all insofar as the productivity, profitability, and viability of grain sector stakeholders are impacted 13

Agriweek, July 31, 2006. “The volume of grain being exported by container has gradually and consistently increased over the past 25 years. Certain high value crops such as soybeans, lentils, dried beans, and buckwheat are exported nearly entirely in containers. Conversely, the vast majority of Canada’s larger volume crops such as canola or wheat continue to be exported in bulk vessels. Nearly all of the grain exported in containers travels through the ports of Vancouver and Montreal.” Source: Canadian Grain Commission communication to COMPAS, March 17, 2006. 14

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by so many government agencies other than the CGC. Other federal departments and agencies affect the productivity and viability of stakeholders in such diverse ways as negotiating bilateral trade agreements with foreign countries, revising health and safety standards for grain, and changing taxation policy and administration in ways that affect grain farmers or grain companies. Provincial and local governments also matter in significant ways. As the sector regulator, the Canadian Grain Commission has an interest in ensuring optimum coordination between its rules and practices and those of other bodies impacting on the sector. The CGC also has an interest in fostering greater consultation with and among stakeholders. We suggest ways of improving such coordination and consultation in 3.0, acknowledging that doing so may be expensive. Better consultation is vital for better regulation. Better consultation among non-governmental stakeholders will contribute to a more accurate understanding among stakeholders and regulators of precisely where the interests of stakeholders collide, where their interests are easily reconciled, and where regulators need to make the make the best decisions for the people of Canada even in the face of stakeholder misgivings. Less than adequate consultation runs the risk of delays in normal regulatory modernization. It may be part of human nature for regulators to sometimes postpone decisions on matters fraught with stakeholder tensions. Successful consultation may narrow and delimit the issues on which stakeholders truly feel conflicts of interest.

2.4. A Need for Accountability and Transparency as the Key Feature of Public Expectations If it is true, as Harry Truman said famously, that a day is a long time in politics, a century may be an eternity. The Canada Grain Act and the Canadian Grain Commission were created almost a century ago in an era with few of the laws, citizen rights, and opportunities for citizen communication that mark modern democracy. Canadians in the 21st century expect transparency in their laws and government institutions along with accountability in the way these institutions ,

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are organized. These closely related requirements for accountability and transparency will help guide our recommendations. Greater accountability and transparency are requirements for better consultation, which, we suggested above, is essential for better regulation.

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3.0. Mandate and Stakeholder Interests 3.1. The Issue In our estimation, the two main issues are the mandate of the Canadian Grain Commission, including whose interests it serves, and how the CGC should relate to stakeholders. The general mandate of the CGC elicited no complaint from stakeholders whom we encountered and is unobjectionable in our estimation: “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.” (Par. 13). This same paragraph also makes reference to serving the interests of producers. This phrase arouses controversy. The three main positions on the issue are that the Canadian Grain Commission should indeed serve the interests mainly or exclusively of farmers, that it should serve the interests of all elements of the grain sector including grain companies, or that it should serve the interests of Canadians as a whole. The argument for serving the interests of Canadians as a whole lies in democratic principles as well as the admonitions of the Government of Canada Regulatory Policy.15 The argument for serving the interests of all Canadians and not just producers also lies in the reality that the Canadian Grain Commission normally makes conscious decisions with the interests of Canadians as a whole foremost in mind. The argument for serving the interests of other stakeholders as well lies in principles of fair play, whereby some stakeholders should normally receive no special consideration vis-à-vis others. 15

Government of Canada Regulatory Policy - http://www.pco-bcp.gc.ca/raoicssrdc/default.asp?Language=E&Page=Publications&sub ,

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The argument for continuing to highlight the interests of producers lies partly in history. The Canadian Grain Commission began in the early troubled period of western agriculture. The official history of the CGC describes the market imperfections and mistrust that characterized that period. “The mood amongst the grain farmers of the west during 1897, 1898, and 1899,” wrote the CGC’s historian, “was one of outrage, indignation, and frustration. There was no doubt in their minds that the CPR, the grain dealers and the milling companies were formed into a monopoly designed to cheat them.”16 The Canadian Grain Commission’s official historian proceeds to quote the Winnipeg Tribune in an effort to convey the “mood” of the time: The Tribune has reason to believe that a gigantic combination exists to defraud the farmers of Manitoba and the west in connection with the wheat crop (Tribune, Sept. 14/1897, p. 2). From many different quarters there comes up an ominous growl this fall over the agitated question of elevator monopoly and combine of the grain companies (Tribune, Sept. 14/1897, p.5).17 The Royal Commission of 1899 was asked to look into unfair treatment of farmers in respect of excessive dockage (reduced weight due to cleaning), improper scales, and restraint of trade. The Royal Commission concluded that “the proper relief from the possibility of being compelled to sell under value and of being unduly docked for cleaning is only to be had by giving the fullest obtainable freedom in the way of shipping and selling grain [so that he will no longer]…be more or less at the mercy of elevator operators.”18

16

J. Blanchard, A History of the Canadian Grain Commission (Ottawa: Supply and Services, 1987), p. 8ff. 17 J. Blanchard, A History of the Canadian Grain Commission (Ottawa: Supply and Services, 1987), p. 10. 18 Ibid., p. 13. ,

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Created in 1912, the Canadian Grain Commission offered farmers both general consideration19 and specific rights or protections: ‰ Commissioners may have farming interest but no industry interests; ‰ The Western and Eastern Grain Standards Committees have numerically strong representations by farmers; ‰ Any changes to the grading system should attempt to minimize the reduction in value of any existing grain; ‰ Primary elevators with space available are required to accept grain on a first-come, first-served basis . They are required to grade and weigh grain upon arrival. ‰ Producers may appeal the grading to the CGC, and are to be given the necessary facilities to verify the grain’s weight ; ‰ Primary elevators are to take inventories of their grain, at intervals determined by the CGC, to ensure the accuracy of their weighing; ‰ Upon receipt of the proper documents, they must release the grain into railway cars or other vehicles, forthwith; ‰ All elevators and grain dealers must be licensed by the CGC and have suretyship to insure any cash purchase tickets, elevator receipts or grain receipts they issue to producers; ‰ In the case of grain at a terminal or transfer elevator, holders of elevator receipts to the grain there have priority over all others with claims against the grain. Turning to the second issue, we have received complaints about the insufficiency or manner in which the CGC relates to stakeholders. But we do not

19

Paragraph 13 of the Canada Grain Act declares that “the Commission, in the interests of the grain producers (our emphasis; added to CGA in 1970), shall establish and maintain standards of quality…to ensure a dependable commodity for domestic and export markets.” ,

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see the CGC’s insufficiencies in this regard as entirely or even mainly of its own doing.

3.2. Recommendations and Reasoning with Respect to Serving the Interests of Producers We recommend that paragraph 13 of the Act be modified to read as follows: Subject to this Act and any directions to the Commission issued from time to time under this Act by the Governor in Council or the Minister, the Commission shall: 1) establish and maintain the standards of quality for Canadian grain and regulate grain handling in Canada, to ensure a dependable commodity for domestic and export markets, and 2) in the interests of grain producers, provide the right of delivery access by grain producers to the licensed handling system, provide the right to third party grade and dockage verification, provide the right of a grain producer to access a producer car for shipment of grain and to have third party weighing and inspection of that unload, provide the right of grain producers that their commercial grain transactions with licensees under this Act be secure.20 The purpose of the modification is to acknowledge that the Canadian Grain Commission exists to serve the interests of all Canadians above all. Paradoxically, to serve the interests of all Canadians the CGC needs to satisfy several, itemized interests of producers in light of imperfections in the grain marketplace. The principal imperfection, an important one, is that farmers have

20

The last provision in the list is intended to afford the Commission freedom to consult with stakeholders to select the most appropriate form of security protection for any given type of transaction at any given time. Such protection may involve the use of clearing houses, partial security, full security, or other devices so long as (a) authentic effort is invested to enhance security and (b) producers have an unambiguous understanding of their actual degree of assurance. ,

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a small and declining number of grain elevators within a plausible distance from the farm gate. The total number of delivery points across the Prairies in western Canada has dropped from 744 in 1998 to only 340 points in 2006. Almost 60% or 198 of the current delivery points are non-competitive delivery points, having only one company servicing them.21 The average length of haul from farm to elevator has doubled from the mid-1990’s to 2004 to 55 kms.22 If a commercial dispute arises between a farmer and a company, the farmer faces a significant cost to transport product to another delivery point.23 A sizeable number of farmers are in the catchment area of only one grain company. The specific protections for farmers itemized above serve the interests of all Canadians by helping to protect the transparency, efficiency, and viability of the sector.24 At forums and in private communication, farmers expressed concern that elevators were misleading them in grading and said that they felt intimidated. Farmers told us that their neighbours and peers were often unaware of their rights to have the Canadian Grain Commission verify the accuracy of grain company grading. For a time, one prominent grain company was perceived to have contravened the law, specifying in its contracts that its decisions were final. We recommend that the CGC require all contracts between farmers and licensees to remind farmers of their rights under the Act in a form prescribed by the CGC, of which we provide a sample below in section 10. At forums and in private conversation, farmers told us that they were confused by the allegedly purposeful complexity of grain company valuations. We recommend that the CGC invite the Canada Grains Council or another such 21

Canadian Grain Commission, Grain Elevators in Canada SHT Saskatchewan Grain Flow Model, Wayne Gienow, 2004 23 By contrast, in beef cattle marketing the primary point of sale is at livestock auction yards, or on internet or satellite sales, with many buyers in one place. There may be a cost to a beef farmer to engage a different set of buyers by going to a different auction yard, but there often are multiple buyers, including fellow farmers buying their stock. 24 Canadians as a whole have both a fairness and an economic interest in these provisions for farmers. The economic interest arises from exposure to the Canadian Agriculture Income Stabilization program (CAIS), which supports individual farm incomes through a modified gross margin level based on historic averages. In 2004, estimated total provincial and federal payouts through CAIS were $1.4 billion; 2005 numbers are not available at this time. 22

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body to recommend draft wording for a CGC requirement in all sales contracts of a simple, clear statement in the form of unit pricing (e.g. price offered or paid per tonne/bushel with all costs factored in). Though we are not convinced that accuracy in weighing is a problem given the modern technologies utilized for that purpose, we were approached by farmers with concerns. We recommend that the Canadian Grain Commission consult with Industry Canada with respect to more frequent verifications of scales, at least for the next couple of years, in order to confirm or disconfirm the existence of a problem. Assuming that Industry Canada may not be able to accommodate such a request, we recommend that the Canada Grain Act be amended to allow the CGC to monitor the accuracy of elevator scales more frequently than carried out by Industry Canada under the Weights and Measures Act, and to empower the CGC to fine elevator companies for non-compliance with this or any other CGC regulation. We recommend that the Act be modified to allow the Canadian Grain Commission to require (i) elevators to contract annually with third party providers to verify the accuracy of their scales with an automatic fine of no less than three times the typical cost of the service for non-compliance and (ii) the CGC to carry out random, surprise checks with (iii) significant fines for significant levels of inaccuracy under the preceding two scenarios. This provision would be used if Industry Canada were unable to accommodate a CGC request for more frequent scale verifications. Using results from annual AAFC surveys of farmers, we recommend that the Canadian Grain Commission reduce or eliminate its requests of Industry Canada or, as the case may be, its direct requirements for annual and random scale verification in the future as farmer confidence in the accuracy of elevator scales is shown to be sufficient.25 In the spirit of reinforcing the Canadian Grain Commission’s credibility with producers and other stakeholders, we recommend that the Act strengthen 25

In a spirit of transparency, COMPAS does not hold a Standing Offer position with AAFC and so would not normally be eligible to compete for such a contract. We would have a better chance of winning such work if it were let by the CGC, which would have to issue a public request-for-proposal, allowing COMPAS to compete. We recommend that the survey work be issued instead by AAFC so that its design and interpretation were at arms’ length from the CGC. ,

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accountability- and transparency-related provisions relating to staff beyond the general provisions for public servants as a whole. The Act would be modified to prohibit senior staff from holding direct or indirect interest in any aspect of the sector, including futures, and shares as well as in farming operations except for incidental or recreational purposes. We have no reason to doubt the probity of CGC Commissioners or staff. But we heard murmurings of general concern from farmers, and the sheer complexity of the grain sector allows more opportunity for conflicts of interest than in most other areas of government operations.

3.3. Recommendations and Reasoning with Respect to Relating to Stakeholders As discussed throughout our report, we see the Canadian Grain Commission’s consultation efforts as inadequate and largely so for budgetary reasons. Effective consultation is expensive. As discussed in several places in this report, the CGC is under-funded for core activities as well as in consultation. On the model of CFIA’s consultation program, we recommend throughout our report the creation of stakeholder-driven, CGC-funded roundtables to enhance the ability of stakeholders to work well with each other and the ability of the CGC to work well with its stakeholders.

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3.4. Impacts on Stakeholders INTENSITY OF IMPACT (HIGH/MED/LOW)

CHARACTER OF IMPACT

Producers-Food

Med

It benefits producers by increasing transparency of transactions, reinforcing their traditional rights, and making more widespread an understanding of their rights.

ProducersFeed/Fuels

Med

Same

Grain companies

Med

It benefits grain companies by reassuring them of the neutrality of the CGC.

Low

Same

Low

Same

NA

NA

NA

NA

NA

NA

NA

NA

Low

It may increase efficiency on the margins by increasing transparency.

STAKEHOLDERS

Independent inland terminals Dealers and brokers Transport Breeders and Seed companies AAFC Ag researchers and scientists Other (incl. governments, taxpayers, consultants

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4.0. Governance: Board and Executive Structure 4.1. The Issue For varying reasons, stakeholders have communicated to us some discontent about the performance of the CGC, highlighting concerns about accountability. The four main issues emerging from such discussions have been a desire for a more accountable executive structure, a desire for a more effective organizational positioning (e.g. a unit within AAFC), a desire for a supervisory Board of Directors, and concern about the unusual role of patronage-appointed Assistant Commissioners. In 7.0, we propose contracting out inspection services under CGC license. In the present section, we also propose some organizational changes. But we do not see the formal organization of the CGC as the main cause of discontent. Our estimation is that the two key sources of discontent are under-funding of the main activities of the Canadian Grain Commission along with under-funding and underperformance in respect of stakeholder consultation. We discuss the value of adequate funding of roundtable consultations in the spirit of the CFIA’s efforts in various places through our report. On the model of the CFIA’s efforts, improved consultation among stakeholders and between stakeholders and the CGC might dissolve some of the discontent that we have observed.

4.2. Recommendations and Reasoning Public service activities that can be highly technical and may entail intensive relationships with and among stakeholders tend to function best in agency settings, an extra step removed from cabinet. Ministerial involvement is not ruled out. But ministerial involvement is not encouraged in order to make it easier for regulators to reach the right decisions with some independence from the political process. These considerations as well as the benefits of historical continuity lead us to recommend no change in the CGC’s agency status. ,

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We do nonetheless recommend a change at the executive level with the creation of a single President/CEO/Chief Commissioner, supported by VicePresidents and other senior executives. The Canadian Grain Commission’s executive is currently a triumvirate of Chief Commissioner, Assistant Chief Commissioner, and ordinary Commissioner. Some critics call for a CEO structure, blaming the triumvirate structure for what they perceive as slow decision-making and low accountability. Some critics believe that the three Commissioners do not have enough purely Commissioner-like or adjudicative business to occupy their time. Some defenders of the triumvirate structure believe that important decisions of the CGC should be made in committee and not by a single person. Our view is that there is merit in the argument that a triumvirate might reach better decisions than a single CEO. But the theoretical quality of such decisions is in our view less important than the perceived accountability and transparency of a single person at the top. We also recommend the creation of a single CEO because this is the most common structure in organizations. The CGC should adopt a commonly used form of organization in part to reduce the burden on stakeholders of trying to understand how the CGC functions. The Canadian Grain Commission has six “Assistant Commissioners.” Despite their title, they are neither adjuncts to the Chief Commissioner nor normal CGC staff, having been appointed by cabinet for a fixed term rather than by the CGC or the Public Service of Canada for a career trajectory. At the best of times, they are well regarded by farmers for interceding with elevators in weighing or grading disputes but the style of their interventions are reportedly of uneven quality. At the worst of times, they are inhabitants of patronage heaven. The continuance of these ambiguously defined positions is in our estimation incompatible with principles of modern government. For reasons of clarity, we recommend creation in their place an Office of Grain Farmer Advocacy with a mandate to ensure that farmers understand their rights under the Act and to advocate for them in disputes with handlers, the CGC, or other stakeholders. This Office should have investigative powers akin to those Assistant Commissioners today. Some farmers tell us that many farmers, intimidated by grain companies as well as the CGC, exercise neither their rights to do comparative selling nor even their rights under the Act to ensure fair weighing and grading. By contrast, some grain handlers tell us that ,

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they are so competitive that they will bend CGC rules to offer farmers’ supranormal revenue in strenuous efforts to win their business. There exist apparently no surveys of grain farmers to indicate to what extent either version of reality holds true. We recommend that the Office of Grain Farmer Advocacy be launched with the budget currently allocated to the Assistant Commissioners. The future of this Office and its budget should be evaluated every three years on the basis of evidence for the need of its services as shown in annual surveys of farmer behaviour, knowledge, and perceptions undertaken by Agriculture and Agri-Food Canada (AAFC). As an alternative to an Office of Grain Farmer Advocacy, we would recommend that AAFC hold a competition, inviting proposals from nongovernmental organizations, to supply such services. We do not recommend a Board of Directors overseeing the Canadian Grain Commission for three principal reasons. First, the grain sector is so large and diverse that a Board might be unwieldy if large enough to incorporate representation from all or most stakeholders. To make the Board more effective, we would need to restrict participation from some stakeholders. But which should be incorporated and which left out is a forbidding challenge. Secondly, it is a forbidding challenge to decide how proportionately large farmer representation should be relative to other legitimate stakeholders. Lastly, it would be wise to base such a major change in the structure of an important regulator on guidance from the government as a whole. Government of Canada Regulatory Policy provides help on many specific issues relating to the services carried out by regulators. Government of Canada Regulatory Policy probably needs an updating to incorporate guidance with respect to the reporting structures of regulatory agencies including the nature and composition of their Boards and representation by stakeholders. In the absence of such cross-governmental guidance, we recommend no immediate action on the matter of a Board. We recommend that any significant change to the reporting structure above the chief executive officer or proposed President await a potential new Regulatory Policy on the reporting structures of agencies and regulators in general.

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4.3. Impacts on Stakeholders INTENSITY OF IMPACT (HIGH/MED/LOW)

CHARACTER OF IMPACT

Producers-Food

Med

The CEO structure benefits producers by increasing transparency and accountability at the CGC. Replacing the Assistant Commissioners with an Advocacy Office or equivalent service under contract enhances the efficacy of the Assistant Commissioners’ advocacy roles by providing greater clarity of mission.

ProducersFeed/Fuels

Med

Same

Grain companies

Med

The CEO structure provides greater transparency and accountability.

Low

Same

Low

Same

Low

Same

NA

NA

NA

NA

NA

NA

Low

It eases the work of CGC staff by increasing the clarity of their reporting relationships.

STAKEHOLDERS

Independent inland terminals Dealers and brokers Transport Breeders and Seed companies AAFC Ag researchers and scientists Other (incl. governments, taxpayers, consultants

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5.0. Funding, Public Goods, and Private Goods 5.1. The Issue In our view, the three biggest income issues facing the Canadian Grain Commission are income volatility, income insufficiency, and income sourcing. The income volatility challenge derives from the volatility of the grain industry itself as caused by production factors, notably weather, and market factors. In the extreme, grain volumes can fluctuate by a third or more from one year to another, as illustrated in table 5A. Fee income rises and falls with grain volume but sub-proportionately because not all fees are volume-based. There are several reasons for believing that the Canadian Grain Commission is funded inadequately. Resource constraints have prevented the CGC from maintaining adequate core infrastructure to be able to provide optional cost-recovery services wanted at various times by stakeholders. Stakeholders who agree on little else among themselves seem agreed that the CGC is under-funded, even those who are deeply critical of it. As discussed in 12.0, we believe that the CGC’s research function is greatly under-funded. A ten million dollar research budget for the regulator of Canada’s third largest export industry seems short-sighted. A concluding issue is how the Canadian Grain Commission should be funded. The dilemma is how much the benefiting stakeholders should contribute, how much the taxpayer should contribute, and how much flexibility is available under international trade law to provide public support for the regulator.

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Table 5A: Canadian Grain Commission Income in Millions $ and Grain Volumes in Millions of Tonnes26 Grain Volumes

2001-2 48

2002-3 30

2003-4 41

2004-5 45

2005-6 49

39 25 64 (1)

26 33 59 (1)

34 38 72 8

36 22 58 (5)

39 27 66 (4)

Fees Appropriations Total Revenue Net Surplus (Deficit)

Table 5B: CGC Services and Cost Recovery27 EXPENDITURE

2005-06 COST

Inward Inspection Inward Inspection (Prairies) Inward Weighing Outward Inspection Outward Weighing All Other operational (licensing, optional services, research, etc.) Total

$11,609,000 $5,298,000 $3,490,000 $13,208,000 $6,247,000

NET OPERATING SURPLUS ($4,161,000) ($3,781,000) ($1,792,000) $160,000 $864,000

$30,291,000

$4,641,000

$70,143,000

($4,068,000)

% COST RECOVERY FROM FEES 64% 29% 49% 101% 114% 25%

In practice, the Canadian Grain Commission fees have not increased in more than a decade. The absence of fee adjustments since 1991 is likely rooted in an appreciation that the business performance of stakeholders, notably farmers, does not afford them much flexibility to increase payments.

26

Source: Canadian Grain Commission communication to COMPAS Research, July 6,

2006. 27

Source: Canadian Grain Commission communication to COMPAS Research, undated. ,

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The Canadian Grain Commission has provided data on the degree to which its various services are fueled by cost recovery from fees, as shown in table 5B. The CGC’s calculation estimates that outward weighing is a profit centre while inland inward inspection is a cost centre, whose losses are compensated by appropriations.28

5.2. Recommendations and Reasoning The grain economy has enormous economic importance as Canada’s third largest export sector and significant potential importance for both the environment and security of supply in respect of energy. For these diverse reasons, the people of Canada and hence the federal government have a special reason to protect and sustain the regulatory system and infrastructure. We therefore recommend that the federal government defray all basic infrastructure costs of the CGC, assigning cost recovery to the marginal expenses associated with individual services necessary for commercial transaction.29 In some situations, the Canadian Grain Commission incurs overtime salary costs to meet scheduling obligations to stakeholders in the transshipment of grain. We recommend that the overtime portion of such costs (i.e. the portion exceeding normal non-overtime costs) be absorbed by the CGC through federal government subsidies as if this were the equivalent of basic infrastructure cost.

28

These estimates seem plausible to us and we have no reason to doubt them, but confirming them is beyond the mandate of our study. All cost estimations necessarily combine empirical data with assumptions, and reasonable people can disagree about the appropriateness of different assumptions when attributing costs. 29 We are inclined to define infrastructure broadly to include both physical infrastructure and the ongoing management capability necessary to provide incremental individual services necessary for commercial transaction. ,

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5.3. Impacts on Stakeholders STAKEHOLDERS Producers-Food ProducersFeed/Fuels Grain companies Independent inland terminals Dealers and brokers Transport Breeders and Seed companies AAFC Ag researchers and scientists Other (incl. governments, taxpayers, consultants

INTENSITY OF IMPACT (HIGH/MED/LOW)

CHARACTER OF IMPACT

Med

It benefits them by increasing the efficacy of the system and controlling their costs.

Med

Same

Med

Same

Low

Same

Low

Same

NA

NA

NA

NA

NA

NA

NA

NA

Low

It may on the margins reduce the burden on the Canadian Agriculture Income Stabilization program by contributing to the efficiency of the grain system.

,

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6.0. Quality and Quantity Assurance 6.1. The Issue Several issues emerge in quality and quantity assurance. First, there is KVD, Kernel Visual Distinguishability. KVD has made possible the efficient segregation of quality based on defined visual characteristics of different classes. KVD has also played a role in ensuring that exports of wheat were indeed what buyers had contracted for. As a byproduct of this positive purpose, KVD has necessarily blocked the introduction of some new varieties that were greatly desired by those who would buy it for feed or feedstock. On June 29, 2006, the CGC announced the creation of a new class of wheat so as to reduce some of the barriers to innovation presented by KVD. The Canadian Grain Commission would sustain its traditional protection of quality assurance by maintaining the KVD requirements for Canada Western Red Spring (CWRS) and Canada Western Amber Durum (CWAD). The CGC would allow no new variety if it resembled visually either of these two. But, effective August 1, 2008, the CGC would end KVD requirements for minor wheat classes.30 On the same day, the CGC would create a new class of wheat, Canada Western General Purpose (CWGP), with disease resistance and agronomic criteria but few other quality requirements and no visual requirements other than not visually resembling CWRS and CWAD. The Canadian Grain Commission’s purpose was to increase flexibility while protecting the two core classes. As CGC Assistant Chief Commissioner, Terry Harasym, put it in the Commission’s Press Release, “This will provide producers with more options and greater choice in growing high-yielding varieties suitable for livestock feed or ethanol.” A desire to accommodate the growing biofuels and livestock industries is the most pressing practical reason 30

Canada Western Red Winter (CWRW), Canada Prairie Spring Red (CPSR), Canada Western Soft White Spring (CWSWS), Canada Prairie Spring White (CPSW), Canada Western Extra Strong (CWES), Canada Western Hard White Spring (CWHWS). ,

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behind pressure for reforming or abolishing KVD. The movement against KVD is also driven by an ideological desire for more market freedom. Some stakeholders believe that the Canadian Grain Commission has compromised as much as it can without risking Canada’s traditional export varieties. From this perspective, the essence of KVD must continue. KVD must remain until either a fast, economical DNA technology or its equivalent becomes feasible for testing at terminals or until a secure, viable Identity Preservation system becomes available for tracking segregated product throughout the system. Varying stakeholders nonetheless feel that the reform is too little and too late or that KVD should be discontinued altogether. Secondly, after KVD, numerical grading emerges as a related issue. Numerical grading is condemned on the basis that buyers increasingly make their purchases on the basis of long lists of complex, demanding specifications that may require extensive testing and not on the basis of grade alone. Numerical grading is defended on the grounds that it is a cost-effective method of segregating product based on quality-related criteria.31 Thirdly, some concern was expressed by stakeholders about the need for the system to accommodate increasing purchases by specification. In practice, the CGC can and does provide test-based certification of specifications beyond grade. It is not entirely clear to what extent the CGC has the inclination and resources to meet the growing demand at a pace that satisfies all stakeholders. The Hagberg Falling Number test is an aspect of this issue of grain specification and testing. The Hagberg Falling Number measures germination activity in wheat and hence the functionality of the resulting flour. The CGC’s research lab is working on a rapid method for conducting this test at terminals. In the oilseed sector, the main buyer specification factor for canola is by oil content, but oil content is not a grade factor. Some stakeholders believe that there ought to be grade factors for oil content, akin to protein in wheat, to facilitate contracts and financial settlement. In keeping with expectations of increasing purchases by specification, a number of stakeholders anticipate greater shipments of identity preserved

31

The US, Argentina, France, Ukraine, Australia all use numeric grading systems for

grains. ,

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product in the future. Bulk co-mingled shipments would decline. The current grain system accommodates some degree of identity preservation, for example: ‰ The CWB offers seven identity preserved programs for wheat based on varietal and quality specifications, representing over 1 million tonnes of sales annually; ‰ The Warburton wheat program successfully segregates selected wheat from the farmgate to the UK end-user. The designated barley sales are all made by varietal identity preservation, representing 2-2.5 million tonnes annually; ‰ Among non-Board grains, High Eurucic Acid Rapeseed (HEAR) is segregated from other canola; ‰ East of Manitoba, non-GMO soybeans have been successfully segregated for years. The CGC has developed an optional accreditation for Identity Preservation known as CIPRS (Canadian Identity Preserved Recognition System). Some grain companies see this as a wasteful duplication of procedures that they themselves follow under the more widely known HAACP32 or ISO certification processes. Fourthly, there is the issue of the Western and Eastern Standards Committees, whose role is to recommend grain standards each year. We heard few strong criticisms of the Committees but concern was expressed that they were too influenced by CGC or CWB, too large for effective decision-making, and too producer-dominated. Fifthly, some concern was expressed about the CGC’s perceived tardiness in removing Hard Vitreous Kernels (HVK) as a grade factor for wheat despite the CGC’s own unequivocal findings that HVK does not have a strong correlation to quality performance. Sixthly, some complaints were made about the CGC’s acting in haste with respect to the presence of ruptured kernels in wheat, causing needless economic hardship as a result. 32

Hazard Analysis and Critical Control Point (HACCP) is a systematic approach to identifying and defending against microbiological, chemical or physical hazards relating to food. ,

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Seventhly, some stakeholders see food safety has an area of immense growing importance involving greater opportunity for Canada. Some stakeholders are concerned that the issue may fall between the stools of different agencies and regulatory systems, for example between CGC and CFIA. Lastly, there is a background issue of uneven enthusiasm for national brand development. Producers and marketers of non-Board grains appear to be less interested in a coordinated quality assurance system than stakeholders involved with CWB marketed grains. That is the impression gained from the public forums and communications directed to us. To the extent that this impression is well founded, the lesser commitment of non-Board grain producers to the quality assurance system may be explained in several ways. They do not have a history of collaboration under a CWB-type organization. Their products lack the number of grades and grade variability characteristic of Board grains, for which reasons they may experience less of an economic need for collaboration.

6.2. Recommendations and Reasoning Among the issues raised in respect of quality and quantity assurance, only one, the composition and size of the Standards Committees, requires legislative change. The concern that these committees, notably the Western one, are unwieldy has merit. Some of the scholarship on board and committee sizes appears to conclude that somewhat smaller committees may take their tasks more seriously.33 From this, it follows that the Western Standards Committee ought to be smaller. Composed of 26 members, the Western Committee could be safely shrunk by reducing the number of general CGC appointees, who could number 7 under present rules, and by reducing the number of farmers, who number at least 12. On the other hand, some scholarship also suggests that larger boards and committees are more effective at building links to stakeholders and

33

See Steven F. Cahan et al., “Board Structure and Executive Compensation in the Public Sector,” Financial Accountability and Management (November, 2005). ,

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strengthening the legitimacy of the organization.34 We ultimately remain neutral on the issue of size because these Committees need not only make good recommendations but also earn legitimacy and buy-in from their stakeholder communities. We received advice to recommend reducing producer presence on these committees but no adequate explanation of how the system would benefit. We do not recommend a reduced representation on the part of farmers. There is nonetheless merit in reducing representation from the Canadian Grain Commission itself insofar, as a regulator with staff and influence, its impact on its Committees is necessarily larger than its numerical representation anyhow. We would thus recommend a slight reduction in the number of CGC appointees. On the matter of KVD and new grades, we recommend that the impetus that prompted the Canadian Grain Commission’s introduction of a new class of wheat extend to future CGC efforts to balance the interests of those who would priorize protection of export brands with the interests of those who favour new varieties for feed and feedstock. As discussed in sections 3.0 and 4.0, the CGC needs a major infusion of resources for purposes of sustained stakeholder consultation. Sustained stakeholder consultations are essential for ensuring that the CGC is always alert to stakeholder concerns and that stakeholders perceive the CGC as receiving and welcoming their feedback. Sustained stakeholder consultations are also essential for encouraging stakeholders to work together to find win-win solutions for the CGC’s consideration. We recommend that the Canadian Grain Commission consult annually with stakeholders about criteria for benchmarking and assessing the effectiveness of the CGC in grading and monitoring risks to Canadian grain quality, and that the CGC make annual reports to stakeholders on its effectiveness on the basis of these criteria. As discussed in 12.0, we recommend that the federal government commit itself to a graduated, multiyear increase in allocations to the CGC’s Grain Research Lab for purposes of developing fast, economical technologies for testing. In order not to put all its eggs in the same metaphorical basket, we also 34

See the classic analysis in Jeffrey Pfeffer, “Size, Composition, and Function of Hospital Boards of Directors,” Administrative Science Quarterly (September, 1973). ,

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recommend that AAFC establish a special fund for the development of such technologies with such resources available to AAFC researchers and on a competitive basis to private sector and university researchers. We recommend that both the CGC and AAFC make annual reports to stakeholders on the effectiveness of their research efforts and their forthcoming research plans. On the matter of the Canadian Grain Commission’s capacity for accommodating purchases by specification, we recommend that the CGC meet with stakeholders to establish a template for benchmarking and annual reporting on its performance in this regard. Thus, the CGC would report to stakeholders each year on its past performance in accommodating purchases by specification and requests for customized services, and its plans for the future. To the extent that the CGC follows our recommendations for contracting out of inspection as outlined in 7.0, the agency would also report annually on the performance of its contractors in accommodating purchases by specification and requests for customized services. To the extent that customized services can be outsourced, we recommend that the Canadian Grain Commission collaborate with current or potential independent providers to provide such services, where necessary under CGC license. To the extent that it is reasonable, we recommend outsourcing so that the CGC can focus on its core activities and so that the CGC, a regulatory body, does not un-intentionally place itself in a conflict between a dependence on revenue from a regulated organization and its need to chastise or punish that organization for failure to meet regulatory standards. In the oilseed sector, the Canadian Grain Commission should continue to work with stakeholders to develop and implement a grading system with factors for oil content that meets stakeholders’ needs. Some of the issues delineated above constitute irritants, even serious irritants, rather than matters of fundamental policy requiring legislation. We interpreted many of the criticisms of CGC action as rooted in the weakness of CGC consultation. Our recommendation for reducing irritants is for the Canadian Grain Commission to receive adequate funding for a sustained program of consultation on the model of the CFIA. In the spirit of the CFIA, the CGC would subsidize consultation efforts. Like the CFIA, the CGC would delegate to stakeholders much of the responsibility for organizing such consultations in order to give them the confidence that consultation was ,

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genuine. CGC-funded and stakeholder-led consultations will greatly improve the two-way flow of information, improve CGC’s responsiveness, and enhance stakeholders’ understanding of some of the unavoidable limitations on the ability of the CGC to meet their needs as fully as they might wish. On the specific matter of food safety, we recommend that the CGC approach CFIA and Health Canada for the purpose of discussing the merits of jointly sponsoring and funding stakeholder-led roundtables on the issue.

6.3. Impacts on Stakeholders The impacts of each of the above recommendations would be primarily on the effectiveness of the system as a whole rather than on any particular stakeholder segment.

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7.0. Weighing and Inspection Services 7.1. The Issue Weighing and inspection of grain is carried out by the Canadian Grain Commission and is mandatory on bulk shipments overseas but not for container movement or for exports to the United States, where these are optional. One issue is whether inward and outward weighing and inspection should remain mandatory or become optional at the discretion of the shipper. A second issue is whether the inspection and weighing services now performed by CGC staff could be carried out in whole or in part by independent third party providers under license and contract with the CGC. A third issue involves weighovers at primary elevators. These are a kind of inventory process, whereby primary elevators are required to provide annual data on their stored and flow-through volumes. Inspection involves retrieving a sample using a CGC-approved method (e.g. automatic samplers, which are universal at terminals). The sample is inspected for quality, to ensure freedom from contaminants, and to assign a grade. This sample also makes possible testing by the CGC’s Grain Research Lab for nonregistered varieties or for other quality purposes as required. The CGC provides third-party weighing so as to forestall gross errors such as missed railcar compartment unloads and to provide assurance to producers on the one hand (inward weighing) and overseas buyers on the other (outward weighing). In practice, the producers of Board grains tend to be more desirous of a strong CGC role in inward weighing and inspection than the producers of non-Board grains. The sales of Board grains are settled on the basis of information from inward weighing and inspection whereas non-Board grain transactions will have already been completed. The stakeholder pressure for optionality is rooted in the increasingly pricesensitive global marketplace. Grain companies, especially those that ship to their own affiliates overseas, want to avoid costs that are not necessary for their ,

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ability to conduct business effectively. About half of railcars unloading at terminal elevators originate at primary elevators of the same company.35 We also received some stakeholder pressure for contracting out of services and more than some stakeholder complaints about service. Grain and shipping companies both lamented the impacts on their bottom line of tardiness in inspection services with the CGC apparently reluctant to authorize overtime and work on holidays and weekends. We also received some complaints from inspectors about last moment scheduling and planning by the CGC. The issue is whether an increased budget would be an adequate solution or whether services should be contracted out and, if so, how. We received little comment on primary elevator weighovers. Originally intended as a double-check of elevator honesty in an era that long preceded automated weighing, the issue is whether weighovers have value. They are not a true check in that they involve a soft process audit instead of a true forensic audit, there are far better ways of auditing weighing performance, and some primary elevators fail to provide the weighover data without consequences. The CGC’s removing of their licence might be considered excessive punishment while the CGC lacks the authority to impose fines, a situation requiring remedy.

7.2. Recommendations and Reasoning with Respect to Optionality of Service Compulsory inward and outward weighing and inspection deliver benefits to both the service receivers and Canada. Inward inspection and weighing provides producers with a basis for financial settlement on quality and quantity and rail freight charges.36 Both inward and outward inspection provide a checkpoint for quality control, create a possibility of appeal, and provide a pathway to attribute liability for misrepresentation by virtue of the retained sample. Inward and especially outward inspection benefit Canada by generating data for statistical purposes, grade tolerance evaluation, and accounting and forecasting purposes.

35 36

Source: Canada Grain Commission data. Railways are apparently developing an automated system for prospective use. ,

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It is difficult to justify maintaining the mandatory requirement for inward inspection given that it is not a universal requirement. U.S. and container shipments do not appear to require it and there is little likelihood of a change in their treatment in the foreseeable future. In light of these specific considerations, the lack of a requirement for inward inspection on intra-company shipments on non-Board grains, and the admonition from Government of Canada Regulatory Policy to avoid needless requirements, we recommend that inward inspection become optional at shipper’s request. Both the availability of inward inspection and its practice do nonetheless benefit Canada as a whole by helping to sustain both producers and smaller handlers, who need such services for transactional purposes. For these reasons, we recommend that the Act require the Canadian Grain Commission to ensure that a capacity for carrying out such inward inspection be maintained at public cost. The appropriate sampling systems and weighing equipment to ensure third party verification of quantity and quality will need to be provided and maintained to support optional inspection and weighing. Because of the public benefits in terms of quality, safety, and potential traceability, we also recommend that samples be retained for a prescribed period of time for all grain receipts even in a setting of inward optionality. Because of the public benefits of an optional system, we recommend that the price of such optional services continue to be subsidized.37 The introduction of inward inspection optionality may increase unit costs and prices by reducing economy of scale.38 Optionality will almost certainly place smaller grain companies, those without terminals, at a competitive disadvantage, especially perhaps in the potential absence of the CWB. The 37

Inward inspection cost is partially recovered through fees paid by farmers and/or industry. The cost recovery for inward inspection is 64%. In the most recent year, inward inspection accounts for 19% of total CGC fees collected, inward weighing accounts for an additional 4%. Government appropriations generally cover the costs that exceed fee revenue. Source: CGC Revenue and Expenditure Analysis, 2005-06 38 Approximately 75-80% of shipments may require inspection (CWB, producer cars, and independent terminals). Currently, the 10 year average of total CWB unloads at terminal or transfer elevators remains quite steady at approximately 76% , the total producer cars shipped in 2004-05 was 7650 (3.3% of total) and 2005-06 inter-company shipments is 10.5 million tonnes, or 48% of total shipments . This represents a decline of 19% of total shipments, indicating the growing domination of the terminal owning companies. ,

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fees for inward inspection and weighing are collected from farmers at the primary elevators. Optionality would benefit the larger terminal owning companies by enabling them to not have the fee, providing them with a more attractive price offering to farmers. Grain companies with a greater geographic footprint have a greater ability to reap profit from blending. We believe that Canada has a public interest in furthering competition in handling by helping the smaller players. This can be achieved partly by defraying the cost of the inward inspection infrastructure and subsidizing unit prices. Helping the smaller players can also be achieved by policies that are the responsibility of departments and agencies other than the CGC. Advocates of inward inspection optionality tend also to advocate outward inspection optionality but we see the two situations as different. We recommend continued mandatory outward inspection and weighing along with optionality for inward weighing and inspection. The Canadian Grain Commission collects samples when ships are loaded. Inspectors monitor the quality of the grain to ensure grade specifications and freedom from contaminants. Together with weighing, outward inspection forms that basis of the Certificate Final, the official certification of quality and volume. There is merit in the counter-argument that intra-company shipments have no greater need for outward than for inward inspection. But our view is that Canada’s reputation and the brand of our products require outward inspection. Inspection is necessary to forestall problems and to ensure sampling so as to rectify problems expeditiously if they nonetheless materialize. The recent example of Ochratoxin being wrongly alleged to be in Canadian durum exported to Italy is an example of why Canada needs to be diligent in protecting its brand through outward inspection and other means.

7.3. Impacts of Inward Inspection Optionality Producer rights of access to the terminal as granted by the Canada Grain Act will not be affected. Producers and the CWB should not be unduly affected financially if a proper publicly supported infrastructure and pricing system are put into place in light of the public benefits of maintaining an inward inspection capability. ,

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The main impacts will be on administration. There may be additional work to determine which cars are to be inspected and which are not, and to coordinate and assign the inspection resources to the appropriate terminal to ensure fluid discharge of grain with minimal or no interruption.

STAKEHOLDERS

Producers-Food

ProducersFeed/Fuels Producer Car shippers Grain companies

INTENSITY OF IMPACT (HIGH/MED/LOW)

MED

LOW

CHARACTER OF IMPACT - Depending upon the financial health of the publicly supported infrastructure, optionality may increase the cost of inspections on certain shipments, particularly CWB grains as the overall volume of inspections declines - Grain producers for feed and fuel use domestically will not be affected

MED

- Similar to impact on CWB

LOW

- Little impact - Some of the costs of optional I&W could be attributed to independent inland terminal shipments. Higher costs may reduce their competitiveness

Independent inland terminals

MED

Dealers and brokers

LOW

- No direct impact.

Transport

MED

- Additional methods for determining weight for rail freight invoicing may have to be developed

LOW

- No direct impact

MED

- The requirement for appropriations will change

LOW

- No direct impact

Breeders and Seed companies AAFC Ag researchers and scientists CGC and employees

MED

Other (incl. governments, taxpayers, consultants

LOW

- Optionality may reduce the CGC work requirement - an advance request of inspection communication system will have to be developed - Port communities could see minor reduced employment. There is a risk of attenuation of statistical data. The requirement for appropriations will change.

The recent study by Meyers Norris Penny (MNP) on the impacts of different optionality scenarios concluded that optionality would produce savings. The ,

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study did not estimate the administrative consequences of optionality nor the impact of optionality on competitiveness among handlers. The MNP study distilled 11 scenarios, and did not provide a hierarchy of recommendations or a clear preference. We recommend that the CGC use roundtable stakeholder consultation to identify the best administrative methods for provision of optional weighing and inspection services within the spirit of the recommendations that follow in section 7.4.

7.4. Recommendations and Reasoning with Respect to Contracting Out Service From grain and shipping companies, we received complaints about costly delays during peak periods, inspectors whose arrogance had a demoralizing effect on company staff, and inflexibility in service delivery (no authorization of overtime). From a couple of inspectors, we received complaints about a pattern of insensitive, last minute, assignment of overtime duties. Government of Canada Regulatory Policy contains an admonition to use private sector services when possible. CFIA has had success in contracting out inspection services in the seeds area. Private sector suppliers would be under pressure from a desire for renewal of contract to provide expeditious, flexibly timed service. For these reasons, we recommend that CGC’s inspection services be contracted out under CGC license except for CGC’s retention of an essential capability to conduct appeals. Specific features would include: ‰ Balancing a need to link a single contractor to a given location in order to enhance accountability for service with a need to ensure adequate competition among contractors, for example by assigning segments of the larger ports to different contractors; ‰ Providing the market with long advance warning of the intention to contract out inspection services so that potential new suppliers can organize to compete for the business;

,

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‰ Provision of training programs to enable current CGC inspectors and all other potential contractors to prepare to compete for the CGC’s inspection business; ‰ Working with stakeholders, potential contractors, and actual contractors to define the processes by which requests for inspection would be transmitted and implemented; ‰ Requirements that contractors be independently owned and provide CA-audited39 confirmation that their volume of business does not exceed a to-be-defined threshold of dependence on a given grain company or farming organization; ‰ Gradual implementation of contracting out so as to minimize risk and disruption and to maximize the opportunity for current inspectors and other potential Canadian providers to compete successfully for the business; ‰ Work with stakeholders to establish clear standards of inspector performance by which contractors can be evaluated effectively and fairly; ‰ Use such standards and performance measures to impose penalties and ultimately revoke the licenses and contracts of poorly performing providers; and ‰ Evaluate objectively such performance measures along with the satisfaction of all relevant stakeholders as a basis for annual feedback and as a basis for evaluating incumbents when successive renewal competitions are launched. To ensure competitiveness, it is envisioned that more than one service provider would be engaged and sustained, which increases the complexity. The method of assigning work will need to be determined. Developing a 39

Audited by a member in good standing of the Canadian Institute of Chartered Accountants. ,

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method with multiple competitive service providers to impartially allocate the business will be critical. This effort will require additional resources by the CGC. In keeping with longstanding Government of Canada Regulatory Policy, we recommend contracting out because the burden of proof and evidence should be with proponents of Canadian Grain Commission service, not the proponents of contracting out. We do not believe that the proponents of CGC service have satisfied that threshold of proof. But we also do not believe that contracting out, especially in concert with inward inspection optionality, will be uneventful or a cure-all. At ports with multiple terminals (Vancouver, which is busiest and most congested), the process could be complex. Such complexity could increase costs and even delays. It will be important for the CGC to retain some civil service inspectors for the purpose of ensuring that it has the technical ability to participate in arbitrating disputes and to provide service arising from the grain producers’ rights to subject to inspector’s grade and dockage. The CGC should be prepared to continue as a small-scale, backup service provider, although it is acknowledged that forecasting inspection volumes will be very difficult in this environment.

7.5. Impact of Contracting Out on Stakeholders Implemented successfully, contracting out will benefit all players in the system by improving efficiencies. Current inspectors may well gain, especially if they form companies to provide the services.

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8.0. Liability, Misrepresentation, and Certificate Final 8.1. The Issue As is well understood within the sector, grains with very different nutritional and agronomic properties can mimic each other visually. There is always a potential risk of purposeful or inadvertent misrepresentation that is normally detectible only by time-consuming tests, normally performed at the GRL facility in Winnipeg. When ships are loaded at port, the Canadian Grain Commission provides expeditious “Certificate Final” certifications on the basis of professional onsite inspections. Despite their apparent finality, Certificates Final will necessarily entail a risk of error being uncovered in subsequent lab testing until instantaneous, economic, onsite testing by DNA or other methods becomes available. One issue is how much liability, if any, the CGC should carry in the event that testing reveals unpreventable inspector error in the Certificate Final after a ship has set sail. Another issue is how to ensure that farmers pay a price for misrepresentation other than through civil action. Grain companies are loath to resort to civil suit partly because of public affairs risk. They are also hesitant to take legal action because of the high standards of traceability proof required in such court cases and the possibility that the proceeds of even a successful action will not match the costs of the fraud and the costs of taking legal action. In a well known case in 2003, a CGC Certificate Final assigned a grade of CWRS # 2 to a shipment of wheat coordinated by Sask Wheat Pool (SWP). A sample of the cargo was collected, and the vessel set sail. Thirty-three days later, the Canadian Grain Commission advised SWP that lab testing had revealed 20% content of unregistered varieties. The CGC moved to downgrade the Certificate Final to CW Feed Wheat. Sask Wheat Pool challenged the revision in court. The judgment ruled against the Canadian Grain Commission on the grounds that it had not ,

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instituted regulations to allow a change to the Certificate Final. In practice, the CGC considered but did not introduce such regulations. In practice the issue of changing the Certificate Final is significant because of the value of a ship’s cargo, not because the probability of such misrepresentation is high. The incidence of such misrepresentation is in fact extremely low for a variety of reasons: ‰ The CWB and the grain trade have developed an ‘ineligible varieties protocol’ that helps ensure traceability to the farm gate; ‰ To protect their national brand and for ethical reasons, farmers monitor each other; ‰ Elevator managers are alert to the habits and values of the people from whom they make purchases. There are two requests to help address this situation for the future: 1) the Government of Canada should stand behind the CGC Certificate Final and share some of the liability to ensure the integrity of the Certificate Final, and 2) there should be financial penalties for anyone who delivers or forwards misrepresented grain in the handling and marketing system. For the purposes of this issue, misrepresentation of grain includes introducing or forwarding ineligible varieties as well as fraudulently representing grain as something other than its true identity, variety or by its inherent traits (e.g. GM vs non-GM).

8.2. Recommendations and Reasoning with Respect to Liability for the Certificate Final To an exporter, the commercial harm of a revision to the Certificate Final ultimately depends on the size of the cargo and the business impact in a particular set of circumstances. The harm will never be less than the difference of value between the originally estimated product and the actual product; the harm will sometimes be much more. We recommend that the Canada Grain Act be amended to hold the CGC, and the federal government as its underwriter, responsible for up to 33% of the ,

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harm incurred. The magnitude of the harm would be determined by an Arbitrator appointed by the Minister and accepted by a majority of the affected parties, or conversely by the Courts upon application by any affected party. We recommend that the CGC be liable because in a modern democratic society government agencies must meet the same standards of responsibility as required of businesses and ordinary citizens. This change will help ensure the integrity of the Certificate Final. By assigning clear but limited liability on the Canadian Grain Commission, the change would assert an onus on it, terminal operators, grain handlers, marketers and farmers to participate in and ensure that appropriate systems are in place to mitigate reasonable risks prior to the final stage of vessel transfer to a customer. All parties need to play a part in ensuring the integrity of the quality assurance system, for which reason the risks should not rest with the CGC alone. The Minister should have the authority to appoint a knowledgeable Arbitrator with sufficient authority and support to investigate and assign liability where a problem associated with misrepresented grain occurs. Considering that many parties may be affected, the Arbitrator must be acceptable to a majority (50% +1) of them. This Arbitration process would result in a binding assessment of the aggregate damages and an assignment of those damages to the appropriate parties. Given the potential for crops with novel traits in the future, and changes away from KVD, the proposed process would be an important integrity measure, providing greater domestic and international confidence in the Canadian grain system and hence in Canadian product.

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8.3. Recommendations and Reasoning with Respect to Liability for Farmer Misrepresentation We recommend that the Act (Section 106) be modified to allow the Canadian Grain Commission to impose fines or Administration Monetary Penalties for various infractions,40 including for misrepresentation of grain. The Act would specify maximum financial penalties of up to $ 20,000 for individuals and entities other than licensees and up to $ 40,000 for licensees with automatic adjustments to take inflation into consideration, assuming a review of the Act on a periodic basis. Prior to preparing regulations, we recommend that the Canadian Grain Commission consult stakeholders for the purpose of identifying factors that would be taken into consideration when deciding the magnitude of a fine, for example, past history of misrepresentation, purposefulness or inadvertence, and the recency of farming experience. Too much is at stake for all stakeholders in the system to fail to introduce enough means for deterring unscrupulous conduct. In small cases of misrepresentation, the various stakeholders may have a multitude of public affairs or financial reasons for not taking legal action. An offending farmer may have insufficient assets to make action worthwhile. A court may require much higher standards of evidence of traceability than necessary to convince most reasonable people of a farmer or grain handler’s culpability.

40

We believe that the CGC needs the threat of monetary penalties to enforce its regulations. Though we recommend in 10.0 the discontinuance of weighover requirements at primary elevators because such procedures are outmoded, the fact that some elevator companies have failed to comply for years ultimately undermines the legitimacy not just of the regulatory system in grain but also of the structure of Canadian governance as a whole. In the absence of financial penalties, the CGC’s ability to enforce compliance rests almost entirely on the unlikely cancellation of a licence. ,

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8.4.

Impact on Stakeholders of CGC Liability for Certificate, Arbitration Process, and Penalties

Virtually all stakeholders benefit insofar as these recommendations contribute to enhance confidence in Canadian product and stronger brand.

STAKEHOLDERS Producers-Food ProducersFeed/Fuels Producer Car shippers Grain companies Independent inland terminals Dealers and brokers Transport Breeders and Seed companies AAFC Ag researchers and scientists CGC and employees Other (incl. governments, taxpayers, consultants

INTENSITY OF IMPACT (HIGH/MED/LOW) MED

- All recommendations benefit producers as a whole

LOW

- Negligible impact

LOW MED

CHARACTER OF IMPACT

- Producer car shippers benefit on the margin to the extent that the food brand is strengthened - Grain companies stand to benefit from both diminished direct liability and greater confidence in the system

LOW

- Similar to preceding but attenuated

LOW

- Little direct impact

LOW

- No real impact

LOW

- No direct impact

MED

- The requirement for a reserve fund may change

LOW

- No direct impact

MED

- Greater clarity of responsibility

LOW

- The system as a whole benefits from greater brand strength

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9.0. Contractual Security 9.1. The Issue The issue area is protection of farmers and other sellers in the event of a grain handler’s failure to pay. The first of two specific issues is how much regulated security the Canadian Grain Commission ought to be entitled to impose. This is partly a matter of regulation policy in general, as defined by Canadian Regulatory Policy. It is also a practical matter insofar as the CGC must balance the needs of some farmers for security of transaction against the needs of all stakeholders, including farmers, to limit costs in a global marketplace that is increasingly price-sensitive. The second specific issue is the ethical matter of assigning liability for shortfalls in payments to grain producers who were not fully compensated for losses in two recent bankruptcies that were secured by the Canadian Grain Commission itself. Effective August 1, 2006, Canadian Grain Commission policy will require all grain companies to be licensed and hence subject to CGC security requirements. There is some ambiguity as to whether this provision will be fully enforced insofar as some grain companies will apparently be exempted qua dealers, as discussed in section 10.0. The CGC has long required licencees to post security with the CGC as producer protection in the event of failure. The security provision takes the form of bonds, cash deposits, letter of credit, guarantees and payables insurance sufficient to cover eligible liabilities to producers or another acceptable financial instrument. All companies must report eligible liabilities monthly to the CGC. The magnitude of the security has been adequate to cover most liabilities to producers in most collapses, but not all. Since 1982, there have been 19 failures of licensed, bonded companies. Of these 19, there are 3 instances where the payout was less than 100%, one being virtually 100% (98.4%). There are 2 other instances where the CGC paid ,

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producers 100% for failures of companies that were not licensed or carrying security. The CGC made payments in addition to or in the absence of security provisions in a total of 5 cases. A number of grain companies have urged COMPAS to recommend optionality for security on the grounds that the mandatory requirement for security imposes an un-necessary cost during a period when global markets are unusually price-sensitive. The carrying cost for committing this collateral increases their cost of doing business, placing at risk price-driven sales. Furthermore, mandatory security introduces a cost that impedes new entrants, thereby constraining competition. In recent years, the Western Barley Growers Association and other groups have called for implementation of clearing house systems as economical substitutes for assuring payment. Modeled on futures exchanges, clearing house systems would require pre-approval of participants, margins to assure performance, and administration by such experienced bodies as the Winnipeg Commodity Exchange, Toronto Stock Exchange, or the Montreal Bourse.41 The second issue involves the Canadian Grain Commission’s obligations to producers who received only partial payments in the Venture Seeds and Naber’s failures. The CGC delivered less than full payment because the posted 41

The Western Barley Growers Association’s submission to COMPAS made the following observations: “The cash commodity clearinghouse would operate [like a] traditional futures exchange clearinghouses…Pre-approved buyers and sellers would register trades with the clearinghouse and post initial margins to backstop their performance guarantees. The clearinghouse becomes the buyer to all sellers and the seller to all buyers in the role of central counterparty guarantor. Daily price fluctuations would be monitored and which ever side of the transaction was in a negative position would post margin equal to the difference thereby maintaining a balanced financial exposure between buyer and seller. These funds are held in trust until the physical contract has been delivered to each counterparty’s satisfaction… “This technique is a more direct and suitable approach to securitizing contractual obligations as it is a direct measure of actual financial exposure on a contract by contract basis as opposed to the Canadian Grain Commission’s (CGC) overall enterprise bonding approach. In the past the CGC has required all grain trading enterprises to post a security bond to protect the interests of those parties doing business with an approved agent. This has proved challenging to enforce due to the unwillingness of some participants to register, outdated financial information, the difficulty in securing assets when a failure occurs and the inability to defend against outright fraud. Losses have been substantial over the past decade and settlements have been inadequate in several instances.” (June 19, 2006). ,

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security of the two companies was insufficient for the task. We received the following three main arguments for the CGC to nonetheless top up payments: ‰ The federal government has done so before, ‰ CGC oversight of the two firms was ultimately at fault for not ensuring that the security was adequate for the task, and ‰ CGC invocations to farmers to use only licensed companies were so ardent, fulsome, and unrestrained that it would be difficult for the average farmer or Canadian citizen to conclude that the CGC was offering less than 100% protection, the most persuasive argument in our estimation.

9.2. Reasoning and Recommendations with Respect to Security We recommend that the Canadian Grain Commission ‰ consult with accounting and risk management experts to explore the costs and the benefits of operating a clearinghouse mechanism to reduce efficiently the transactional risk to farmers, and subsequently ‰ launch a stakeholder roundtable on the CFIA model to involve all stakeholders in developing solutions that provide optimal security at optimal prices and with maximal clarity to producers about the true magnitude of the assurance being provided. On the advice of this roundtable, the Canadian Grain Commission will need to find a reasonable balance between the needs of some farmers for third partyassured security of payment in transactions on the one hand and the system’s need to constrain costs on the other. We recommend that the roundtable explore all possible options, including explicit ceilings on transaction guarantees. Irrespective of the particular balancing point that the CGC opts for, all communications to farmers need to be unambiguously clear, far clearer than past CGC claims of assurance. ,

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We recommend deletion in the Act of Section 49.1(2), which eliminates liability to the CGC if a licensee fails to fulfill payment to a producer. In keeping with the accountability and transparency principles discussed in section 2.4, we do not believe that any regulatory body ought to receive legislated immunity from court action in the event that it fails to perform its heavily advertised functions. We recommend that the surveys of farmers previously recommended in this study measure the actual demand for security once farmers understand the system costs of compulsory security.

9.3. Reasoning and Recommendations with Respect to CGC Liability in the Venture Seeds and Naber Seeds Failures For reasons of transparency and accountability, we believe very strongly that the Canadian Grain Commission should fully compensate the affected farmers, pay their legal costs, pay interest for the affected period, and pay a penalty for causing needless distress. The duty of the CGC and hence the government of Canada to fulfill obligations implied by CGC promises is a matter that is separate from the role of the CGC in requiring secure transactions. The Canadian Grain Commission’s position has been that its obligations are limited by the amount of the bankrupt company’s security. In the Venture and Naber’s cases, the posted security fell short of the company’s obligations. In these two recent examples of prorated payments, the affected farmers were in no position to know that their degree of protection could be limited or that the bankrupt company had not secured itself adequately. The CGC website at the time was a staunch advocate of CGC-licensed grain companies. “Your grain, your gain. Why risk it?” was the headline. The web-brochure went on to ask “are you betting the farm when you sell your grain? If you’re not dealing with a company that is Canadian Grain Commission (CGC) licensed, you could be putting your financial gain at risk without realizing it.” The CGC’s document proceeds with repeated entreaties to use and trust only its licensees. Our view is that government agencies have no less obligation than businesses or ordinary citizens to carry out their responsibilities to customers adversely affected by failures to live up to promises as these promises would be understood by the average Canadian. ,

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9.4. Impacts on Stakeholders The launching of CFIA-prototype stakeholder roundtables will contribute to more harmonious relations among stakeholders through a better understanding of the interests and constraints affecting each side. The output in terms of security policy could provide low cost, high effectiveness security that satisfies most or all parties. Full prompt payment to all producers affected by the Venture and Naber bankruptcies will help enhance the credibility of the grain system and its regulator. Companies in distress often resort to panic buying from producers as a way to shore up their working capital position, effectively ‘borrowing’ from producers until payment is received from grain sales. This action is what gets the posted security out of balance with the actual liability. This policy will insulate farmers from this phenomena, by transferring the risk to the CGC. In response, the CGC will have to improve the rigour of its required reporting to offset the assumption of this risk. We believe the CGC can develop program rules to effectively accomplish this without undue risk to the taxpayers of Canada.

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10.0. Licensing 10.1. The Issue As in other sectors and in the professions, licensing is required of service providers as a guarantee of a certain level, homogeneity, and predictability of service standards. Licensing helps protect customers from shoddy service. In this instance, farmers are protected through the licensed regulation of storage, weighing and handling of grain. By assuring a certain quality of service, licensing helps sustain the economic viability of the sector and therefore the profitability of the legitimate stakeholders who provide service to it. By protecting producers, the licensing authority also protects the economic interests of the various licensed grain companies, handlers, transportation companies, and other firms that earn revenue by serving the sector. The overarching licensing challenge is that the Canadian Grain Commission’s efforts to encompass new players and sub-sectors has led to an apparent patchwork quilt with uneven transparency, uniformity, and compliance. Some examples: ‰ Not all handler groups are licensed, the main exemption being special crop dealers; ‰ Trucking is not licensed because it does not entail elevation; ‰ Licensing requirements in respect of pricing seem to vary without apparent reason, for example, grain dealers can charge shrinkage, while primary elevators cannot; ‰ Licensing obligations with respect to farmers’ rights vary without reason, for example, deliveries to grain dealers have not been eligible for the farmers’ right to inspector’s grade and dockage, and yet some grain dealers are operationally indistinct from elevators; ,

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‰ Grain dealers have no weighover or other audit/inventory requirement; ‰ Elevator companies have weighover obligations but these are not enforced, as discussed in section 7; ‰ Farmers are entitled to request inspector’s grade and dockage at an elevator but farmers are decreasingly able to exercise that right as a result of their growing reliance on commercial truckers to deliver the grain; ‰ Commercial buyers of grain are licensed and bonded but not the commercial transportation companies that have operational possession of the grain between farm gate and buyer; ‰ Countless grain buyers are licensed but not feedlots; ‰ Elevator companies are required to report tariffs and fees, but not grain dealers; and ‰ Companies with more than one type of license, we have been told, can to some extent cherry-pick the requirements they would prefer to satisfy. The broad area of internal or intra-company transactions requires the development of regulations that exempt them in a uniform and transparent way from requirements intended to protect parties in transactions. Some grain companies have expressed dismay over licensing exemptions for producer loading facilities. The Canadian Grain Commission was nonetheless right to make the exemption, in our estimation. We recommend that the CGC consider enunciating a regulatory policy that treats as a separate class facilities that do not conduct transactions for the purchase of grain or incur liabilities for unpaid grain. Such a policy would treat differently not only producer loading facilities but also farmer-owned processing facilities. We recommend that the CGC consult with the CFIA and other agencies as well as stakeholders as to whether such facilities should be exempted or placed into a separate class with few, if any, requirements other than a license. Licensing would have value, in our view, if CFIA and/or other agencies saw CGC licensing as a valuable, supplementary tool for influencing the health and safety practices of such facilities or for statistical data collection. ,

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We foresee that there may need to be an additional class of license in the future for container loading facilities. As this mode of transportation grows, the CGC will have to consult with stakeholders on the requirement for certain regulations to protect and preserve Canada’s brand. Lastly, farmers indicated frustration at certain fees charged by grain companies, and the lack of regulation. Charges relating to barley designated as malting quality were of particular concern. In 1995, the CGC discontinued establishing the fees and tariffs that can be charged by a company, and now only require the reporting of a maximum tariff. The CGC should ensure that there is clear understanding of grain company fees and charges by supporting the extension activities of the recommended Office of Grain Farmer Advocacy. The CGC should be able to fine or penalize licensees for overcharging or not disclosing all fees to be charged to a farmer prior to settlement.

10.2. Reasoning and Recommendations We recommend that the CGC commit itself to introducing greater uniformity, transparency, and clarity to its patchwork quilt of licensing regulations. In specific, the Canadian Grain Commission should: ‰ provide an annual report to stakeholders on its efforts to introduce uniformity, transparency, and clarity in licensing; ‰ work with stakeholders and other government agencies for the purpose of developing and enunciating a policy setting out the rules by which organizations are exempted from licensing (and security) requirements, for example, producer-owned or closed loop systems; ‰ formally review the licensing classifications, cost and procedures every 5 years; ‰ assess annually stakeholder satisfaction with its efforts to develop clear, uniform, and fair guidelines for licensing; ‰ establish a protocol prescribing primary elevators’ obligations and procedures in respect of taking and storing automatic samples of all deliveries, and modify its ,

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rules to allow farmers to request CGC inspection and dockage up to 24 hours after delivery of the grain to the elevator; ‰ require that every grain contract from every class of licensee contain the following words in the footer of the first and every page in a font no smaller than the average font in the contract: “Under the law, every grain producer is entitled to receive the opinion of the Canadian Grain Commission (800 number) on the grading of this grain and on dockage, and is entitled to contact either the Commission or the Office of Grain Farmer Advocacy (800 number) for their advice.”

10.3. Impact on Stakeholders of CGC Liability for Certificate, Arbitration Process, and Penalties Virtually all stakeholders benefit insofar as these recommendations contribute to enhanced confidence in Canadian product and stronger brand.

STAKEHOLDERS

INTENSITY OF IMPACT (HIGH/MED/LOW)

CHARACTER OF IMPACT

Producers-Food

HIGH

- Producers benefit greatly by being able to work in a more transparent and uniform system of licensed handlers

LOW

- Negligible impact

ProducersFeed/Fuels Producer Car shippers

LOW

Grain companies

MED

Independent inland terminals

LOW

Dealers and brokers

LOW

- Producer car shippers benefit insofar as their exempt status is regularized - The majors benefit as a result of seeing new entrants and smaller players having to meet equal licensing standards - Negligible - The better players will benefit insofar as producers come to see their service as meeting similar regulatory standards to those required of the majors ,

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Transport

MED

- Commercial truckers may incur slightly higher costs to the extent that they may be obliged to meet licensing and security obligations

Breeders and Seed companies

LOW

- No direct impact

MED

- Increased efforts at the CGC in respect of licensing policy, stakeholder consultation, and inter-agency coordination will increase the monitoring burden on AAFC

LOW

- No direct impact

HIGH

- Increased burden for consulting stakeholders and coordinating with other agencies

LOW

- The system as a whole benefits from greater perceived transparency, uniformity, and clarity

AAFC Ag researchers and scientists CGC and employees Other (incl. governments, taxpayers, consultants

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11.0. Dispute Resolution 11.1. Issue The issue is not the Grain Appeals Tribunal of the Canadian Grain Commission. The Grain Appeals Tribunal has earned some plaudits for effectiveness. Our impression is that the Tribunal is respected for its role in grading disputes, although at times some stakeholders sensed excessive influence on the part of the Office of the Chief Inspector. The issue is that the industry has a range of disputes requiring arbitration and mediation beyond grain grading. In a society that places an increasing premium on accountability and transparency (see section 2.4), the Grain Appeal Tribunal’s location within the CGC sets a limit on its legitimacy and perceived effectiveness. We furthermore see bubbling to the surface an increase in the range and complexity of disputes. Indeed, it would almost be an unfathomable situation if there were no sizeable increase in conflict given the growth in the number of grains, varieties, and commercial uses. Civil action remains an option for settling disputes but litigation is almost always dear, dilatory, and deleterious to the smooth functioning of the organization that launches the action.

11.2. Recommendations and Reasoning with respect to Arbitration and Mediation We recommend that the Canada Grain Act be modified to allow stakeholders to use arbitration services as set out in the arbitration process outlined in the Canada Transportation Act and mediation services akin to those that support the Farm Debt Mediation Act. In keeping with this recommendation, we further recommend eliminating Section 92, authorizing Commissioners to act as arbitrators.

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Arbitration and mediation would be available for disputes relating to the Canadian Grain Commission’s policy applications and for any dispute involving stakeholders in the grain sector in Canada. Neither process would be used in international disputes. International disputes can usually be heard through World Trade Organization mechanisms or dealt with according to international laws. Nor would either process be intended for use in creating or overturning policy. The two processes would be utilized to ensure the fair implementation of policy and fairness in commercial transactions across the grain industry. The proposed pre-court processes for dispute resolution are intended to help make the climate of stakeholder opinion in the industry more conciliatory by resolving disputes more quickly and at less cost. This process would not prevent any individual or organization from pursuing remedy through the courts except during the period of mediation and arbitration if mediation or arbitration were selected. Court action could always commence after the best efforts of mediation or arbitration had concluded. Following convention, arbitration and mediation would necessarily involve different styles and procedures. In mediation, a certain focus is placed on preserving relationships. In arbitration, a focus is placed on investigating fact. Final offer arbitration entails a review of the each side’s apparent final offer. One of the offers is adopted as the final decision. The Canada Grain Act should provide for both mediation and arbitration, albeit outside and independent of the Canadian Grain Commission. Both processes would be administered by the AAFC department entrusted with responsibility for administering the Farm Debt Mediation Act. This department has the requisite experience, expertise, and networks to provide effective, economical service. The scope of disputes to be presented for mediation or arbitration should be limited to commercial activities between Canadian parties. The CGC Grain Appeals Tribunal as described in the Act would continue to address grading disputes. We recommend the main elements of arbitration as follows: ‰ A list of pre-approved, knowledgeable arbitrators would be generated and made available; ‰ The process would begin if both conflicting parties agree to arbitration in a two-party dispute or if a majority reached an agreement in a multi-party dispute; ,

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‰ The arbitrator should be enabled to investigate disputes in the grain industry that may relate to contractual conflicts, the assessment of fees or charges between buyer and seller; ‰ The arbitrator should also be empowered to arbitrate disputes about misrepresentation of grain and to assess damages, as discussed in Section 9.0 regarding the Certificate Final; ‰ Parties to the dispute would have a choice of single arbiter or panel of three arbitrators; ‰ The costs for arbitration should be shared equally between or among parties; ‰ If a party applies for arbitration, the administering agency should contact all parties and get their agreement to proceed to arbitration within 15 days along with the details of their final offer; ‰ the complainant retains the option of court action. In the case of mediation, we recommend the following provisions, in particular that ‰ the Farm Debt Mediation Service (FDMS)42 provide the professional resources in light of its ready access to knowledgeable agriculture mediators and financial field persons with Standing Offer or Vendor of Record contracts at AAFC; ‰ FDMS be utilized as a professionally effective, economical solution—it has a national network of experienced mediators while the utilization of FDMS would entail no new overhead costs; ‰ Mediation services would be provided by AAFC through its Standing Offer contracts with existing professionals;

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In the spirit of transparency, we note that Tom Halpenny, consultant to COMPAS on this project, holds a Standing Offer contract with the Farm Debt Mediation Service. ,

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‰ Any stakeholder could apply for mediation; and ‰ Mediation prices would be subsidized sufficiently to encourage utilization but not so much as to invite frivolous use. We recommend that the Canadian Grain Commission be required to participate in any mediation or arbitration that seeks its engagement. We do not specifically recommend that this requirement appear in the Act because any such obligation of the CGC should probably be an outgrowth of future Regulatory Policy before being placed into law. In the event that a grain producer requests mediation or arbitration with a licensee, we recommend that the licensee be required to participate under CGC regulations. The onus on licensees to participate is justified in our view by the Government of Canada Regulatory Policy injunction to design rules so as to address the special circumstances of small business, in this case grain farmers.

11.3. Impacts on Stakeholders The general impact will be to attenuate suspicion by removing impediments to the expeditious resolution of conflict.

STAKEHOLDERS

INTENSITY OF IMPACT (HIGH/MED/LOW)

Producers-Food

HIGH

ProducersFeed/Fuels Producer Car shippers Grain companies Independent inland terminals Dealers and brokers Transport

MED

CHARACTER OF IMPACT - Producers benefit greatly by receiving economical opportunities for the swift resolution of conflict - Negligible impact with some potential for resolution of conflict in the future

MED

- Similar to preceding

MED

- All the grain companies benefit from the potential opportunities for swift, economical conflict resolution

LOW

- Similar to above

LOW

- Similar to above

LOW

- No direct impact

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Breeders and Seed companies

LOW

- No direct impact

AAFC

MED

- Some added burden and cost but also some recognition of excellence in conflict resolution

Ag researchers and scientists

LOW

- No direct impact

CGC and employees

HIGH

- Short-term impact may be perceived diminished authority; long-term impact will almost certainly be increased legitimacy

Other (incl. governments, taxpayers, consultants

LOW

- The system as a whole benefits from greater opportunities to resolve and mitigate conflict.

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12.0. Research Services 12.1. The Issue The central issues are inter-related budgetary issues—how much should Canada be spending on grain research, where should it be spent, and to what extent should the Grain Research Lab of the Canadian Grain Commission be a profit centre, earning revenue by providing research services. A dispassionate assessment of the state of grain in Canada and abroad justifies an exceptional public sector investment in grain research. Our historically predominant global position in quality Canadian Wheat Board grains for human consumption is in long-term decline because we are a high cost producer. In the history of business, high cost producers normally protect their positions by turning their focus to high value, research-driven product. It would be especially logical for Canada to enhance its investments in grain research because such research would be perceived as buttressing one of our comparative advantages, the perceived strength of our quality assurance systems. One of our longstanding competitive advantages is that our integrated quality assurance system cannot be easily duplicated in other countries. Heavy investments in research stand to build on that advantage. Let us suppose that it would be a bad idea to invest in research to establish leadership in high value product. Let us also suppose that it would be a bad idea to invest in research so as to enhance our reputation for quality assurance. We would nonetheless need greater research budgets to accommodate the movement of global markets to ever higher, research-driven, quality standards. Global RFPs43 for grains now consist of pages of research and testing requirements. Research and testing standards form the basis of massive grain

43

Requests-for-proposal. ,

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purchases. They also form the basis of hard-ball negotiations to force price reductions after the delivery of product.44 For purposes of argument, let us suppose that a heavy investment in research were unnecessary in the current climate of RFPs and contract negotiations. Let us also suppose that heavy research investments were superfluous for an export strategy focused on value-added product. A heavy investment in research would nonetheless be essential because of rapid changes in our domestic grain industry. Even if all the preceding arguments for investing more in research were repudiated, it becomes especially important to reinforce the sector through investment in research at a time when the Wheat Board’s mission is being reassessed. Canada’s longstanding GRL budgets are being spread thin by the proliferation of uses for grains (feed and feedstock) along with the proliferation of grains and varieties within grains. Canadian farmers have diversified their crop production dramatically over the past decade. Such diversification necessitated allocating research resources to pulses, new types of oilseeds, variety identification and GM grains and oilseeds. There have been no new resources at the GRL with the result that research resources are spread more and more thinly. For the preceding reasons and for many others, Canada ought to be a top national investor in grain research but we are not. We lag behind our competitors. It would be too much to say that our research budgeting resembles the Aesop fairy tale about the goose that laid the golden eggs. But we do seem to be moving to a situation without a goose. At the GRL, there seem to be succession and replacement challenges. In practice, agriculture industry observers such as University of Minnesota economist, Phillip Pardey,45 have remarked on Canada’s deficient contribution

44

For example, a Canadian cargo was held up in China for contractual dispute because testing in China revealed that the product contained excessive amounts of selenium. In fact, the Chinese client should feel fortunate that the cargo was high in selenium, an essential nutrient for forestalling prostate cancer in which the World Health Organization found the Chinese deficient. ,

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in agricultural research. A recent study conducted by the Thomsen Group for AAFC rates Canada’s contribution to agricultural research as “intermediate” compared to some key competitors. The CGC’s Grain Research Lab has done admirable work in the past. It has provided research on detection methods and potential effects of important quality assurance factors such as mycotoxins, radionuclides, plant insects/disease, heavy metals and chemical residue. These factors are also health and safety factors, and the GRL serves as a research and detection service for the CFIA on these seed related issues. The GRL enables the CGC to make statements of quality assurance on a sound scientific basis. Marketers indicated that the technical resources of the CGC have not been as available for international market development as they should be. There are two effects of this: the CGC is not as tuned in to international customer attitudes, and the market development efforts are not quite as effective as they could be. The CGC, along with the CWB, CIGI, CMBTC,46 and AAFC, are evaluating a mooted Center of Excellence for grain research to be developed in Winnipeg. These entities all face re-capitalization challenges over the next few years. The key issue is that the GRL has not been funded to an optimal level, and there may not have been a sufficient level of collaboration among research agencies and government departments. To address these two issues, some stakeholders suggested that the GRL be relocated to AAFC. Other concerns are that revenue from services or licensing is used to offset the cost of the GRL. Stakeholders generally felt that research was a public benefit, and should be funded by the public treasury. Stakeholders indicated emphatically that government investment in research was WTO-compliant, and not countervailable from a trade perspective. To mitigate the effects of ceilings on research resources, the GRL has undertaken some services for budget-replacement reasons. We heard some

45

On Canada’s lag in agricultural R&D investments relative to Australia and other countries, see the observations of University of Minnesota agricultural economist Philip Pardey as reported in Meristem Land & Science: PRRCG Report (April 15, 2006). 46 Canadian Malting Barley Technical Center. ,

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concern that this practice, once more popular than it now is, could have risked the impartiality of the Canadian Grain Commission.

12.2. Recommendations and Reasoning Given that weak funding of research capability of Canada’s third biggest export resembles the Aesop tale, we recommend that the federal government embark on a long-term (7-10 year) plan to greatly increase grain research spending. A long-term plan is essential to enable the GRL to attract strong replacement researchers in a successful succession plan, necessary given the age profile of its staff. Yearly increases in a multiyear plan are essential for successful absorption and deployment of resources. We recommend that total grain research spending be increased four-fold in ten years with the largest portions going to the GRL and a proposed AAFC program for outsourcing research on an RFP basis. Other specific recommendations are that ‰ the CGC create a roundtable of federal and provincial research funding agencies and post-secondary departments along with university Agricultural units to maintain a watching brief on grain research during these key years; ‰ funding agencies responsible for post-secondary education and agricultural research in the five relevant provinces be encouraged to collaborate with and match the proposed investment in agricultural research; ‰ the GRL maintain its reporting role through the CGC, and that its funding be listed as a separate appropriation through the CGC; ‰ the CGC and GRL be encourage to co-locate in the mooted Centre of Excellence; ‰ the GRL collaborate with stakeholders to encourage university and private sector research in support of stakeholders’ needs; and ,

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‰ to protect the perceived impartiality of the CGC, the GRL refrain from accepting research contracts from licencees except in exceptional circumstances when university and private sector suppliers are unavailable.

12.3. Impacts on Stakeholders The long-term impacts will be to strengthen the sector and thus benefit all stakeholders. The short-term impacts will be to encourage the growth of expertise in agricultural research in general and grain research in particular. Some technology companies might ultimately benefit from commercializing under CGC license the fruits of its technological and testing innovations. Taxpayers will bear the cost of additional spending in research while reaping its benefits. As discussed in the preceding passages, spending on research amounts to an essential, productive investment given that the future of the grain sector, a mature economy, lies in research-dependent advances in health, safety, and value-added new products.

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Appendix I: Itemized Summary of Recommendations 1.0 Introduction No Recommendations

2.0 Setting, Challenges, and Opportunities 1.

As container use grows, the CGC may need to adopt new procedures to facilitate and monitor quality assurance by this method. It may need to launch a special accreditation process, authorizing independent service providers to inspect and certify product to a declared standard or set of buyer specifications.

3.0 Mandate and Stakeholder Interests 2.

We recommend that paragraph 13 of the Act be modified to read as follows: Subject to this Act and any directions to the Commission issued from time to time under this Act by the Governor in Council or the Minister, the Commission shall: 1) establish and maintain the standards of quality for Canadian grain and regulate grain handling in Canada, to ensure a dependable commodity for domestic and export markets, and 2) in the interests of producers, provide the right of delivery access by grain producers to primary or terminal elevators, provide the right to third party grade and dockage verification, provide the right of a grain producer to access a producer car for shipment of grain and to have third party weighing and ,

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inspection of that unload, provide the right of grain producers that their commercial grain transactions with licensees under this Act be secure. 3.

4.

5.

6.

The last provision in the list is intended to afford the CGC freedom to consult with stakeholders to select the most appropriate form of security protection for any given transaction at any given time. Such protection may involve the use of clearing houses, partial security through bonding, full security through bonding, or other devices so long as (a) authentic effort is invested to enhance security and (b) producers have an unambiguous understanding of their degree of security. We recommend that the CGC require all contracts between farmers and licensees to remind farmers of their rights under the Act in a form prescribed by the Canadian Grain Commission, of which we provide a sample in section 10. We recommend this because farmers expressed concern that elevators were misleading them in grading and said that they felt intimidated. Farmers told us that their neighbours and peers were often unaware of their rights to have the CGC verify the accuracy of grain company grading. One prominent grain company had been perceived as contravening the law, wrongly specifying in its contracts that its decisions were final. We recommend that the CGC invite the Canada Grains Council or another such body to recommend draft wording for a CGC requirement in all sales contracts of a simple, clear statement in the form of unit pricing (e.g. price offered or paid per tonne/bushel with all costs factored in). We recommend this because farmers told us that they were confused by the allegedly purposeful complexity of grain company valuations. We recommend the CGC approach Industry Canada about more frequent elevator scale monitoring for the next few years until survey evidence confirms that farmers are confident in the accuracy of such scales. Mindful of the possibility that Industry Canada may be unable to accommodate such a request, we recommend that the Act be amended to allow the CGC to monitor the accuracy of elevator scales more frequently than carried out by Industry Canada under the Weights and Measures Act, and to empower the CGC to fine elevator companies for ,

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non-compliance with this or any other CGC regulation to alleviate farmer’s concerns about accuracy in weighing. We recommend that the Act be modified to allow the Canadian Grain Commission to require (i) elevators to contract annually with third party providers to verify the accuracy of their scales with an automatic fine of no less than three times the typical cost of the service for non-compliance and (ii) the CGC to carry out random, surprise checks with (iii) significant fines for significant levels of inaccuracy under the preceding two scenarios to alleviate farmer’s concerns about accuracy in weighing. Using results from annual AAFC surveys of farmers, we recommend that the Canadian Grain Commission reduce or eliminate its requests of Industry Canada or, as the case may be, its direct requirements for annual and random scale verification in the future as farmer confidence in the accuracy of elevator scales is shown to be sufficient.47 We recommend that the Act strengthen accountability and transparency related provisions relating to staff beyond the general constraints on public servants as a whole so as to reinforce the CGC’s credibility with producers and other stakeholders. The Act would be modified to prohibit senior staff from holding direct or indirect interest in any aspect of the sector, including futures, and shares as well as in farming operations except for incidental or recreational purposes. We recommend throughout our report the creation of stakeholder-driven, CGC-funded roundtables on the model of CFIA’s consultation program to enhance the ability of stakeholders to work well with each other and the ability of the CGC to work well with its stakeholders. We recommend this because we see the Canadian Grain Commission’s consultation efforts as inadequate and largely so for budgetary reasons.

7.

8.

9.

10.

47

In a spirit of transparency, COMPAS does not hold a Standing Offer position with AAFC and so would not normally be eligible to compete for such a contract. We would have a better chance of winning such work if it were let by the CGC, which would have to issue a public request-for-proposal, allowing COMPAS to compete. We recommend that the survey work be issued instead by AAFC so that its design and interpretation were at arms’ length from the Commission. ,

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4.0 Governance: Board and Executive Structure 11. 12.

13.

14.

15.

16.

For reasons explored in the body of the report, we recommend no change in the Canadian Grain Commission’s agency status. We do not recommend a Board of Directors structure for the Canadian Grain Commission. We recommend that any significant change to the reporting structure of the CGC await a potential new Regulatory Policy from the Government of Canada on the reporting structures of agencies and regulators. We recommend a change at the executive level with the creation of a single President/CEO/Chief Commissioner, supported by Vice-Presidents and other senior executives, for reasons explored at length in the body of the report. The Canadian Grain Commission has six “Assistant Commissioners.” At the best of times, these political appointees are well regarded by farmers for interceding with elevators in weighing or grading disputes but the style of their interventions are reportedly of uneven quality. At the worst of time, they are inhabitants of patronage heaven. The continuance of these ambiguously defined positions is in our estimation incompatible with principles of modern government. For reasons of clarity, we recommend creation in their place of an Office of Grain Farmer Advocacy with a mandate to ensure that farmers understand their rights under the Act and to advocate for them in disputes with handlers, the CGC, or other stakeholders. We recommend that the Office of Grain Farmer Advocacy be launched with the budget currently allocated to the Assistant Commissioners. The future of this Office and its budget should be evaluated every three years on the basis of evidence for the need of its services as shown in annual surveys of farmer behaviour, knowledge, and perceptions undertaken by Agriculture and Agri-Food Canada (AAFC). As an alternative to an Office of Grain Farmer Advocacy, we would recommend that AAFC hold a competition, inviting proposals from nongovernmental organizations, to supply such services.

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5.0 Funding, Public Goods, and Private Goods 17.

18.

We recommend that the federal government defray all basic infrastructure costs of the CGC, assigning cost recovery to the incremental or marginal costs associated with individual services necessary for commercial transaction. We define infrastructure broadly to include the costs of physical establishment and ongoing management, as discussed in the report. In the case of inspection, we recommend that the overtime portion of salary costs (i.e. the portion exceeding normal non-overtime costs) be absorbed by the CGC through federal government subsidies as if this were the equivalent of basic infrastructure cost.

6.0 Quality and Quantity Assurance 19.

20.

21.

22.

23.

We ultimately remain neutral on the issue of size of the Standards Committees. A stakeholder recommendation to reduce their size makes sense insofar as smaller committees are known to be more effective at administrative tasks. But larger committees are known to be more effective at building networks of legitimacy. We do not recommend a reduced representation on the part of farmers on the Standards Committee. We received advice to recommend reducing producer presence on these committees but no adequate explanation of how the system would benefit. We recommend a slight reduction in the number of CGC appointees on the Standards Committee insofar, as a regulator with staff and influence, its impact on its Committees is necessarily larger than its numerical representation anyhow. We recommend that the impetus that prompted the Canadian Grain Commission’s introduction of a new class of wheat extend to future CGC efforts to balance the interests of those who would priorize protection of export brands with the interests of those who favour new varieties for feed and feedstock. We recommend that the Canadian Grain Commission consult annually with stakeholders about criteria for benchmarking and assessing the ,

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24.

25.

26.

27.

28.

29.

30.

effectiveness of the CGC in grading and monitoring risks to Canadian grain quality, and that the CGC make annual reports to stakeholders on its effectiveness on the basis of these criteria. We recommend that the federal government commit itself to a graduated, multiyear increase in allocations to the CGC’s Grain Research Lab for purposes of developing fast, economical technologies for testing. We also recommend that AAFC establish a special fund for the development of such technologies with such resources available to AAFC researchers and on a competitive basis to private sector and university researchers in order not to put all the federal government’s eggs in the same metaphorical basket. We recommend that both the Canadian Grain Commission and AAFC make annual reports to stakeholders on the effectiveness of their research efforts and their forthcoming research plans. We recommend that the Canadian Grain Commission meet with stakeholders to establish a template for benchmarking and annual reporting on its performance regarding the CGC’s capacity for accommodating purchases by specification. Thus, the CGC would report to stakeholders each year on its past performance in accommodating purchases by specification and requests for customized services, and its plans for the future. We recommend that the Canadian Grain Commission collaborate with current or potential independent providers to provide such customized services, where necessary under CGC license to the extent that customized services can be outsourced. We recommend outsourcing so that the CGC can focus on its core activities and so that the CGC, a regulatory body, does not un-intentionally place itself in a conflict between a dependence on revenue from a regulated organization and its need to chastise or punish that organization for failure to meet regulatory standards. The Canadian Grain Commission should continue to work with stakeholders in the oilseed sector to develop and implement a grading system with factors for oil content that meet stakeholders’ needs. Our recommendation for reducing irritants is for the Canadian Grain Commission to receive adequate funding for a sustained program of ,

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31.

consultation on the model of the CFIA. In the spirit of the CFIA, the CGC would subsidize consultation efforts. Like the CFIA, the CGC would delegate to stakeholders much of the responsibility for organizing such consultations in order to give them the confidence that consultation was genuine. CGC-funded and stakeholder-led consultations will greatly improve the two-way flow of information, improve CGC’s responsiveness, and enhance stakeholders’ understanding of some of the unavoidable limitations on the ability of the Canadian Grain Commission to meet their needs as fully as they might wish. We recommend that the CGC approach CFIA and Health Canada for the purpose of discussing the merits of jointly sponsoring and funding stakeholder-led roundtables on the issue of food safety.

7.0 Weighing and Inspection Services 32.

33.

34.

35.

We recommend that inward inspection become optional. It is difficult to justify maintaining the mandatory requirement for inward inspection given that it is not a universal requirement. U.S. and container shipments do not require it and there is little likelihood of a change in their treatment in the foreseeable future. These specific considerations, the lack of a requirement for inward inspection on intra-company shipments, and the admonition from Government of Canada Regulatory Policy to avoid needless requirements, lead us to this conclusion. We recommend that the Act require the Canadian Grain Commission to ensure that a capacity for carrying out inward inspection be maintained at public cost since both the availability of inward inspection and its practice do benefit Canada as a whole by helping to sustain both producers and smaller handlers, who need such services for transactional purposes. The appropriate sampling equipment to ensure third party verification of quantity and quality will need to be provided and maintained to support optional inspection and weighing. We also recommend that samples of grain taken for grading be retained for a prescribed period of time for all grain receipts even in a setting of inward optionality because of the public benefits in terms of quality, safety, and potential traceability. ,

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36.

We recommend that the price of such optional inward inspection services continue to be subsidized,48 particularly at port, where the cost of provision is lower because of the public benefits of an optional system. We believe that Canada has a public interest in furthering competition in handling by helping the smaller players. To this end, we recommend defraying the cost of the inward inspection infrastructure and subsidizing unit prices. Helping the smaller players can also be achieved by policies that are the responsibility of departments and agencies other than the CGC. We recommend that the CGC use roundtable stakeholder consultation to identify the best administrative methods for provision of optional weighing and inspection services. We recommend continued mandatory outward inspection and weighing. Our view is that Canada’s reputation and the brand of our products require outward inspection. Inspection is necessary to forestall problems and to ensure sampling so as to rectify problems expeditiously if they nonetheless materialize. We recommend that CGC’s inspection services be contracted out under CGC license except for CGC’s retention of an essential capability to conduct appeals because: Government of Canada Regulatory Policy contains an admonition to use private sector services when possible; CFIA has had success in contracting out inspection services in the seeds area; and private sector suppliers would be under pressure from a desire for renewal of contract to provide expeditious, flexibly timed service. Specific features of contracting out inspection services would include: 41.1. Assignment of a single contractor to a single location in order to enhance accountability for service, as detailed in the report;

37.

38.

39.

40.

41.

48

Inward inspection cost is partially recovered through fees paid by farmers and/or industry. The cost recovery for inward inspection is 64%. In the most recent year, inward inspection accounts for 19% of total CGC fees collected, inward weighing accounts for an additional 4%. Government appropriations generally cover the costs that exceed fee revenue. Source: CGC revenue and Expenditure Analysis, 2005-06 ,

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41.2. Providing the market with long advance warning of the intention to contract out inspection services; 41.3. Provision of training programs to enable current CGC inspectors and all other potential contractors to prepare to compete for the CGC’s inspection business; 41.4. Working with stakeholders, potential contractors, and actual contractors to define the processes by which requests for inspection would be transmitted and implemented; 41.5. Requirements that contractors be independently owned and provide CA-audited49 confirmation that their volume of business does not exceed a to-be-defined threshold of dependence on a given grain company or farming organization; 41.6. Gradual implementation of contracting out so as to minimize risk and disruption and to maximize the opportunity for current inspectors and other potential Canadian providers to compete successfully for the business; 41.7. Work with stakeholders to establish clear standards of inspector performance by which contractors can be evaluated effectively and fairly; 41.8. Use such standards and performance measures to impose penalties and ultimately revoke the licenses and contracts of poorly performing providers; and 41.9. Evaluate objectively such performance measures along with the satisfaction of all relevant stakeholders as a basis for annual feedback and as a basis for evaluating incumbents when successive renewal competitions are launched.

49

Audited by a member in good standing of the Canadian Institute of Chartered Accountants. ,

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42.

43.

To ensure competitiveness, it is envisioned that more than one service provider would be engaged and sustained, which increases complexity. The method of assigning work will need to be determined. Developing a method with multiple competitive service providers to impartially allocate the business will be critical. This effort will require additional resources for the CGC. It will be important for the CGC to retain some civil service inspectors for the purpose of ensuring it has the technical ability to participate in resolving disputes and to provide services under the provision, subject to inspector’s grade and dockage.

8.0. Liability, Misrepresentation, and Certificate Final 44.

45.

46.

We recommend that the Canada Grain Act be amended to hold the CGC, and the federal government as its underwriter, responsible for up to 33% of the harm incurred by a revision to the Certificate Final. We recommend that the CGC be liable because in a modern democratic society government agencies must meet the same standards of responsibility as required of businesses and ordinary citizens. The provision of liability will help ensure the integrity of the Certificate Final. By assigning clear but limited liability on the CGC, the change would assert an onus on the CGC, terminal operators, grain handlers, marketers and farmers to help ensure that appropriate systems are in place to mitigate reasonable risks prior to the final stage of vessel transfer to a customer. The magnitude of the harm from a revision to the Certificate Final would be determined by an Arbitrator appointed by the Minister and accepted by a majority of the affected parties, or conversely by the Courts upon application by any affected party. This Arbitration process will result in a binding assessment of the aggregate damages and an assignment of those damages to the appropriate parties. We recommend that the Act be modified to allow the Canadian Grain Commission to impose fines and that regulations be modified to permit the CGC to assign penalties for misrepresentation of grain. Too much is at stake for all stakeholders in the system to fail to introduce enough means for deterring unscrupulous conduct. In small cases of ,

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47.

48.

49.

misrepresentation, the various stakeholders may have a multitude of public affairs or financial reasons for not taking legal action. An offending farmer may have insufficient assets to make action worthwhile. A court may require much higher standards of evidence of traceability than necessary to convince most reasonable people of a farmer or grain handler’s culpability. We recommend that the Act (Section 106) be modified to allow the CGC to impose fines or Administration Monetary Penalties for various infractions, including for misrepresentation of grain. The Act would specify maximum financial penalties of up to $ 20,000 for individuals and entities other than licensees and up to $ 40,000 for licensees with automatic adjustments to take inflation into consideration, assuming a review of the Act on a periodic basis. Prior to preparing regulations, we recommend that the Canadian Grain Commission consult stakeholders for the purpose of identifying factors that would be taken into consideration when deciding the magnitude of a fine, for example, past history of misrepresentation, purposefulness or inadvertence, and the recency of farming experience. The imposition of financial penalties is not to the exclusion of the proposed Arbitration process occurrence as an arbitrated assessment of liability.

9.0. Security 50.

We recommend that the Canadian Grain Commission 50.1. consult with accounting and risk management experts to explore the costs and the benefits of operating a clearinghouse mechanism to reduce efficiently the transactional risk to farmers, and subsequently 50.2. launch a stakeholder roundtable on the CFIA model to involve all stakeholders in developing solutions that provide optimal security at optimal prices and with maximal clarity to producers about the true assurance being provided. ,

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51.

52.

53.

54.

55.

We recommend that the stakeholder roundtable explore all possible options to find a reasonable balance between the needs of some farmers for third party-assured security of payment in transactions on the one hand and the system’s need to constrain costs on the other, including explicit ceilings on transaction guarantees. Irrespective of the particular balancing point that the Canadian Grain Commission opts for in the case of transactional security, all communications to farmers need to be unambiguously clear, far clearer than past CGC claims of assurance. We recommend deletion in the Act of Section 49.1(2), which eliminates liability to the CGC if a licensee fails to fulfill payment to a producer. In keeping with the accountability and transparency principles discussed in section 2, we do not believe that any regulatory body ought to receive legislated immunity from court action in the event that it fails to perform its heavily advertised functions. We recommend that the surveys of farmers previously suggested in this study measure the actual demand for transactional security once farmers understand the system costs of compulsory security. In the Venture Seeds and Naber’s bankruptcy cases, we believe very strongly that the Canadian Grain Commission should fully compensate the affected farmers, pay their legal costs, pay interest for the affected period, and pay a penalty for causing needless distress. Our view is that government agencies have no less obligation than businesses or ordinary citizens to carry out their responsibilities to customers adversely affected by their failures. The duty of the Canadian Grain Commission and hence the government of Canada to fulfill obligations implied by CGC promises is a matter that is separate from the obligation of the Commission to require or implement security.

10.0. Licensing 56.

We recommend that the Canadian Grain Commission consult with the CFIA and other agencies as well as stakeholders as to whether facilities (e.g. producer car loading facilities, intra-company transfers) that do not conduct transactions for the purchase of grain or incur liabilities for unpaid ,

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57.

58.

59.

60.

grain should be exempted or placed into a separate class with few, if any, requirements other than a license. Licensing would have value, in our view, if CFIA and/or other agencies saw CGC licensing as a valuable, supplementary tool for influencing the health and safety practices of such facilities or collecting valuable statistical data. We foresee that there may need to be an additional class of license in the future for container loading facilities. As this mode of transportation grows, the CGC will have to consult with stakeholders on the requirement for certain regulations to protect and preserve Canada’s brand. The CGC should ensure that there is clear understanding of grain company fees and charges by supporting the extension activities of the recommended Office of Grain Farmer Advocacy given that farmers have indicated frustration at certain fees charged by grain companies, and the lack of regulation. The CGC should be able to fine or penalize licensees for overcharging or not disclosing all fees to be charged to a farmer prior to settlement. We recommend that the Canadian Grain Commission commit itself to introducing greater uniformity, transparency, and clarity to its patchwork quilt of licensing regulations. In specific, the Canadian Grain Commission should: 60.1. provide an annual report to stakeholders on its efforts to introduce uniformity, transparency, and clarity in licensing; 60.2. work with stakeholders and other government agencies for the purpose of developing and enunciating a policy that sets out the rules by which organizations are exempted from licensing (and security) requirements, for example, closed loop systems or intra-company transactions; 60.3. formally review the licensing classifications, cost and procedures every 5 years; 60.4. assess annually stakeholder satisfaction with its efforts to develop clear, uniform, and fair guidelines for licensing; ,

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60.5. establish a protocol prescribing primary elevators’ obligations and procedures in respect of taking and storing automatic samples of all deliveries, and modify its rules to allow farmers to request CGC inspection and dockage up to 24 hours after delivery of the grain to the elevator; 60.6. require that every grain contract from every class of licensee contain the following words in the footer of the first and every page in a font no smaller than the average font in the contract: “Under the law, every grain producer is entitled to receive the opinion of the Canadian Grain Commission (800 number) on the grading of this grain and on dockage, and is entitled to contact either the Commission or the Office of Grain Farmer Advocacy (800 number) for their advice.”

11.0. Dispute Resolution 61.

62.

63.

We recommend that the Canada Grain Act be modified to allow stakeholders to use arbitration services as set out in the arbitration process outlined in the Canada Transportation Act and mediation services akin to those that support the Farm Debt Mediation Act. In keeping with this recommendation, we further recommend eliminating Section 92, authorizing Commissioners to act as arbitrators. Arbitration and mediation would be available for disputes relating to the Canadian Grain Commission’s policy applications and for any dispute involving stakeholders in the grain sector in Canada. Neither process would be used in international disputes. Nor would either process be intended for use in creating or overturning policy. The two processes would be utilized to ensure the fair implementation of policy and fairness in commercial transactions across the grain industry. The proposed pre-court processes for dispute resolution are intended to help make the climate of stakeholder opinion in the industry more conciliatory by resolving disputes more quickly and at less cost. This process would not prevent any individual or organization from pursuing ,

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64.

65.

66.

remedy through the courts except during the period of mediation and arbitration if mediation or arbitration were selected. Court action could always commence after the best efforts of mediation or arbitration had concluded. Following convention, arbitration and mediation would necessarily involve different styles and procedures. In mediation, a certain focus is placed on preserving relationships. In arbitration, a focus is placed on investigating fact. Final offer arbitration entails a review of the each side’s apparent final offer. One of the offers is adopted as the final decision. The Canada Grain Act should provide for both mediation and arbitration, albeit outside and independent of the Canadian Grain Commission. Both processes would be administered by the AAFC department entrusted with responsibility for administering the Farm Debt Mediation Act. This department has the requisite experience, expertise, and networks to provide effective, economical service. The scope of disputes to be presented for mediation or arbitration should be limited to commercial activities between Canadian parties. The CGC Grain Appeals Tribunal would continue to address grading disputes. We recommend the main elements of arbitration as follows: 66.1. A list of pre-approved, knowledgeable arbitrators would be generated and made available; 66.2. The process would begin if both conflicting parties agree to arbitration in a two-party dispute or if a majority reached an agreement in a multi-party dispute; 66.3. The arbitrator should be enabled to investigate disputes in the grain industry that may relate to contractual conflicts, the assessment of fees or charges between buyer and seller; 66.4. The arbitrator should also be empowered to arbitrate disputes about misrepresentation of grain and to assess damages, as discussed in Section 9.0 regarding the Certificate Final; 66.5. Parties to the dispute would have a choice of single arbiter or panel of three arbitrators; ,

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66.6. The costs for arbitration should be shared equally between or among parties; 66.7. If a party applies for arbitration, the administering agency should contact all parties and get agreement to proceed to arbitration within 15 days along with the details of their final offer; 66.8. The complainant retains the option of court action. 67.

In the case of mediation, we recommend the following provisions, in particular that 67.1. The Farm Debt Mediation Service (FDMS) provide the professional resources in light of its ready access to knowledgeable agriculture mediators and financial field persons with Standing Offer or Vendor of Record contracts at AAFC; 67.2. FDMS be utilized as a professionally effective, economical solution—it has a network of experienced mediators while the utilization of FDMS would entail no new overhead costs; 67.3. Mediation services be provided by AAFC through its Standing Offer contracts with existing professionals; 67.4. Any stakeholder could apply for mediation; and 67.5. Mediation prices be subsidized sufficiently to encourage utilization but not so much as to invite frivolous use.

68.

We recommend that the Canadian Grain Commission be required to participate in any mediation or arbitration that seeks the Commission’s engagement. We do not specifically recommend that this requirement appear in the Act because any such obligation of the CGC should probably be an outgrowth of future Regulatory Policy before being placed into law. In the event that a grain producer requests mediation or arbitration with a licensee, we recommend that the licensee be required to participate under CGC regulations. The onus on licensees to participate is justified in our view by the Government of Canada Regulatory Policy injunction to

69.

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design rules so as to address the special circumstances of small business, in this case grain farmers.

12.0. Research Services 70.

71.

72.

We recommend that the federal government embark on a long-term (7-10 year) plan to greatly increase grain research spending. A long-term plan is essential to enable the GRL Grain Research Lab to attract strong replacement researchers in a successful succession plan. Yearly increases in a multiyear plan are essential for successful absorption and deployment of resources. We recommend this because of the importance of grain export to the Canadian economy – they are our third largest export. Increased commitment to research as a bulwark of the grain system is especially important at a time when the CWB’s role is being reassessed. We recommend that total grain research spending be increased four-fold in ten years with the largest portions going to the GRL and a proposed AAFC program for outsourcing research on an RFP basis. Other specific recommendations: 72.1. That the Canadian Grain Commission create a roundtable of federal and provincial research funding agencies and post-secondary departments along with university Agricultural units to maintain a watching brief on grain research during these key years; 72.2. That the GRL maintain its reporting role through the CGC, and that its funding be listed as a separate appropriation through the CGC; 72.3. That the CGC and GRL be encouraged to co-locate in the mooted Centre of Excellence; 72.4. That the GRL collaborate with stakeholders to encourage university and private sector research in support of stakeholders’ needs; and 72.5. That, to protect the perceived impartiality of the Canadian Grain Commission, the GRL refrain from accepting ,

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research contracts from stakeholders except in exceptional circumstances when university and private sector suppliers are unavailable.

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Appendix II: Stakeholder Responses to the COMPAS Survey Note on Method A total of 85 individuals and organizations completed the online survey. Half were among the approximately 400 organizations and experts invited to provide submissions or participate in the survey. The remaining half were uninvited participants who found the survey on the COMPAS website.

Scope of Review (Q3) Thinking of the grain sector as a whole— from plant breeding to production and processing, what grade would you give it for effectiveness, direction, and vision? Please use a 100 point school report-type scale. N = 74 Mean 61

50

DNK 13

50

The arithmetic mean is normally what lay people refer to as the “average,” i.e. the sum of all the scores divided by the number of scores. DNK=do not know. ,

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Grading the Performance of the Act and the Commission (Q5) On a 100 point, school report-type scale, what grade would you give the Canada Grain Act, which sets out purposes and activities of the Commission? N = 69 Mean 66

DNK 19

(Q7) On a 100 point, school report-type scale, what grade would you give the Canadian Grain Commission for carrying out its legislative mandate? N = 67 Mean 66

DNK 21

Canada’s Brand in Global Markets (Q11) How do foreign markets perceive the quality of grain from Canada as opposed to other countries? Please score their perceptions on a 5 point scale where 1 means Canadian grain is perceived as very inferior and 5, very superior to the competition. Mean 4.0

5 29

4 32

N = 68 3 19

2 2

1 3

DNK 15

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Challenges Facing Canadian Producers in the Next 10 Years (Q13) Please score agreement with the following opinions about challenges facing Canadian producers over the next few years on a 5 point scale where 1 means strongly disagree and 5, strongly agree. RANDOMIZE N = 68 A major threat will be heavy government subsidies for foreign producers. A major threat will be increasing consolidation and vertical integration of companies in the grain industry in Canada. The Canadian brand advantage will weaken as grain exporting nations move to containers and buyer countries have less reason to worry about poor quality product from co-mingling.

Mean

5

4

3

2

1

DNK

3.8

40

24

18

9

7

3

2.9

24

12

18

18

28

2

2.4

8

10

18

33

25

6

Keys to Canadian Grain Industry’s International Competitiveness (Q14) Do you foresee Canada’s international competitive position… ROTATE POLES

Weakening somewhat in coming years Staying about the same Strengthening in coming years Don’t know or no opinion

N = 67 % 54 28 15 3

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(Q17) Please score agreement with the following opinions about keys to strengthening Canada’s position on a 5 point scale where 1 means strongly disagree and 5, strongly agree. The key will be to… [RANDOMIZE] N = 69 Reinforce the brand by investing heavily in research to increase Canada’s leadership in manufacturing and mixing properties (e.g. gluten content, oil properties) and tell the world about it. Reinforce the brand by investing heavily in research to increase Canada’s leadership in healthy properties (e.g. anti-oxidants) and tell the world about it. Protect our quality assurance processes through setting grade standards that are at least as strong as today. Protect our quality assurance processes through inspection and grading that is at least as strong as it is today.

Mean

5

4

3

2

1

DNK

4.0

44

28

16

4

6

2

4.0

44

22

24

6

4

0

3.7

42

20

16

7

15

0

3.5

36

20

16

15

13

0

Grading, Standards, and Inspection (Q19) On a 100 point report-type scale, what grade would you give the KVD (Kernel Visual Distinguishability) system? N = 63 Mean 54

DNK 26 ,

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(Q21) On a 100 point scale, what grade would you give Canada’s grain varietal registration system? N = 61 Mean 66

DNK 28

(Q22) Would you say that grain for domestic Canadian consumption is…

Inferior in quality to that for export About the same Superior in quality to that for export Don’t know or no opinion

N = 68 % 3 66 10 21

(Q23) Comparing standards for export and those for the Canadian market , should… [RANDOMIZE]

They be identical Export standards be higher Domestic standards be higher Export standards be allowed to vary but never be fundamentally different in quality from domestic standards Don’t know or no opinion

N = 64 % 48 5 2 30 16

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(Q24) On a 5 point scale where 1 means disagree strongly and 5, agree strong, please score your view of the following: N = 69 An affidavit system is a desirable option for some or all classes of wheat Compulsory inward inspection and weighing should be ended Exports within the same company should not require inspection and grading All CGC grading and inspection should be optional Exports by container should not require inspection and grading by the Canadian Grain Commission Only outward weighing and inspection at terminals should be compulsory

Mean

5

4

3

2

1

DNK

3.1

23

15

19

15

19

10

3.0

29

10

9

10

31

10

3.0

22

21

13

10

29

4

2.8

24

19

7

9

40

2

2.6

23

9

9

16

36

7

2.5

12

18

12

18

34

7

Transportation (Q26) On a 100 point report-type scale, how would you grade the Commission’s handling of producer cars? N = 41 Mean 67

DNK 52

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(Q27) On a 100 point report-type scale, how would you grade the Commission’s handling of containers? N = 31 Mean 70

DNK 64

Licensing (Q28) On a 100 point scale, please assess the performance of the Commission in licensing primary elevators, grain dealers, and others governed by licensing requirements. N = 53 Mean 59

DNK 38

Dispute Resolution (Q30) On a 100 point scale, what grade would you give the Commission for how it responds to complaints or disputes? N = 53 Mean 62

DNK 38

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Liability (Q32) On a 100 point scale, what grade would you give the Commission for how it deals with liability issues? N = 39 Mean 53

DNK 54

Governance Structure of the Commission (Q34) As you know, several Canadian bodies share responsibility for grain. On a 100 point performance scale, how would you rate the impact of how the grain sector is organized on the grain sector’s effectiveness? N =56 Mean 57

DNK 34

Funding (Q38) Out of 100 per cent, what proportion of the Commission’s activities serves… N = 50 Grain producers and the grain industry and what proportion serves Canadians as a whole?

Mean 75

DNK 41

33

42

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(Q39) What percentage of the Commission’s revenue should come from… N = 49 Industry users and the taxpayer through the federal government?

Mean 64

DNK 42

39

45

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Appendix III: Partial List of Invited Stakeholders and Experts51 Name Mr. Gary R. Ablett Mr. Murad Al-Katib Mr. Thomas J. Allen Hon. David Alward Dr. Nancy Ames Dr. Bill Anderson Dr. G. Harvey Anderson Dr. Robert Annis Ms. Erin Armstrong Ms. Sheilagh Arney M. Maxime Arseneau Mr. Tom Askin Mr. Alex Atamanenko Mr. Gordon Bacon Hon. Jim Bagnall Mr. Terry Baker Mr. Darren Barber Mr. Ernest M. Barber Dr. Richard Barichello Mr. Thomas S. Barton Dr. Katherine Baylis Mr. Chris Bazaluk Ms. Johanne Beaulieu Mr. Pierre Beaumier Ms. Janet Beauvais

Organization University of Guelph SaskCan Pulse Ltd University of Saskatchewan - College of Agriculture of Agriculture New Brunswick Ministry of Agriculture, Fisheries and Aquaculture Agriculture and Agri-Food Canada Canadian Food Inspection Agency University of Toronto University of Brandon Brewing and Malting Barley Research Institute ADM Milling Co. Opposition Agriculture critic for the Parti Quebecois Agriculture and Agri-Food Canada Opposition Agriculture Critic for NDP Party of BC Pulse Canada Prince Edward Island Ministry of Agriculture, Fisheries and Aquaculture Saskatchewan Wheat Pool FarmPure Seeds Inc. University of Saskatchewan - College of Agriculture of Agriculture University of British Columbia Agriculture and Agri-Food Canada University of British Columbia Intertek Agri Services Agriculture and Agri-Food Canada MAXXAM Analytics Health Canada

51

We exclude from this list selected current and past politicians and other individuals from whom we sought input on the basis of their personal rather than organizational perspectives. Not all individuals on this list provided input while individuals not on this list did. ,

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Name M. Réal Bélanger Hon. Pat Bell Mr. Vic Bell M. Bruce Bennett Sr. Mr. Ron Bonnett Mr. Daniel Bouchard Mr. Tino Breuer Dr. Derek Brewin M. Richard Bridgeman Ms. Brenda Brindle Mr. Bob Broeska Mr. William Brown Dr. Anita Brûlé-Babel Mr. Frank Brunetta Mr. Rob Bruns Ms. Debra Bryanton Ms. Sher Bushell-Viau Mr. Garth Butcher Mr. Roy Button Hon. Ed Byrne Mr. Jim Caghlin Ms. Elaine Cales Mr. Ken Campbell Mr. Lorne Campbell Dr. Jared Carlberg Mr. Claude Carles Mr. Gordon R. Carson Mr. Ian Carter Mr. François Catellier Mr. David Champion Mr. Robert Chappell Dr. Mark Charbonneau Mr. Jean-Paul Charlebois Mr Charles Charron

Organization Canada Ports Corporation BC Minister of Agriculture and Lands Rogers Foods Ltd. Johnson & Dever Ontario Federation of Agriculture Peace Country Oats Processors A Division of Falher Co-op Seed Cleaning Plant Ltd. Ontario Bean Producers Marketing Board University of Manitoba Les Silos Port-Cartier (Louis Dreyfus Canada) Alberta Grain Commission Canadian Oilseed Processors Association University of Saskatchewan - College of Agriculture of Agriculture University of Manitoba Agriculture and Agri-Food Canada AgriPro Wheat Canadian Food Inspection Agency Canadian Food Inspection Agency Winter Cereals Canada Saskatchewan Mustard Development Commission Newfoundland and Labrador Ministry of Natural Resources Saskatchewan Canola Growers Association LWC Seed Cleaning A division of LeRoy-Watson Co-operative Limited Agriculture and Agri-Food Canada Research Peace Grain Advantage Ltd. University of Manitoba Weyburn Inland Terminal Canadian International Grains Institute (CIGI) London Agricultural Commodities, Inc. Canadian Special Crops Association ConAgra Limited Rahr Malting Canada Testmark Laboratories Canadian Grain Commission Agriculture and Agri-Food Canada ,

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Name Hon. Ron Chisholm Mr. Brock G Chittim Mr. Brian Chorney Mr. Bernie Churko Dr. John Clarke Dr. Michael Clayman Mr. Howard Collins Mr. Blair Colquhoun Mr. Blair Coomber Mr. Dean Corbett Mr. Gary Corbett Mr. Dale Cowan Mr. John Cowan Dr. Barry Coyle Mr. Jean Crepin Mr. Gordon Cresswell Ms. Alexandra Cristea Mr. Bob Cumming Mr. Neil Cumming Dr. Fouad Daayf M. Pierre Dagenais Mr.Cam Dahl Mr. Bruce Dalgarno Mr. Germain Dauk Mr. Jack Dawes M. Joseph Dawson Dr. Ron M De Pauw Mr. Don Deaville Mr. Robert Deverall Dr. Jim Dexter Mr. Gerry Dickie Mr.Tony Dobesch Mr. Bill Dobson Hon. Leona Dombrowsky Mr. Robert Douglas Mr. Fred Draude

Organization Nova Scotia Ministry of Agriculture and Fisheries Wellington Laboratories Manitoba Canola Growers Association Farmer Rail Car Coalition Agriculture and Agri-Food Canada Laboratory Services, University of Guelph Brewers of Canada Paracel Laboratories Agriculture and Agri-Food Canada Saskatchewan Pulse Growers Professional Institute of the Public Service of Canada Agri-Food Laboratories Canadian Seed Trade Association University of Manitoba Norwest Labs Saskatchewan Flax Development Commission SGS Canada Inc. North West Terminal Ltd. Levelton Analytical Services University of Manitoba Leblanc LaFrance Agricore United Manitoba Canola Growers Association Pulse Canada Prairie Oat Growers Association ADM Benson Quinn Agriculture and Agri-Food Canada Alberta Pulse Growers ALS Environmental Canadian Grain Commission Cascadia Terminal Colley Motorships Ltd. Wild Rose Agricultural Producers Ontario Ministry of Agriculture, Food and Rural Affairs Canadian Grain Commission CMI Terminal JV ,

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Name Dr. Bernie L. Dronzek Mr. Wayne Drul Mr. Yves Ducharme Ms. Louise H. Duke Mr. Walter Dyck Mr. Doug Eadie Dr. Hugh Earl Hon. Wayne Easter Mr. Doug Eden Mr. Leonard Edwards Dr. Nancy Edwards Mr. Ralph Eichler Mr. Vern Ellis Ms. Maire Engdahl Mr. Don Enns Dr. Martin H. Entz Mr. Peter Entz Mr. Dennis Erickson Mr Ab Ettinger Mr. Marc Faille M. Jack Falcone Dr. Ken Falk Dr. W.G. Dilantha Fernando Mr. Lyle Fetterly Dr. Diane Finegood Hon. Diane Finley Mr. Rob Flack Mr. Gord Flaten Mr. Mel Foat Ms. Deb Foote Dr. Marc Fortin M. Antoine Fortin Mr. Jack Foster Dr. Stephen Fox M. Marcel Frenette

Organization University of Manitoba Agricore United Public Service Alliance of Canada (PSAC) Canadian Food Inspection Agency Canadian Mustard Association Ontario Corn Producers Association University of Guelph Opposition Agriculture critic for the Liberal Party of Canada Prairie Malt Ltd. Agriculture and Agri-Food Canada Canadian Grain Commission Opposition Agriculture Critic for Conservative Party of Manitoba Cargill Sarnia Inland Terminal Association of Canada Cantest Ltd. University of Manitoba James Richardson International Limited Enviro-Test Laboratories Agriculture and Agri-Food Canada Canadian Food Inspection Agency Cargill Limited POS Analytical Services University of Manitoba Hudson Bay Port Company Canadian Institute for Health Research Former Opposition Agriculture critic for the Conservative Party of Canada Stratford Agri-Analysis Canadian Wheat Board Sexsmith Co-op Seed Cleaning Association Ltd. Certified Organic Associations of British Columbia Agriculture and Agri-Food Canada Louis Dreyfus Canada Ltd. Prairie Malt Ltd. Agriculture and Agri-Food Canada Régie des marches agricoles et alimentaires du Québec ,

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Name Mr. Bob Friesen Mr. Harvey Friesen Dr. Brian W. Fristensky Dr. Jane Froese Dr.Bin Xiao Fu Dr. Murray Fulton Dr. Hartley W. Furtan Mr. Roger Gadd Mr. Mike Gagné M. Marc A.Gagnon Mr. Rick Garrett Mr. Jon Gerrard Ms. Janine Gibson Mr. Ross Goldhawk Ms. Helene Goulet Dr. Robert J Graf Dr. Cynthia Grant Ms. Karen Gray Mr. Richard Gray Mr. Michael Greer Mr. Paul Gregory Mr. Reg Gross Dr. Sumeet Gulati Mr. Andrew Haarsma Mr. Barry Hall Mr. Howard Hampton Mr. Ernie Hardeman Mr. Gordon Harrison Dr. Dave Hatcher Mr. Dean Hayhoe Mr. Mark Hayhoe Ms. Nancy Heaman Mr. Terry Hearn Mr. Bob Heck Mr. Harold A. Hedley Mr. Steve Heeney

Organization Canadian Federation of Agriculture Canadian Ports Clearance Association University of Manitoba University of Manitoba Canadian International Grains Institute (CIGI) University of Saskatchewan - College of Agriculture of Agriculture University of Saskatchewan - College of Agriculture of Agriculture Great Western Rail Winnipeg Commodity Exchange Régie des marchés agricoles et alimentaires du Québec White Water Coulee Cleaners Opposition Agriculture Critic for the Liberal Party of Manitoba Organic Food Council of Manitoba W.G. Thompson & Sons Ltd. Tobacco Control Programme Agriculture and Agri-Food Canada Agriculture and Agri-Food Canada Statistics Canada University of Saskatchewan Ellison Milling Co. Interlake Forage Seeds Ltd. Points West Consulting Inc. University of British Columbia Alberta Canola Producers Commission Flax Council of Canada Opposition Agriculture critic for the NDP of Ontario Opposition Agriculture critic for the Conservative Party of Ontario Canadian National Millers Association Canadian Grain Commission Hayhoe Mills Ltd. Hayhoe Mills Ltd. Warburton Foods Ltd. Agriculture and Agri-Food Canada Westlock Terminals (NGC) Ltd. Agriculture and Agri-Food Canada Cereal Foods Canada, Inc. ,

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Name Mr. Don Henry Mr. Don Henry Mr. Richard Hill Dr. Robert D. Hill Dr. Jill E. Hobbs Mr. Michael Hoffbauer Mr. John Holiday Mr. David Hope Hon. Doug Horner Mr. Jim Howson Dr. P.J. (Pierre) Hucl Mr. Phil Hulina Mr. Gavin Humphreys Mr. Dave Humphries Mr. Frazer Hunter Ms. Laurie Hunter Mr. Izzy Huygen Mr. Robert Hysong Mme Giovanna Iofredda Ms. Barbara Isman Mr. Clayton Jackson Mr. Derek Jamieson Mr. Larry Jarman Mr. Jim Johnson Ms. Cherilyn Jolly-Nagel Mr. Grant Jones Ms. Tammy Jones Mr. Garvin Kabernik Dr. Kutty Kartha Mr. Joe Keating Mr. Greg Kelly Mr. Paul Kennedy Mr. Alan Kerkhof Dr. William A. Kerr Dr. Renne Kim Mr. Kevin Klemenz

Organization Eastern Elevator Association Goderich Elevators Limited Agriculture and Agri-Food Canada University of Manitoba University of Saskatchewan - College of Agriculture of Agriculture Lex Scientific Smucker Foods Canada Co. Pacific Rim Laboratories Inc. Alberta Ministry of Agriculture, Food and Rural Development Howson and Howson Limited Crop Development Centre James Richardson International Limited Agriculture and Agri-Food Canada Alberta Research Council Nova Scotia Federation of Agriculture Agriculture and Agri-food Canada, Strategic Policy and Priorities Alberta Grain Commission Smucker Foods of Canada Co. AgroHall Limited Canola Council of Canada University of Saskatchewan - College of Agriculture of Agriculture New-Life Mills Ltd. Pyntre Ent. Ltd. Eastend Grain Co. Ltd. Western Canadian Wheat Growers Ontario White Bean Producers Marketing Board Manitoba Pulse Growers Association Inc. Manitoba Flax Growers National Research Council of Canada Plant Biotechnology Institute Intertek Testing Services Prairie West Terminal Mission Terminal, Thunder Bay Ontario Wheat Producers Marketing Board University of Saskatchewan - College of Agriculture of Agriculture University of Manitoba Red Coat Road & Rail Ltd. ,

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Name Mr. Andy Kovacs M. Richard Lacroix Dr. Lakhdar Lamari M. Réne Lapointe Mr. Daniel Larose Mr. Gordon Lawrence Ms. Bonnie Lawson Mr. Felicita Lee Dr. Genyi Li Mr. Robert Linnell Mr. Rob Lobdell Dr. A Loyns Dr. Odean Lukow Mr. Sulo Luoma Mr. Hugh MacDonald Mr. Bruce MacIntyre Mr. Murdoch MacKay Mr. Brian MacKenzie Dr. Chandra A. Madramootoo Ms. Liliane Maisonneuve Ms. Linda Malcolmson Dr. Brian Marchylo Ms Brigitte Marois Mr. Andrew Marsland Mr. Yvan Martel Mr. Ray Martin Mme Ginette Martin Mr. Gary Martins Ms.Deborah Masson Stogran Mr. Doug McBain Mr. Ken McBride Dr.Tom McCaig Ms. Janette McDonald Mr. Wilf McDougall Mr. Bruce McFadden Mr. Don McKercher

Organization Alberta Soft Wheat Producers La Coop Fédérée University of Manitoba Louis Dreyfus Canada Ltd. Association of Canadian Financial Officers Admiral Grain Co. Ltd. SunWest Food Laboratory Ltd. BC Grain Shippers Clearance Association University of Manitoba Winter Cereals Canada West Central Road & Rail Prairie Horizons Ltd. Cereal Research Centre Alberta Winter Wheat Producers Commission Opposition Agriculture Critic for Liberal Party of Alberta Dover Industries Limited, Halton Flour Division Agricore United Anheuser Busch Canada McGill University Canadian Grain Commission Canadian International Grains Institute (CIGI) Canadian Grain Commission Agriculture and Agri-Food Canada Agriculture and Agri-Food Canada Agriculture and Agri-Food Canada Alberta NDP opposition agriculture critic James Richardson International Limited University of Manitoba SGS Canada Inc. Western Barley Growers Association Agricultural Producers Association of Saskatchewan Inc. Agriculture and Agri-Food Canada Alberta Pulse Growers Dawn Food Products (Canada) Ltd. Quorum Group Ontario White Bean Producers ,

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Name Mr. Bud McKnight Ms. Monique McTiernan Dr. Peter B.E.McVetty Mr.Adrian Measner Mr. Robert Meijer Mr. Brett Meinert Mr. Stan Michie Ms. Donna Mitchell Mr. Scott Moir Mr. David Mol Mr. Martin Moore Mr. Neil Moore Ms. Christine Moran Mr. Robert E. Morgan M. Gilles Morin Mr. Grant Morrison Dr. Malcolm Morrison Mr. Allan Moskal Ms. Kelly Moskowy Ms. Syliva Nelson Ms. Lisa Nemeth Mr. Dave Newhook Dr. James Nolan M. Patrick Nolan Mr. Trevor Nysetvold Ms. Catherine O’Brien Ms. Carolyne O'Brien Dr. Erasmus Okine Mr.Y Okumura Dr. Brian Olesen Mr. Michael Ostrovsky Mr. Terry Otto M. Christian Overbeek Mr. Bill Parrish, Jr. Mr. Andrew Paterson Mr. Garth Patterson

Organization Manitoba Corn Growers Association Inc. Atlantic Grain Council University of Manitoba Canadian Wheat Board Cargill Limited Saskatchewan Mustard Growers Association White Mud Trading Co. Inc. Agriculture and Agri-Food Canada Bunge Milling Canadian Seed Growers Association BC Grain Producers Association Nutrasun Foods Inc. Grain Growers of Canada POS Pilot Plant Corporation Les Grains Lac Superieur Ltée/Lake Superior Grain Ltd Pepsi QTG Canada Agriculture and Agri-Food Canada S&T Farms Ltd. Saskatchewan Grain Car Corporation Poplar Hills Producers Co-operative Ltd. Canadian Wheat Board ADM Milling Co. University of Saskatchewan - College of Agriculture of Agriculture AgroHall Limited BioVision Seed Labs Canadian Association of Professional Employees Canada Bread Company Ltd. University of Alberta Overseas Merchandise Inspection Co. (OMIC) University of Manitoba IMS Analystical Services Ltd. Canadian Federation of Agriculture Fédération des producteurs de cultures commerciales du Québec Parrish and Heimbecker Ltd N M Paterson and Sons Saskatchewan Pulse Growers ,

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Name Mr. Greg Patterson Dr. Craig J Pearson Mr. Len Penner Mr. Blair Peregrym Ms. Connie Perron Mr. Garry Petrie Mr. Garry Petrie M. Allan Philip Mme. Heather Philip M. Charles Pick Ms. Grace Pidperyhora Mr. Trevor Pizzey Dr. Doug Powell Dr. Merv Pritchard Mr. Gordon Pugh Ms. Vivian Purganan Mr. Bruce Ralston Mr. Ross Ravelli M. Robert Reford Mr. Jeff Reid Mr. Mel Reimer Dr. William R. Remphrey Ms. Yvonne Rideout Mr. Sig Rieger Dr. Len Ritter Mr. Allan Roberts Mr. Jay Robson Dr. Alejandro Rojas Mr. David Rolfe Mr. Kenneth A. Rosaasen Dr. B.G. (Brian) Rossnagel Mr. Howard Rowley Mr. Robert Roy Mr. Jean-Marc Ruest Mme Deepi Sandhu Dr. Harry Sapirstein

Organization A&L Canada Laboratories Inc. University of Guelph Cargill Canada Stony Plain Seed Cleaning Association Ltd. University of Saskatchewan North East Terminal Ltd Inland Terminal Association of Canada Laden Maritime Inc. Laden Maritime Inc. DNA LandMarks Inc. SunWest Food Laboratory Ltd. Can-Oat Milling University of Guelph University of Manitoba Agriculture and Agri-Food Canada Central Testing Laboratory Opposition Agriculture Critic for NDP Party of BC Canadian Canola Growers Association Div.of MRRM (Canada) SeCan Prairie Oat Growers Association University of Manitoba Keystone Agricultural Producers Kraft Canada Inc. University of Guelph Great Northern Grain Terminals Ltd. Ontario Soybean Growers University of British Columbia Keystone Agricultural Producers University of Saskatchewan - College of Agriculture of Agriculture University of Saskatchewan Dover Flour Mills Ltd. University of Saskatchewan - College of Agriculture of Agriculture James Richardson International Limited Scandia Shipping Agencies Ltd. University of Manitoba ,

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Name Dr. Vimal Sapru M. Luc Sarrazin Mr. Rod Scarlett Dr. Rachael Scarth Mr. Michael Scheffel Mr. Mark Schell Ms. Nada Semaan Mr. Barry Senft Hon. Clay Serby Ms. Janet Shay Mr. Roger Shier Mr. Jason Skinner Dr. Brent Skura Mr.Jim Smolik Mr. Troy Snobelen Mr. Wade Sobkowich Mr. Ernie Sommer M. Benoit Soucy Dr. Dean Spaner Ms. Brenda Stanek Dr. Claudio Stasolla M. Jean-Guy St-Onge Mr.Bob Sutton Mr. Christian Svensgaard Ms. Jean Szkotnicki M. Dominic Taddeo Mr. and Mrs. Murray and Nicole Temple Mr. Stan Thomas Dr. Julian Thomas Mr. Fraser Thomson Ms. Elizabeth Tokariuk M. Henri Tousignant Dr. Michael Trevan Ms. Loren Urquhart

Organization Weston Bakeries Ltd. Cargill Limited Wild Rose Agricultural Producers University of Manitoba Canadian Food Inspection Agency South West Terminal Ltd. Agriculture and Agri-Food Canada Canadian International Grains Institute (CIGI) Saskatchewan Minister of Rural Development Ocean Nutrition Canada Agriculture and Agri-Food Canada North West Terminal Ltd. University of British Columbia Grain Growers of Canada Canadian Soybean Export Association Western Grain Elevators Association (WGEA), Country Elevators Association (CEA), South West Terminal James Richardson International Limited University of Alberta SRC Analytical Laboratories University of Manitoba Bunge du Canada Ltée Rahr Malting Canada FOSS in North America Canadian Office George Morris Centre Canada Ports Corporation Temple Enterprises Dover Mills Ltd. Agriculture and Agri-Food Canada International Malting Company Canada Alberta Winter Wheat Producers Commission Canadian Grain Commission University of Manitoba ADM Milling Co. ,

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Name Hon. Yvon Vallières Dr. Rene C.Van Acker Dr. James Vercammen Mr. Gilles P. Vinet Ms. Suzanne Vinet Dr. Allan Walburger Mr. Edwin Wallace Mr. Richard Wansbutter Mr. Roy Ward Mr. Dave Warner Mr. Grant Warner Hon. Mark Wartman Mr. Ward Weisensel Ms. Donna Welke Mr. Stewart Wells Mr.William Weymark Mr. Robert White Ms. Bernadine Wolfe Mr. Norm Woodbeck Mr. James Woodworth Mr. Graham Worden Mr. Peter Worfolk Hon. Rosann Wowchuk Mr. Glenn Wright Dr. William Yan Mr. Randy Yaremkiw Mr. Mark Ziegler

Organization Quebec Ministère de l'Agriculture, des Pêcheries et de l'Alimentation University of Manitoba University of British Columbia Industry Canada – Weights & Measures Agriculture and Agri-Food Canada University of Lethbridge Prairie Producer Car Shippers Association Inc. Canadian Grain and Oilseeds Exporters Association Canadian Ports Clearance Association (formerly Lake Shippers’ Clearance Association Canadian Food Inspection Agency Ellison Milling Co. Saskatchewan Agriculture and Food Ministry Canadian Wheat Board Canadian Grain Commission National Farmers Union Vancouver Wharves Limited Halifax Grain Elevator Ltd Ontario Coloured Bean Growers Association Canadian Grain Commission Prairie Producer Car Shippers Association Inc. Canadian Wheat Board Smucker Foods of Canada Manitoba Ministry of Agriculture, Food and Rural Initiatives New Life Mills Ltd. (representing Canadian National Millers Association) Health Canada CP Rail Agriculture and Agri-Food Canada

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