Submission to: Canadian Grain Commission Regarding: Submission on Reform to the Canadian Grain Commission & Amendments to the Canada Grain Act

Grain Growers of Canada 912, 350 Sparks Street Ottawa, ON, K1R 7S8 613-233-9954 March 23, 2012

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Grain Growers of Canada Submission on Reform to the Canadian Grain Commission & Amendments to the Canada Grain Act March 23rd, 2012 In light of the recent and impending changes to the Canadian Wheat Board Act, the Grain Growers of Canada (GGC), representing 14 grower associations from across Canada, believes it is very timely to modernize both the mandate and governance of the Canadian Grain Commission (CGC). The Grain Growers of Canada represent over 60,000 Canadian grain, pulse and oilseed producers from British Columbia to Nova Scotia. Current Member organizations include: Atlantic Grains Council (NS, NB, PEI, NFLD) Alberta Barley Commission (AB) Alberta Oat Rye & Triticale Association (AB) Alberta Pulse Growers (AB) Alberta Winter Wheat Producers Commission (AB) British Columbia Grain Producers Association (BC) Canadian Canola Growers Association (BC, AB, SK, MB, ON) Canadian Young Farmers Forum (BC, Prairies, ON, QUE, Maritimes) Manitoba Corn Growers Association (MB) Manitoba Pulse Growers Association (MB) Prairie Oat Growers Association (AB, SK, MB) Western Barley Growers Association (BC, AB, SK, MB) Western Canadian Wheat Growers Association (BC, AB, SK, MB) The Alberta Grains Council is an affiliate member.

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Overview The Canadian Grain Commission has long been a well-respected part of the Canadian reputation for grain quality around the world. While the Grain Growers of Canada support the modernizing of the Commission, the move to cost self-sufficiency means that all funding to pay for the services and fees will ultimately come from the farmers pockets. This will either be direct or indirect through basis or fees charged by grain handlers and processors. Therefore we have gone through the Act closely to determine which services we feel are of value to farmers, which services we feel are no longer needed in today’s environment and which services should be offered on a voluntary or fee for service basis. We do firmly believe, however, that a portion of the CGC responsibilities are clearly in the areas of greater public good and therefore the broader public should be paying for a portion of costs going forward.

Governance Given the very rapid pace of change in markets and our industry today, we feel the Commission also must move to a model that facilitates an ability to respond quickly to change. We would like to make the following suggestions on governance: A CEO should be put in place with substantial grain industry experience, with a preference to a good portion of that experience gained from working in the private sector. This would remove the current COO position. A Board of Directors should be appointed by the Minister and consist of actual producers and people who have grain industry experience. The CEO should be directly responsible and accountable to the Board, and then ultimately to the Minister who appoints the Board. It is critical that the CGC not evolve into a “department” of AAFC, instead it needs to evolve into an independent regulatory body. In conjunction with the changes to and reductions in staff levels as identified later in this document, this will necessitate a reduction in levels and numbers of management and staff.

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Given what looks like overlap in equipment and staff skills between CIGI and CGC, consideration should be given to whether two management and operational structures are still appropriate going forward. There are strong arguments on both sides, but a more thorough examination of this option should be undertaken immediately.

Inward Inspection With the changes in the country grain handling system over the last 20 years, some of the original rationale for inward inspection is no longer valid. As the country elevator system consolidated and car spots became larger, it has improved the ability of companies to control their own logistics in stark contrast to the car-pooling of the previous decades. With the move to unit trains, it has become more straightforward to ship directly from a company’s inland terminals to its own port terminal. Any off-grades or other concerns can be handled within a company’s internal reconciliation process. We are now often in the situation of having inspection fees assessed on what is basically internal company transfers. These costs are reflected back to producers in increased basis or reduced prices. Therefore, we recommend that inward inspection become optional, and see it being used for agreements between originators without port facilities and terminal owners as needed. This will remove the necessity for a Grains Appeal Tribunal. Given the challenges in staffing for optional inspection, we urge the Grain Commission to move to license or accredit qualified firms who can be hired in a willing shipper/willing terminal relationship to provide sampling and inward inspection as needed. In the event of dispute, representative samples should continue to be remitted to the Grain Commission for final and binding decision.

Outward Inspection There may be many sales where a willing buyer/willing seller will agree to base settlement on the grade and dockage as per the certificate final issued by the Grain Commission, and in other instances the buyers may insist on those certificate finals. However, substantial grain volumes, either through containers or bulk direct to the United States, are not being inspected now and the buyers/sellers have found commercial solutions to grade and dockage other than certificate finals.

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Within the Grain Growers of Canada, there are opinions split along commodity lines as to whether all outward should be voluntary as is the case with US shipments and many containers today. Others, who deal with customers like the Japanese marketplace for example, see value in requiring outward inspection to help ensure there is a consistent quality being matched with contract specifications. Ensuring cargoes always met those specs helps all Canadian exporters by enhancing our image internationally as a reliable supplier. The other strength is that the Grain Commission stands behind a certificate final in case of problems. Therefore, before making a final decision more consultation is needed and consideration should be given to options like possibly requiring mandatory by crop type, or possibly on all bulk shipments from ports, versus an all-encompassing mandatory or voluntary standard. For example, if the canola industry or the wheat industry wants to maintain mandatory outward inspections to ensure quality in all loads, then a mechanism should exist to allow this. Likewise, for example, if the peas or lentils or another crop industry group wanted to have outward be optional for their commodity, then in our view a mechanism needs to be in place to allow that. Again, moving to a voluntary option, poses challenges for staffing Grain Commission inspectors, so we encourage the Grain Commission to consider moving to licensing sampling and inspection services to qualified firms if the voluntary option is enacted. We would recommend that the Grain Commission consider, as part of the transition packages offered to affected graders, the opportunity for additional small business training in the event current employees wish to go into the sampling, inspection and grading business. Another area of duplication is at port position where CFIA maintains staff to inspect boats, yet when they have staff shortages they default to the Grain Commission. This is an area where we feel the Canadian Grain Commission could assume the responsibility to avoid having multiple inspectors from multiple agencies involved. Grades – Grading Grain grading and the establishing of grades on an annual basis has been a key service the Grain Commission has provided to both producers and to the grain industry. It remains to be seen in the longer term whether grain will continue to be bought on the basis of grades as it is today, or whether technology and analysis will evolve to grain being bought and sold on falling numbers and other factors related to its end use.

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However, we are not at that stage yet, and in fact may be many years away from it. Therefore, the Grain Growers urge the Grain Commission to continue in its grading and grade setting responsibilities with the following suggestions: 

Continual contact with producers, processors, handlers, exporters and customers with a focus on monitoring and facilitating quality and sales.

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As we evolve over the next five years, and with pressure from the US to possibly harmonize with northern US states to facilitate cross-border trade, there needs to be a new and invigorated Western Grain Standards Committee.

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It is critical that if there is value for Canadian producers in our traditional quality markets, that the system must be able to maintain that quality and associated premiums in our primary and terminal handling systems.

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The Western Grain Standards Committee should be reduced in size and move to having industry and the actual commodity associations involved as those associations have, or will have, the responsibility for research and market development going forward (it is anticipated wheat and barley councils for example will be established shortly). A smaller committee of these stakeholders will be able to adapt more quickly to rapidly changing needs.

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The Eastern Standards Committee however, needs a larger producer representation on it. We would suggest at a minimum, the Atlantic Grains Council, FPCCQ, Canola Growers, Bean Producers and two representatives from the Grain Farmers of Ontario (given they represent multiple commodities). There may also be other eastern commodity groups who should be involved, but we feel they should step forward and identify their interests per se.

Further, the CGC should continue to provide certain specific work directly in the interest of producers, such as; • right to third party grade and dockage verification, and • right to producer cars The Grain Commission should continue to be the final arbitrator of any disputes between producers and grain buyers on grading and grain quality. The last point in this regard we would raise is that our system has evolved and so too have producers and their ability to “shop” their grain and be knowledgeable of their marketing and pricing options.

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The “need” to have the Grain Commission act only in the interests of the producers isn’t needed the same way as it was 30 or 40 years ago. Therefore, consideration should be given to indicate the Grain Commission should be acting in both producer and industry interests. At the Grain Growers we have said many times to Parliamentarians that it is more important to grow the whole pie larger, than to fight over the pieces and that is why we have built strong working relationships with all members of our value chains. The reality of today’s world is that neither producers nor grain companies should be obligated to buy and sell on the basis of CGC grades and that contractual specifications outside of the grades have become standard practise in much of the industry. Overall, this has been positive for producers and is likely to continue in the future. However, there are still many buyers who will offer to purchase on CGC grades and producers who want access to “inspector’s grade and dockage” will have that choice. At the end of the day, it should be the role of the CGC to help facilitate the business of grain, not hinder.

Licensing Licensing should remain one of the CGC’s core functions. Maintaining “generally accepted” operating guidelines for the industry helps ensure the security of Canada’s respected quality assurance system. Licensing should also be a pre-cursor for access Subject to Inspector’s Grade and Dockage. Therefore, we recommend extending this right of “Subject to ...” to grain dealers and process facilities (for example crushing facilities and flour mills). We feel that wherever is reasonable, a “level playing field” should exist in terms of licensing all grain handlers and therefore suggest the Grain Commission review facilities operating outside of its current system to determine if licensing should be required or not.

Producer Security/Bonding The Grain Growers have traditionally supported the concept of a form of security for producer deliveries, but have also noticed a wide range of applications in different parts of Canada. For example, in Ontario there is no bonding per se and to help reduce costs and associated risks there is a much shorter period of coverage for cheques not cashed.

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Producers have, or should have reached a level of sophistication in income and tax management strategies to avoid the need to carry around cheques for long periods of time. Costs of providing coverage magnify the longer it takes to receive payment for goods delivered, in any business and agriculture is no exception. While we have some individuals and organizations who feel no coverage is an option and let producers deal with companies who they have either researched or who are credible, nonetheless there is a sense within our membership that there should be a program in place. Whether that program is bonding, or whether it is insurance based, or a self-insurance model, or whether coverage levels should be fixed for everyone, or variable is a matter for further discussion and consultation. Insurance would likely reduce administrative time and costs and the liability accruing to the Grain Commission today. CGC administrative costs, and the cost of bonding to companies, do come out of the basis or the price of grain to the farmers, one way or another. However, investigation needs to be done to ensure such insurance instruments are available in the market, and at an affordable cost.

Producer Declarations With the removal of KVD, and now the opportunity for wheat to be delivered from either side of the Canada-US border to the other, it will be critical to the integrity of our system that declarations or a similar process must be in place and have sufficient “teeth” to discourage misrepresentations. While errors can be made on rare occasions with custom trucking and hired help, nonetheless it is the producers’ responsibility to know what class/type of grain they are delivering. As plant breeding progresses and we see even more companies involved in breeding, there will be a rapidly increasing number of visually indistinguishable varieties on the market. Another important consideration is that going forward, contract specifications are going to be more and more rigorous and when this is coupled with the increasing refined ability to test at lower and lower levels, it is critical to our success that we have the right grain in the right bins for the right customers.

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Dispute Resolution It is inevitable going forward that either industry or producers individually (or collectively) may have issues with the Grain Commission. It is recommended a relatively efficient process such as either single arbitrators, or arbitrators with a side panelist from each side, be put into place. We don’t need to design that process in this submission as there are multiple models in place in other sectors to pick from that work effectively in both timely and cost effective manners. Cost Structure of the Grain Commission While we understand the Governments drive for cost self-sufficiency in its agencies, we feel that a part of the Grain Commission work is directly related to the greater public good. Providing a level of confidence in our exports, also brands Canada as a reliable supplier of products which can lead to gains in other crops and exports. The work of the Grain Research Lab is another example which leads to greater confidence in our food system domestically. Further, it does good work in helping ensure market access for our exports through its science based standards and testing. For example, it played a key role in helping resume recent flax exports to the EU. We would estimate from the outside that 20-25% of the work of the Grain Commission could be considered in the category of greater public good and therefore should be paid for by the general tax base. Frankly, when one looks at Border Services and other “bodies with regulatory responsibility” an argument could also be made that the entire budget should come from the public.

Other The Government could consider moving responsibility for the Seeds Act to the Grain Commission. Given the CGC is responsible for grain quality, and good quality in part starts with good seed, there may a natural fit and this should be examined. The Harvest Sampling Program should continue because it benefits our industry to have that “snapshot” of quality and volumes available for our customers. Our sense is that there is value in the export statistics collected as they are widely used by Governments, customers and industry.

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The Grain Commission should have access to the AMPS program. Enforcement capacity is a reality going forward in order to help ensure compliance for firms who fail to follow the Act or regulations as prescribed.

Summary In essence we are looking to shift the Grain Commission to a licensing or accrediting body at points of inspection and sampling, while maintaining its authority to be the arbitrator in case of disputes. Secondly we are asking you to consider broadening out producers’ access to inspectors’ grade and dockage beyond just the country elevator system. With the substantial reductions in management, staffing, costs, overhead and administration as suggested in our document, and a proportional payment for the “public good component,” there is a greater likelihood of acceptance by producers and producer groups of the impending increases in fees. We also recommend that as the federal government moves to a cost recovery model, these fundamental changes to the CGC be made prior to any increase in user fees. In regards to grain safety, it is critical that respective roles of the CGC and CFIA be clarified as to which body should have responsibility. The changes we suggest, and especially in governance, can help ensure that the new Grain Commission is much quicker to respond to changing producer and industry needs. Perhaps more importantly though, with the implementation of our suggested changes, the Grain Commission has the opportunity to transform itself into an organization that both producers and industry view as an important partner in our value chain and playing a critical role in the future success of our industry.

Respectfully Submitted,

Richard Phillips Executive Director Grain Growers of Canada

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