The retention of the Canadian Grain Commission (CGC) surplus by the CGC itself raises a host of questions on the organization’s purpose, services and sources of funding.
The CGC’s budget is covered through user fees paid by the farmer through grain companies. It is important to note that industry has no say in the establishment of CGC’s budget but is required to cover these costs. At $1.42 per tonne of grain, weighing and inspection fees for the loading of vessels is by far the largest generator of revenue for the CGC.
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The export of grains, oilseeds and pulses has changed significantly over the last decade. In today’s global grain market many grain buyers and suppliers prefer to sell and buy grain with a certificate of analysis from an agreed-upon third-party inspector. These requests by international customers make the mandatory nature of CGC outward weighing and inspection of export vessels outdated, unnecessary, and only add costs to the system. In Canada, over 80 per cent of grain exports have this contractual obligation, meaning that for 80 per cent of the exports, CGC inspection service is redundant. The unfortunate part is that farmers are paying for it, not once but twice.
It may appear senseless to carry out two analyses but it is important to emphasize that Canadian exporters are responding to customers’ needs. Third-party analysis is preferred due to a number of factors – a few are:
- Timeliness — On average, third parties provide their inspection certificates in a more timely way. Terminals and exporters receive documentation and results from third-party inspection companies at all hours while the CGC does not generate Certificates Final documentation during hours that extend beyond normal weekday business hours.
- Services — Third parties are not limited in their ability to undertake additional analysis at the request of the exporter (i.e. they are demand driven).
- Consistency — Companies such as SGS, Intertec, Cotecna, etc. have an international presence, and in many cases the end-use company is looking for the same company to do the assessment at vessel load versus unload, for the same reason.
- Costs — Qualified third parties can provide an export certificate at considerably less expense, approximately $0.50 per tonne. When additional non-mandatory services are needed, third parties provide these at a lower cost.
The good news is that this area also represents the greatest opportunity for cost savings. It is the most relevant example of where the CGC should be retained as the regulator, but removed as the service provider.
The CGC would accredit third parties to provide outward inspection services that adhere to the CGC grading system to introduce the element of competition for both service and price. Certificates Final would be issued by the CGC based on third-party inspection of cargoes where the customer requires it, and allow commerce to transact outside the CGC on cargoes where a customer requests a certificate of analysis from a third-party inspector instead.
The accredited third party would collect a sample for phytosanitary testing through the Canadian Food Inspection Agency (CFIA) where required. In fact, the CFIA already accredits and uses third parties for phytosanitary analysis.
CGC oversight would ensure standards are upheld while introducing competitive costs to the system and allowing for only one inspection. The concept follows the principle of fostering lower-cost alternatives while providing enhanced and more efficient services. It is important to note that there will be a cost to the CGC to approved third-party inspection companies and maintain their certification. These costs will be incurred by third parties and presumably charged back to industry for providing the service, however, this should be a nominal increase.
As reported, the CGC’s 2018-19 budget is also increasing to $70.5 million, which is up over $10 million from 2016-17. At the same time, CGC full-time employment numbers continually increase to provide services that many customers do not require.
So if we take away the CGC’s main revenue source, how will it survive? Removal of the CGC as a service provider would reduce its overall costs by over 50 per cent. Other regulatory agencies such as those that deal with border services, policing, vehicle weight restrictions, etc., are deemed to be for the public good and paid for by the taxpayers of Canada.
The CGC has the ability today to authorize third parties to undertake official inspection on its behalf, and it would not require a change to the Canada Grain Act. But they won’t do this because it jeopardizes their source of funding. There is an inherent conflict of interest when a regulatory agency operates on a complete cost-recovery basis.
Rather than being primarily motivated to undertake activities that are in the best interest of the Canadian grain industry, the agency’s primary interest is at risk of becoming one of seeking to create and apply regulations, policies and procedures in a way that generates the most revenue for the entity itself.
Wade Sobkowich is executive director of the Western Grain Elevator Association, based in Winnipeg.