The NFU is the only voluntary, direct-membership, national farm organization in Canada. It is also the only farm organization incorporated through an Act of Parliament (June 11, 1970). The NFU is non-partisan and works toward the development of economic and social policies that will maintain the family farm as the basic food-producing unit in Canada. To help realize this goal, the NFU and its members work to:
NFU members believe that individual farmers must work collectively to assert their interests in an agricultural industry increasingly dominated by multi-billion-dollar corporations.
National Farmers Union Submission
to the
Minister of Agriculture and Agri-Food
on the
Canadian Grain Commission's
Program and Governance Review
Ottawa, Ontario
March 23, 1999
Index:
In their Governance and Program Reviews, Canadian Grain Commission (CGC) Commissioners and managers recommended fundamental changes in the CGC's operations and, we believe, direction. While each recommendation in the Reviews must be examined on its own merit-and we do so-the package must also be examined in its entirety and in context. In this way we gain insight into the objectives of the CGC's leadership and can evaluate whether the general direction embodied in the Reviews best serves the interests of farmers, Canadian grain customers, and the grain handling industry.
The CGC has two roles: to protect farmers' interests within the grain handling industry and to ensure that our customers consistently receive high-quality grain. The NFU believes that the cuts and changes recommended in the Reviews undermine the CGC's effectiveness in both roles.
The CGC faces a choice: Will it continue to regulate the grain handling industry "in the interests of grain producers" or will it become a service provider, on call to deliver grading, weighing, and inspection services to grain companies, on request and for a specified fee? The NFU will demonstrate below that the CGC has already drifted dangerously close to the passive, service-provider model and that the changes contained in the Reviews will accelerate and complete the CGC's transformation from industry regulator to industry servant.
Money
The CGC projects a 1998-99 deficit of $9.9 million. CGC management cites this deficit as one catalyst for its proposed changes and cuts. It is important to put this deficit into perspective. The CGC oversees the movement of approximately 25 million tonnes of grain each year. A $9.9 million deficit works out to 40" per tonne-just 1" per bushel.
In the long term, if this deficit persists, and after exploring prudent cost-cutting measures which protect farmers' interests and the integrity of the system, farmers could pay the extra penny. In the short term, the federal government should provide $25 million over three years to allow the CGC and farmers time to determine the advisability and efficacy of proposed solutions and to phase in changes, if needed, in an orderly fashion.
There is, however, conflicting projections regarding the CGC's financial future. Just last year (1997-98) the CGC posted a $1.5 million surplus. The CGC contends that its deficit is a result of export declines resulting from cropping shifts caused by the termination of the Crow Benefit. The CGC states that the loss of the Crow Benefit:
reduced dramatically the exports of grain through terminals. Between 1991/92 and 1994/95, terminal receipts averaged 28.5 million tonnes annually. Since then the annual average has been 22.8 million tonnes, a 20 per cent decline. ... This has presented a serious problem for the CGC because its revenues depend on the volume of grain handled by licensed port facilities. We do not expect this export trend to change in the foreseeable future.
[U]nless we make some significant changes, we face an operating deficit of approximately $10 million dollars this fiscal year, and ongoing annual deficits of $5 to 7 million for the next few years. (Program Review, p. 2.)
There is reason to question whether the export volume decline is as large as the CGC states and whether it has correctly identified future trends. Figure 1, below, compares CGC export volumes and projections with those provided by the Canadian Wheat Board (CWB).
Figure 1: CWB and CGC export volumes and projections 1976-77 to 2007-08
Source: CGC, CWB, and Canada Grains Council
(See Appendix B for details)
While the CGC's data and projections indicate a substantial and prolonged decline in exports through terminal elevators, CWB projects no such decline.(1) Note also that the CGC's projections are below both pre- and post-Crow average volumes and almost 30% below CWB projections. In light of the uncertainty over the CGC analysis of export trends, it is not prudent to plunge forward with major changes to the CGC based on one year's deficit.
It is possible that the CGC has inadvertently or intentionally overreacted to its deficit. The result is a culture of crisis at the CGC wherein management is now proposing fundamental, and, we believe, unwise cuts to its programs and changes in its mandate. This crisis, occasioned by the deficit, must not be used as an excuse to weaken the CGC, cut services, deregulate grain handling, reduce protection for farmers within the system, and put Canada's reputation as the supplier of the highest quality wheat in the world at risk.
The CGC's two roles
The CGC has two roles: 1) to regulate the grain handling industry "in the interests of grain producers"(2); and 2) to ensure that our valued customers continue to receive the consistent, high-quality grains and oilseeds that they have come to expect from Canada. The incomes and existences of over 100,000 family farms across Canada depend on the CGC effectively executing both roles.
We will turn first to its regulator-farmers' watchdog-role. In 1912, at the urging of farmers, the federal government passed the Canada Grain Act (the Act) and created the CGC. Acting largely without regulation before that time, elevator companies and railways worked to reduce competition and prices to farmers. Railways would not provide farmers or small grain buyers with cars and grain companies often manipulated grade, dockage, and weight to their advantage. J. Blanchard notes that farmers, with few options, were:
forced to sell their grain to the elevator company at whatever price was offered. ... It was found in 1897, however, that prices varied greatly depending on the competition a buyer faced at a particular station. If there was no competition, the street price could be very low.(3)
Building on previous provincial Acts, the Canada Grain Act and its subsequent amendments legislated farmers' right to producer cars, fair and independent assessment of grade and dockage, accurate scales, licensed and bonded elevators, and a transparent and regulated grain exchange. The excesses of an unregulated industry and resulting losses to farmers demonstrated to legislators at the time that an Act and a Commission were needed to actively safeguard farmers' interests within the system.
Those who argue that "times have changed" need look no further than the recent conviction of Archer Daniels Midland (ADM) for price-fixing on the livestock feed additive lysine. ADM's illegal profiteering and suppression of competition cost farmers in Canada and around the world approximately $180 million.(4) ADM owns 52% of Canada's wheat flour milling capacity; 30% of our durum wheat milling capacity; and 45% of United Grain Growers-one of Canada's largest grain companies with 160 elevators in western Canada. In addition, mergers threaten to consolidate the industry and elevator closures are reducing competition at many prairie delivery points. As grain company power increases, the CGC's regulatory and oversight powers are more critical than ever.
The Canada Grain Act states that:
... the Commission shall, in the interests of grain producers, 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. (Section 13) [emphasis added]
Farmers want and need the security that a strong CGC regulatory role offers them. And they have not requested that the government diminish the CGC's mandate or its resources.
In its second role-ensuring that our valued customers receive consistent, high-quality grains and oilseeds-the CGC shines. Canada has built an enviable reputation for quality second to none in the world. As part of the Western Grain Marketing Panel process, that Panel contacted importers around the world and asked them to rate major grain exporters. The results of that research are listed in Table 1, below.
Table 1: Rating of major grain exporters by importing countries
| Argentina | Australia | Canada | European Union | United States | |||||
|---|---|---|---|---|---|---|---|---|---|
| Price | |||||||||
| Forward Pricing Opportunities | |||||||||
| Government Credit | |||||||||
| Intrinsic Quality of Commodity | |||||||||
| Cleanliness of Commodity | |||||||||
| Consistency of Quality | |||||||||
| Technical Support | |||||||||
| Trade Agreements | |||||||||
| Long Term Dependability of Supply | |||||||||
| Efficiency of Contract Execution | |||||||||
| Customer Service Policies |
Source: Grain Marketing, Western Grain Marketing Panel
July 1, 1996, p. 52.
Note that Canada scored number one in seven of eleven categories including intrinsic quality, cleanliness, consistency of quality and first in all quality-related categories. Buyers around the world confirm that the Canadian system of varietal registration, production, handling, grading, and inspection consistently produces the world's highest quality grain.
Canadian durum wheat continues to capture a large market share in the U.S.-much to the consternation of U.S. officials-because pasta makers there demand quality and consistency. Canada's reputation for quality allowed it to maintain and expand its market share around the world in the face of generous U.S. and EU export subsidies.(5)
Our quality reputation has made Canadian grain a "differentiated product" and, thus, allowed the CWB and other marketers to capture price premiums around the world. Taking wheat as an example: because Canadian wheat's quality advantage makes it a differentiated product and because the CWB is the single seller of that differentiated product, the CWB can exercise considerable monopoly power in the high-quality wheat market, can price discriminate, and can reap higher returns for farmers. The Kraft, Furtan, Tyrchniewicz report estimated that this combination of high quality and CWB single-desk marketing put an additional $265 million in Canadian wheat producers' pockets annually. It seems unwise for the federal government to approve cuts to the CGC which endanger this $265 million annual premium in order to save $5 or $10 million.
We need the CGC more than ever
When considering the two CGC roles outlined above, one soon concludes that rather than cutting CGC activities and expenditures, it may be more reasonable to expand them. It may be that changes in the world grain system will place more demands on the CGC, not fewer. CGC Chief Commissioner Barry Senft makes this same point in the introduction to the Program Review:
The Canadian grain industry is undergoing fundamental change. Globalization, technological advances, corporate mergers, economic upheavals, and shifting markets are driving a revolution in Canada's grain sector. (CGC Program Review, p. 1.)
To this list of factors contributing to industry change, the NFU would add: genetically-engineered seeds; an increase in the number of varieties; more numerous buyers demanding more precise and consistent quality standards; calls for an Identity Preserved (IP) system; growth in the number and acreage of specialty crops; reduction in delivery choices; increased grain company market power; and more competitive world markets.
We agree with Mr. Senft that the world grain market is changing and becoming more complex. However, it is hard to conclude that decreasing the role and effectiveness of the CGC is the proper response to these changes. If an increasingly complex and competitive world grain situation is taxing the resources of the CGC, we should consider an expanded role for the CGC and, if necessary, and after exploring prudent cost-reduction measures, expanded funding.
In its producers' watchdog role, there is ample reason to conclude that the CGC needs to be more active, not less-that it needs more resources, not fewer. As a result of branch line and elevator closures, most farmers have lost their local elevators and, with them, the personal relationship they had with local agents. Now, farmers are shipping grain far and wide to agents who they have met only over the phone.
In addition, the average farmer is moving more grain and at lower margins. For the CGC's watchdog role this means three things: farmers are hard pressed to ensure fair grades, etc. on the increasing volumes of grain they move; as deliveries become bigger, "errors" become more costly; and, even a small loss for the farmer can quickly wipe out any small profit a farmer might make on his or her grain. Farmers are dealing with an increasingly distant, powerful, and faceless grain handling system: they need conscientious CGC monitoring more than ever.
In its quality-assurance role, there is also reason to believe that we need the CGC more than ever and that it should consider expanding its efforts. The dissolution of the former Soviet Union and the termination of single-desk buying agencies in Brazil, Mexico, South Africa, and the partial dissolution of such agencies in Indonesia, Saudi Arabia, and a host of other countries means that Canadian sellers are facing more numerous buyers. Automation of milling and baking requires more consistent grain. Thus, Canada faces more numerous and more demanding customers.
All indications point to an expanded need for CGC activities. Few indicate that the CGC's role lies mainly in the past or that government should curtail the CGC's role or its resources. The NFU believes the direction of the CGC's Governance and Program Reviews would shift the CGC away from its regulatory role and diminish its ability to discharge its quality assurance mandate. Because of this, the NFU believes that the overall direction embodied in those Reviews is misguided, unwise, and damaging to the interests of farmers and to our global reputation for grain quality.
Recommendation by recommendation
Inward inspection
The CGC is mandated by the Act to officially inspect each rail carload or truckload of grain arriving at a terminal or transfer elevator. This CGC duty is called "inward inspection." The CGC states that inward inspection "is part of the CGC's core mandate." (Program Review p.12)
In most cases, the CGC currently inspects grain immediately and at the terminal ("on-site") as the carload is being dumped, weighed, and elevated. CGC management, in its Program Review, recommends that:
In the short term, the CGC should continue to offer inward inspection on grain arriving at terminal elevators....
[T]he Canada Grain Act should be amended to permit optional inward inspection.
By August 1, 1999 the CGC should move to a central inspection process.... (p. 12)
In the long term, the CGC recommends that the Act be changed to allow the CGC to:
offer a service(6) whereby the CGC would audit company inspection processes and sampling procedures to facilitate the trade of grain between primary and terminal or transfer elevators based on company-assigned grades assigned at unload. (p. 13)
The CGC lays out its plan with refreshing frankness: mandatory inward inspection is temporary; it should immediately be restructured: changed from on-site to centralized inspection; it should soon be replaced by optional inspection; and, in the future, where inward inspection is conducted, it can be done by grain company employees.
The NFU believes that mandatory, immediate, on-site inward inspection by CGC inspectors provides benefits to the system. It allows inspectors to "catch" contaminated, off-condition, and incorrectly-represented carloads while they are being emptied, weighed, and elevated and before they are mixed with large quantities of other grain. Even if contaminated or off-spec. grain is binned, current inward inspection procedures allow problems to be spotted and isolated almost immediately. Immediate, on-site inspection by highly trained CGC inspectors reduce the number of quality-reducing carloads which are mixed into the terminal grain supply and, thus, increase the overall quality of that grain in storage.
Under the CGC's proposal for centralized, delayed inward inspection, problem carloads may not be detected for many hours, possibly not until a day later. By that time the problem grain may have been moved and re-mixed or it may be on its way into a ship.
In addition, delayed, centralized inspection will have the following adverse effects:
CGC Commissioners and managers, in the Program Review, seems to argue that outward inspection is enough to ensure grain quality. However, if delayed, centralized inspection allows low-quality grain into bins where it is mixed with terminal inventories, then the overall, average quality of the grain in those terminals will be reduced. In the computer programming world this is referred to as "garbage in: garbage out."
Our recent experience with deer excreta would seem to indicate that more thorough and immediate inspection is needed. Given the low tolerance of some foreign buyers for excreta and other contaminants, one carload, carelessly allowed into a terminal bin, could render huge volumes of otherwise high-quality grain unsuitable for sale.
Most importantly, the cost savings that would result from centralizing inward inspection are tiny ($2.5 million annually: one-quarter of one penny per bushel). Further, it is unlikely, given rising handling fees, that this tiny fraction of a penny in savings would make its way back to farmers. Against this near-zero-benefit to farmers must be weighed the potential costs of missing "problem" carloads of grain and mixing these loads into terminal inventories.
In 1991 the CGC conducted a pilot program on centralized inward inspection at Sask. Wheat Pool Terminal 6: That test failed. Shortly after, CGC manager Jack Robertson stated that centralized grading wouldn't work.(7)
In a January 4, 1999 question and answer session between CGC employees and management, an employee asked why, given the failure of the trial at Pool 6, the CGC does not undertake a further trial "instead of implementing something that does not work." CGC managers responded: "We don't have the luxury of doing that now. We need to make changes, and quickly, to make the CGC sustainable in the long run." In answer to a similar question on the failure of the centralized inspection trial, CGC managers answered: "At that time, we tried a pilot project for one elevator and the pilot didn't work. The proposal now is for all elevators so centralized inspection will be workable."(8)
3. Given the risks centralized inward inspection poses to grain quality, the nearly-non-existent financial benefits to farmers, and the demonstrated failure of centralized inspection in trails, the NFU recommends that CGC inspectors continue immediate, on-site inward inspection of all grain.Outward Inspection
The CGC rightly states that "Outward inspection is the key to Canada's reputation for grain quality." (Program Review, p. 15) There can be no doubt of this. Despite the critical nature of outward inspection, the CGC recommends reducing the number of inspectors who carry out this duty. The CGC recommends a "flying squad" model with outward inspection crews moving from terminal to terminal where vessels are being loaded.
The CGC's recommendation to cut the number of outward inspectors comes in the same Program Review as its recommendation to centralize and then discontinue inward inspection. It seems clear that cuts to inward inspection would increase the number of quality-depressing carloads entering the system and, thus, make outward inspection all the more critical. If inward inspection is cut, we would move from two lines of defense to one. The CGC, however, recommends decreasing personnel on the single remaining line.
Further, the CGC's proposed cuts to inward and outward inspection come just months after the Canadian government agreed to take grain from U.S. states infested with karnal bunt.(9) Such a move puts increased demands on our inspection system. Canada's current karnal-bunt-free status gives us a sales advantage over the U.S. Allowing karnal bunt infested grain to slip through our inspection system would cost Canadian farmers millions of dollars.
"Flying squads" may work however, reasonable evaluation indicates prudent concerns.
4. The NFU recommends that the CGC delay moving to a "flying squad" model until it demonstrates: that the number of inspectors present when a vessel is loaded will remain the same; that the workload of those inspectors will be consistent with the need for them to perform conscientiously and at a high level; and that none of the duties currently performed by these men and women will remain undone.
Closing the gap
Currently, farmers delivering to country elevators are paid based on a "primary standard." Exports, however, are graded at a higher "export standard." The CGC recommends "closing the gap" and replacing "primary and export standards with a single standard to be used at all levels in the industry..." (Program Review, p. 8.) The CGC notes that, on an average year, between 85 and 97 per cent of deliveries at terminal elevators meet export standards.
A farmer evaluating such a proposal would immediately ask: "Will this cost me money or put money in my pocket?" This is a question, however, that the CGC has not answered. When asked to speculate, CGC and CWB officials state that closing the gap may cost farmers money and will certainly alter the distribution of money between various grades of grain. The risk of increased costs to farmers is especially significant in low-quality years-those with an early frost for instance. If closing the gap is likely to increase farmers' costs, then the CGC must demonstrate that there are other, significant, offsetting benefits.
That the CGC has recommended proceeding with this change without attempting to estimate its costs or benefits to farmers raises questions about the CGC's commitment to "establish and maintain standards of quality..." "in the interests of grain producers." Without detailed cost and benefit information, the central question of farmers' interests cannot be answered.
5. The NFU recommends that the CGC implement a single standard for each grade only if it can be demonstrated that this change will provide significant net financial benefits to farmers.
Governance and the Assistant Commissioners
On page 17 of its Governance Review, CGC management states:
A three-person Commission structure is what allows the CGC to exercise regulatory authority. A structure in which the authority of the Commission was vested in a single person (i.e., a sole Commissioner/CEO) could be perfectly effective as a service provider but inappropriate for the exercise of a regulatory ... power.
Thus, it is provocative when, on page 22 of the Governance Review, CGC management recommends a new governance system based on a single "full-time Chief Commissioner-CEO, with a part-time Board." Further, it recommends replacing the four appointed Assistant Commissioners with several Board members (referred to as Commissioners). This proposal eliminates full-time Assistant Commissioners, replaces them with part-time board members, and strengthens the role of the CEO.
The NFU agrees with the CGC when it states that the single-CEO model "is perfectly effective as a service provider but inappropriate for the exercise of a regulatory ... power." This corporate-style governance model seems to fit well with the industry service-provider model implied in many recommendations in the Program Review. In contrast, what is needed is a strong regulatory structure embodied in the three Commissioners of the CGC. The proposed CEO and part-time Board could not serve this need.
Further, the NFU questions the propriety of the CGC management recommending the termination of the Assistant Commissioners: the farmers' representatives. Given the CGC's stated purpose of protecting farmers' interests within the system, the NFU wonders: out of what corporate culture could come a recommendation to terminate the Assistant Commissioner position-farmers' link with, and voice in, the CGC.
The Assistant Commissioners have served farmers well with a high degree of dedication and knowledge. Part-time board members, who will have multiple duties and roles in addition to their farmer-representative function, cannot do as effective a job. Further, as farmers' representatives in the complex grain-handling system, the Assistant Commissioners need a great deal of specialized knowledge and experience not readily acquirable on a part-time basis. Finally, in order to carry out their duties, Assistant Commissioners need offices, staff, equipment, and resources. The job of Assistant Commissioner is not a part-time position.
6. The NFU recommends that the CGC governance structure-three Commissioners and four full-time Assistant Commissioners-remain unchanged.
Funding
Farmers currently pay the full cost of CGC services.(10) No matter how CGC costs are charged to grain companies, those companies will pass those costs back to farmers. Thus, while the CGC has proposed changing the way it charges for services, it is unlikely that those changes will alter the amount farmers pay.
That being said, it may make sense for the CGC to alter its charges to more accurately reflect costs and benefits and to decrease its reliance on terminal elevator exports. In addition to providing $25 million over three years in transition funding, the government may want to explore other changes in CGC funding.
The CGC proposes a "quality assurance fee" to be collected via a check off at the farmers' point of delivery. The NFU notes that farmers often legitimately object to check offs s. In order to make any new CGC check off more palatable to farmers, it must be clear to them that new check off payments are completely offset by reductions in other CGC charges-that to farmers, these changes are "cost neutral." Preliminary to this, it would seem necessary to begin explicitly stating on cash-purchase tickets the amount of CGC fees which farmers are now paying (only United Grain Growers currently lists CGC fees separately). Explicitly listing fees now would make it possible to demonstrate to farmers that a "quality assurance fee" is not a new or additional charge but, instead, a new way of collecting money that they have long been paying. Farmers pay for the CGC: their payments should be as fair and transparent as possible.
The NFU agrees with the CGC that such changes should be phased in and adds that these changes must not be used as a method to increase farmers' costs. There is not, however, sufficient detail in the CGC's Program Review to evaluate the effects, on farmers, of a change in CGC funding. The CGC should prepare a separate report on funding options and then consult with farmers and others on the best way to fund the CGC .
7. The NFU recommends that the CGC consult with farmers and others with the aim of restructuring its fee structure in a way which gives it increased financial stability, which maximizes its effectiveness in protecting Canadian grain quality, and which protects farmers from excessive charges.
The shift at the CGC
The Canada Grain Act states that:
... the Commission shall, in the interests of grain producers, 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. [emphasis added]
Compare this to excerpts from the new CGC Vision Statement proposed by CGC Chief Commissioner Barry Senft:
We will maintain unbiased 3rd party objectivity; We will do what is good for the entire grain industry;
...
We are a business-like government organization; We will focus on client needs; We will generate an annual operating surplus; We will consider commercial opportunities which do not compromise or give away our (Canadian) competitive edge.
Note that the "clients" whose "needs" are mentioned in the preceding Vision Statement are not merely producers, but all industry participants. Mr. Senft is clearly attempting to soft-peddle to industry the CGC-legislated responsibility to regulate the industry in producers' interests.
In the Program and Governance Reviews we glimpse CGC Commissioners and managers backing away from their regulatory role; offering to provide "optional" "services" upon request to grain companies; proposing imprudent cuts; recommending privatization through the accreditation of grain company employees; proposing grading changes without determining their effects on farmers; recommending the termination of full-time Assistant Commissioners; moving to a corporate-style CEO and Board structure; and musing about turning the CGC into a "service provider."
8. The NFU recommends that Minister Vanclief firmly remind CGC Commissioners and managers of their role as industry regulators.
What the CGC isn't checking
Farmers at the turn of the century were cheated by unfair scales and improper dockage measurements. The CGC was created to stop these abuses. The CGC, if it is to regulate the industry and protect farmers, must actively intervene on farmers' behalf. In many cases, it currently does not do so.
Protein testers
Farmers are paid for their wheat based on its protein. The difference between 12.5% protein No. 1 CWRS wheat and 14.5% protein No. 1 CWRS was 54" per bushel in 1997-98. For this reason, accurate protein tests at country elevators are critical.
Farmers who have taken the trouble to have their wheat protein tested at several country elevators report that protein tests can vary by as much as 3% from highest to lowest. On a single 1500 bushel semi-load, an error of this magnitude could cost a farmer over $1200.
CGC Commissioners and managers have long known that country elevator protein testers are inaccurate and un monitored and that this might be costing farmers million of dollars. Despite this knowledge, they have done nothing to intervene-they have done nothing to regulate this part of the system in the interests of producers. If just one-tenth of protein testers consistently under-stated protein by just one-half of one percent, the cost to farmers could be over $10 million annually.
The CGC is proposing cuts to inward inspection that might save farmers one-quarter of one penny. Yet they refuse to regulate protein testers which may be costing farmers 5 or 10 times more. In light of this, farmers find it hard to believe that cost savings are the prime motivation behind the CGC's proposed cuts to inward inspection and other CGC responsibilities. CGC officials clearly do not feel responsible for farmers' costs or returns: this must change.
Country elevator weigh scales
Neither the CGC nor anyone else consistently checks country elevator scales. Measurement Canada has the responsibility for doing so but ceased annual inspections in 1995. Measurement Canada now checks only those that have been identified as having problems and tries to get to the rest if its inspectors are in the area. Many country elevator scales in western Canada have not been checked since 1995.
There have been recent reports that Measurement Canada has signed a memorandum of understanding with a grain company to allow that company to check its own scales. The CGC-if it understood its history and its mandate-would not allow such lax regulation of such a vital part of the handling system.
Terminal elevator drying
Elevator companies charge the CWB (farmers) for terminal elevator drying. They may dry grain either by actually sending the grain through a natural gas-fired grain dryer or by blending it with other grain (also called "paper drying"). They can charge the CWB pool accounts much more for the former than the latter. Clearly, there is room for grain companies to abuse this ability and to overcharge farmers. This is especially true because the CGC has, over the years, cut its monitoring program for terminal drying. If farmers experience a wet fall, drying charges can reach nearly $20 million. Without CGC monitoring, it is impossible to ensure that farmers are being charged only for services actually rendered.
CGC charges to farmers
Currently grain companies charge CGC fees back to farmers through deductions off their cheques. One company, United Grain Growers, states the amount of CGC charges deducted on its cheques to farmers; most other grain companies do not. There currently exists no mechanism to ensure that the amount that farmers are charged in the name of the CGC equals the amount that grain companies pay to the CGC. The CGC does not seem to feel that it is its responsibility to ensure that farmers are charged only for CGC services which they actually receive. If grain companies are overcharging farmers for CGC services, it may be the case that if they merely remitted all that they collected that a substantial portion of the CGC deficit would disappear. CGC officials must ensure that fees to farmers are collected accurately, fairly, and transparently.
Malt barley "street" buying programs
Through the use of cash payments, the Canadian Wheat Board induced grain companies to participate in a program where farmers are paid immediately for their malt barley Previously, farmers had to wait weeks or months until their malt barley was unloaded and accepted before they received their money. The new program will dramatically shorten farmers' waiting time for their malt barley cheques.
The risk, however, is that grain companies will misgrade farmers' malt barley and capture premiums for themselves. This risk is made all the more real by a recent change to barley grades. Whereas previously the grade of malt barley were "special select, select, and sample select," the nomenclature of the grades has been changed so that now the grades are "special select, select, and standard select." Whereas the term "sample" would previously have triggered questions from farmers, they may not notice that "standard select" is now the term for the lowest grade. This terminology change may allow grain companies to downgrade malt barley without the producer noticing.(11)
The NFU suggests that the CGC publish data which compares the grade distribution of malt barley in the first six months of the 1998-99 crop year with historical distribution figures. This data will reveal whether grain companies are using "street" buying programs to procure malt barley at advantageous grades.
The solution, of course, is for the producer to sell his or her malt barley "subject to inspectors' grade and dockage," as is the producer's right under the Act. Few producers, however, are aware that there might be a problem so few pursue this solution. The CGC could prevent possible farmer losses simply by requiring elevators to attach a small, prominent note to every malt barley cheque informing producers of their rights and advising them of potential pitfalls. The NFU understands that CGC officials are aware of the losses (or potential for losses) to farmers under the street-buying program. Farmers believe that the CGC has a responsibility to act in such instances.
What the CGC isn't checking: Conclusion
The CGC's refusal to actively seek out areas where farmers may be bilked and to actively intervene to protect farmers' interests starkly demonstrates how far the CGC has strayed from its farmers' watchdog role. Inaction on these issues could be costing farmers tens-of-millions annually. There should be no talk of staff or funding cuts at the CGC so long as such a substantial portion of its critical regulatory work remains neglected and undone.
Perhaps the CGC is already under-staffed and underfunded and this is why it cannot inspect and monitor protein testers and terminal drying. The CGC must begin to work actively to monitor and regulate all parts of the handling system to ensure that farmers are treated fairly and properly.
9. The NFU recommends that the CGC:
Who initiated this?
Farmers did not ask that the CGC downsize to save them a penny a bushel. It is the grain companies who initiated this round of cuts and who pressured the CGC to turn away from active industry regulation.(12) Despite its clearly-intended role as producers' watchdog, the CGC is down-sizing and dismantling itself as a result of pressure, not from farmers, but from grain companies. It is highly illegitimate for the grain industry regulatory agency-for the producers' watchdog-to diminish and disassemble itself at the request of the industry. It is like a farmer's dog reducing its vigilance of the henhouse at the request of the foxes.
The cuts and changes recommended by the CGC's Reviews will save farmers nothing. They will, however, decrease the number of inspectors in terminal elevators, decrease the already compromised regulatory effectiveness of the CGC, and increase the latitude for industry abuses. Cuts like those proposed to inward inspection push the CGC and its inspectors further from the day-to- day operations of the grain companies and decrease the CGC's ability to regulate the system. Grain companies support such moves. This is natural: all businesses chafe under regulation and seek to deregulate themselves.
What is not natural is to see the CGC Commissioners and managers enthusiastically embrace this scheme and work vigorously toward its implementation. The Program Review states: "The recommendations presented in this report are the decisions and the responsibility of the CGC's Commissioners and senior managers." (Program Review p. 2.) The Federal Minister of Agriculture should recognize that many of the changes proposed by those Commissioners and senior managers are designed to benefit grain companies and will undermine the protections for farmers currently built into the system.
Conclusion
In total, CGC services currently cost farmers approximately 5" per bushel. Canada's world-wide reputation for supplying some of the highest-quality grains in the world is worth several times that. Further, even if the CGC succeeds in making the cuts and changes which it recommends, total savings will be less that 1" per bushel. Finally, there is no mechanism in place (nor does the CGC propose one) which would ensure that any 1" per bushel saving would make its way back to farmers and not be snatched by grain companies. The real question for farmers is: Are we willing to risk our valuable reputation for quality and disable our watchdog in the grain handling system in return for a penny a bushel which we may not ever see?
This is also the question for the Federal Minister of Agriculture and his government counterparts. While Barry Senft and the other CGC Commissioners initiated the Program and Governance Review and while they endorse the recommendations in those Reviews, farmers are clear that the final decision on the direction of the CGC rests with the Minister, the members of the Standing Committee on Agriculture, and with government MPs. It is the responsibility of the Minister and other elected officials to ensure that their appointees execute the provisions of the Canada Grain Act.
10. The NFU urges the Minister to actively and personally take control of the CGC reform process in order to safeguard farmers' interests. We suggest that rather than taking the form of cuts, that the reform process may more legitimately focus on expanding the CGC mandate and resources. This would ensure that the CGC could carry out its vital roles as regulator and quality assurance agency in an increasingly challenging world grain marketing and handling environment.
11. The NFU further recommends that attempts by CGC Commissioners and managers to alter the direction of the CGC-without authorization of government or farmers-provides the Minister with sufficient ground to re-evaluate the appropriateness of the continued service of those Commissioners and managers.
The NFU recommendations regarding funding are that:
The NFU proposes that bridge funding come with performance requirements so as to ensure that when that funding is exhausted, the CGC is strong, focused, and ready to fully carry out its vital roles. The NFU proposes the following requirements, almost all of which flow directly from the Canada Grain Act:
Attached are CGC and CWB "export" numbers and projections. Note that the CWB's projection for 2002-03 is 29.9 million tonnes and the CGC projects 23.1 million. A difference of 6.8 million tonnes or almost 30%.
There are slight differences between the CGC and CWB numbers which nearly cancel each other out but which the NFU has done its best to document.
Therefore, to equate CWB and CGC numbers, one must do the following:
CWB minus U.S. direct plus west. grains to east. domestic plus "direct hits" plus special crops equals CGC.
For 2002-03, the formula works as follows:
29.9 million tonnes minus 3.5 million plus 1 million plus .6 million plus .7 million equals 8.7 million.
Thus, using methodology as equivalent as possible, CWB projections for 2002-03 would yield 28.7 million tonnes while the CGC predicts 23.1 million: a difference of 5.6 million tonnes. While what these two sets of data are measuring, and their methodology, differ slightly, even after adjusting for those differences, the CGC's projections for the future terminal exports remain significantly below those of the CWB and significantly below historical levels. The CGC does not explain these low projections.
While the CWB estimates are reduced slightly once adjusted to the CGC's methodology, the graph, Figure 1, remains essentially unchanged. Note that if one splits the difference between the CWB's and the CGC's estimates (yielding 25.9 million tonnes), the CGC's projected deficit disappears. If one accepts the CWB's estimate, the CGC runs a significant surplus.
Includes wheat, durum wheat, oats, barley, rye, flaxseed, canola and corn.
| 000 tonnes | ||
|---|---|---|
| 1976-1977 | 18,351 | |
| 1977-78 | 20,214 | |
| 1978-79 | 18,234 | |
| 1979-80 | 21,733 | |
| 1980-81 | 21,185 | |
| 1981-82 | 27,330 | |
| 1982-83 | 28,797 | |
| 1983-84 | 29,865 | |
| 1984-85 | 22,580 | |
| 1985-86 | 23,711 | |
| 1986-87 | 30,224 | |
| 1987-88 | 30,720 | |
| 1988-89 | 17,942 | |
| 1989-90 | 24,728 | |
| 1990-91 | 29,338 | |
| 1991-92 | 31,785 | |
| 1992-93 | 25,936 | |
| 1993-94 | 27,480 | |
| 1994-95 | 29,590 | |
| 1995-96 | 22,934 | |
| 1996-97 | 26,896 | |
| 1997-98 | 26,343 |
Source: Canadian Grain Commission:Canadian Grain Exports
Table 4A
Terminal Elevator Receipts
(millions of tonnes)
| 1976/77 | 20.769 | 0.046 | 20.815 | |||||
| 1977/78 | 22.637 | 0.134 | 22.771 | |||||
| 1078/79 | 22.259 | 0.189 | 22.448 | |||||
| 1979/80 | 25.140 | 0.236 | 25.376 | |||||
| 1980/81 | 24.556 | 0.136 | 24.692 | |||||
| 1981/82 | 28.715 | 0.197 | 28.912 | |||||
| 1982/83 | 30.800 | 0.089 | 30.889 | |||||
| 1983/84 | 32.211 | 0.053 | 32.264 | |||||
| 1984/85 | 24.685 | 0.084 | 24.769 | |||||
| 1985/86 | 25.004 | 0.061 | 25.065 | |||||
| 1986/87 | 31.530 | 0.200 | 31.730 | |||||
| 1987/88 | 31.111 | 0.236 | 31.347 | |||||
| 1988/89 | 19.572 | 0.166 | 19.738 | |||||
| 1989/90 | 26.337 | 0.150 | 26.487 | |||||
| 1990/91 | 29.728 | 0.096 | 29.824 | |||||
| 1991/92 | 31.240 | 0.162 | 31.402 | |||||
| 1992/93 | 25.989 | 0.254 | 26.243 | |||||
| 1993/94 | 25.500 | 0.684 | 26.184 | |||||
| 1994/95 | 29.401 | 0.752 | 30.153 | |||||
| 1995/96 | 21.196 | 0.754 | 21.950 | |||||
| 1996/97 | 24.602 | 0.536 | 25.138 | |||||
| 1997/98 | 23.634 | 0.495 | 24.129 | |||||
| 1998/99 | 20.52 | 0.83 | 21.35 | |||||
| 1999/00 | 21.5 | 0.7 | 22.2 | |||||
| 2000/01 | 21.9 | 0.7 | 22.6 | |||||
| 2001/02 | 22.4 | 0.7 | 23.1 | |||||
| 2002/03 | 22.4 | 0.7 | 23.1 |
Back to Briefs and Submissions Index