Grain act, grain commission review revived

Mandatory inspection fees and the powers of the grain commission will be hotly debated

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Two pillars of Canada’s $26-billion grain industry are again under review — a process reviving long-standing divisions between some farmers and grain companies over industry regulations.

The Canada Grain Act and Canadian Grain Commission, which administers it, deal with grain buyer licensing, grade standards, grading disputes, quality control and producer payment protection.

Some submissions are likely to also address the grain commission’s mandate, its operating surplus and how it’s funded and governed.

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“Our government is inviting Canadian producers, grain handlers, processors, and exporters to share their views on possible changes to the Canada Grain Act,” said federal Agriculture Minister Marie-Claude Bibeau. “Together, we will help shape an innovative and modern regulatory system that safeguards grain farmers, grows Canada’s reputation for grain quality and helps our grain industry compete with the world.”

The review, begun in 2019 but sidelined by the pandemic, is now resuming in earnest — with the deadline for comment being April 30, 2021.

The grain act states the grain commission was established “in the interests of the grain producers, to establish and maintain standards of quality for Canadian grain and regulate grain handling in Canada, to ensure a dependable commodity for domestic and export markets.”

The first part of that mandate — “in the interest of producers” — must remain, say some farm groups, including Keystone Agricultural Producers, Manitoba’s general farm organization.

“The Canada Grain Act was developed in 1912 for a reason — to protect producers,” KAP president Bill Campbell said when the review began in 2019. “Do we still need that protection? Maybe we do now more so than then.”

Outward inspection

However, the Western Grain Elevator Association (which represents most of the major grain companies) wants the commission to focus on being a regulator rather than a mandated, costly service provider — a position shared by Alberta Wheat and Alberta Barley.

“The core issue for us is the role of the CGC as a regulator, versus a service provider, because there are more economical solutions out there through third- party companies.” – Tom Steve.
photo: Reuters/Ben Nelms

Currently, by law, all Canadian grain exported bulk in ships requires outward weighing and inspection by the grain commission at a cost of $1.48 a tonne. But about 70 per cent of that grain is also inspected by private, third-party grain inspectors, hired by grain companies, said Wade Sobkowich, executive director of the elevator association.

“Bottom line is, it’s (grain commission inspection) just an unnecessary cost,” he said. “We’re paying for an inspection document (Certificate Final) the majority of times that gets filed and doesn’t serve any purpose from a trade or quality perspective. That, in and of itself, is reason enough to take a look at how we do things.”

But others say the Certificate Final — the Canadian government’s guarantee to buyers they are getting the grade and volume they paid for — is critical to maintaining Canada’s reputation for delivering high-quality grain.

“The grain companies have never wanted the CGC,” said Stewart Wells, second vice-president of the National Farmers Union. “They would much prefer a situation wherein they can make all the rules themselves — the so-called ‘industry self-regulation.’

“Industry self-regulation was the reason that the grain act and the CGC were invented over 100 years ago. Farmers were being cheated by the grain companies.”

The solution, said Sobkowich, is to have the CGC oversee third-party inspectors, ensuring quality control, but at less cost.

The private inspectors could also inspect grain shipped domestically through the St. Lawrence Seaway and by truck and train to the U.S. and Mexico, that the CGC is not currently inspecting, he added. Several companies offer grain inspection services so competition will keep costs down, Sobkowich said.

And those inspection costs usually get passed back to farmers, said Tom Steve, general manager of Alberta Wheat and Alberta Barley.

“The core issue for us is the role of the CGC as a regulator, versus a service provider, because there are more economical solutions out there through third-party companies,” he said.

But weighing and inspection fees are also what keeps the grain commission in business — as they account for 93 per cent of its annual revenues.

Both Steve and Sobkowich say Ottawa should cover the funding shortfall in the absence of fees because of the public good the commission performs.

“It would mean some significant rationalization on the size of the CGC, if it is an oversight agency versus a service providing agency,” Steve said. “Maybe that’s the natural evolution of the industry. We have to be one of the lowest-cost service providers because as you know our farmers are the farthest from tidewater of any exporting country. So we need to take costs out of the system.”

Grading system

Industry views vary on the grain-grading system, which the grain commission oversees in consultation with the industry. The NFU supports it as does the elevator association, although Sobkowich said it needs the occasional tweak.

“The Canadian grading system, under the Canadian Grain Commission, is a good way to buy grain because it allows us to basket those quality parameters together in a way that we can sell it to the customer,” he said, adding it doesn’t interfere with companies meeting customer specifications. “It (grading) needs to be responsive to the marketplace… but it should remain in place.”

Alberta’s wheat and barley commissions are conflicted. While directors tend to favour “a more specifications-based grading system… (they) are cautious about adding more discounting factors, Steve said.

“Be careful what you ask for, right?”

Payment protection

Agriculture and Agri-Food Canada, which is conducting the review, also wants to hear from the industry about producer payment protection options.

Under the current system, licensed primary and process elevators and grain dealers are obliged to post security to cover money owed to farmers for delivered grain. If farmers don’t get paid within a specified period, and they have the proper receipts, they can access the security.

The program has been successful, said AgCanada.

“Between 1990 and 2019, 21 companies covered by the producer protection program defaulted on payment obligations to producers,” it says. “Eligible producer claims to the CGC totalled over $26 million. Payout to eligible producers was approximately $23.5 million representing approximately 90 per cent of eligible claims.”

However, the paper says the program is expensive for licensees and the grain commission to administer.

A number of other options have been explored, including an insurance program. (It wasn’t implemented after the grain commission determined costs would increase for a number of licensees, while others would be ineligible for coverage.)

Another option is a compensation fund that would pool licensees’ risk. (Licensees would contribute based on their expected risk of failure and volume of grain purchases, while administration costs would be financed with licensing fees. The fund would be backed by a reinsurance policy.)

The current program has been a waste of money for the grain companies that belong to the elevator association as no member company “has gone out of business to the point the producer security had to be enacted on them,” Sobkowich said.

“But we are paying for it and that gets factored into the costs that ultimately result in the final price to the farmer,” he said. “If farmers are comfortable paying that then I guess it remains in place.”

Expanded arbitration

AgCanada’s document on the review also asks the industry to consider whether the grain commission’s binding arbitration between grain buyers and farmers on grades and dockage should be expanded to other grade characteristics and made more flexible. Currently ‘subject to inspector’s grade and dockage only applies when farmers deliver to a licensed primary elevator. The farmer must engage in person at the elevator. A trucker delivering the grain can’t do it.

Surplus, governance, wheat classes

While the discussion document doesn’t refer to them, Steve said his commissions also want to comment on the commission’s operating surplus role in establishing western Canadian wheat classes and governance.

The agency has a surplus of $137 million as of March 31 of last year, which is more than double its annual $65-million operating budget. And the surplus is expected to grow by another $9 million in the current fiscal year.

Alberta Wheat and Alberta Barley wants the commission to use some of the surplus to lower its fees.

The current governance system — it’s run by three commissioners appointed by Ottawa — should also be reviewed, said Steve.

“Is there a better model? I think that will be part of the debate,” he said.

Alberta farmers also want more transparency around how the commission decides what wheat classes to create and which wheats go into them, Steve said. In 2018, it created a new milling wheat class and revamped the standards for wheats going into the Canada Western Red Spring and Canada Prairie Spring classes to address customers’ complaints that Canadian milling wheats had insufficient gluten strength.

The changes resulted in a number of popular CWRS and CPS wheats being moved to classes that return less money to farmers.

This article was originally published at the Manitoba Co-operator.

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