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A closer look at Canadian Grain Commission user fees

There is an inherent conflict of interest when a regulatory agency operates on a complete cost recovery basis

Wheat is transferred from the train cars via a conveyor belt to the cargo ship in Vancouver, British Columbia. Canadian Grain Commission fees for inspecting outgoing cargoes will rise sharply this year.  photo: REUTERS/Ben Nelms

The Canada Grain Act was enacted in 1912. The last set of significant amendments was made in the early 1970s. Since then, there have been vast changes in farm operations, grain handling, marketing, exporting and the global marketplace. The time is exactly right to modernize the Canada Grain Act.

The federal government passed Bill C-45, which contained the following three main amendments:

  • Allows the Canadian Grain Commission (CGC) flexibility in ways to have elevators post security;
  • Removes mandatory nature of having the CGC do inward weighing and inspection;
  • Moves the CGC to monitoring on outward weighing.

These are generally positive changes that will result in cost savings, but to whom? Government funding to the CGC is decreasing from approximately $37 million to $5.4 million, or down from 50 per cent to nine per cent. Meanwhile, outward inspection costs are more than tripling from $0.51 per tonne to $1.60. Elevator licensing fees are increasing from approximately $100 per elevator per year to a staggering $3,300 per year. In both cases, the increased cost does not come with any change in the nature of services provided by the CGC.

Looking then at outward inspection which will now be the CGC’s most significant revenue stream, the cost of a single Certificate Final for a 50,000-tonne vessel will increase from $25,500 to $80,000. The annual cost to an export terminal handling five million tonnes of grain per year will now be $8 million.

To put this into perspective, other operating costs including union labour costs at this same terminal with over 100 employees would be approximately $14 million. As one can see, the outward inspection cost is much too high in proportion to this business’s operating budget in order for this Canadian terminal to stay competitive.

Other regulatory agencies such as those that deal with border services, policing, vehicle weight restrictions, etc., are deemed to be for the good of Canada and paid for by the taxpayers of Canada. It is worth noting that in the U.S., one of Canada’s major competitors, the Federal Grain Inspection Service (FGIS) receives government funding at a 37 per cent level.

Having the CGC provide outward inspection should be optional. It should be available for customers who require it, but other third parties could provide the same service as well. Certain buyers who require an export certificate do not necessarily require that it be provided by the CGC, and other customers accept third-party inspection regardless of the CGC certificate, resulting in a duplication of costs.

Qualified third parties can provide an export certificate at considerably less expense, approximately $0.40 per tonne, which is similar to what U.S. exporters pay for a Certificate Final.

Assuming more than 30 million tonnes of grains and oilseeds are exported from Canada, requiring the industry to use the CGC for these certificates will add more than $36 million of cost to the grain-handling system in order to maintain a document that is sometimes of little or no value to the buyer.

The root of the issue is that the CGC performs some functions for the good of Canada, and is being required to include the costs for these other functions in its cost calculations for user fees.

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 primary interest becomes one of seeking to create and apply regulations, policies and procedures in a way that generates the most revenue for the commission itself.

As a regulated service provider, the CGC should not be burdened with trying to find ways to extract enough revenue to cover its operating costs. The CGC should be focusing on providing the right services most appropriate in a rapidly changing industry, which may or may not be the optimal path for procurement of funds.

The bottom line is, as of August 1, 2013 the cost of the CGC is increasing from about $1.25 to $1.80 per tonne, again assuming 30 million tonnes of exported product. At one-tonne-per-acre yield, this is an added cost of $2,750 over a 5,000-acre farm. Why, as an industry, have we seemed to accept the notion that the CGC needs to be completely funded through user fees?

Some CGC functions will always be essential, but the costs associated with “Good of Canada” functions should be removed from the calculations of the remaining services. This will ensure the CGC provides a competitive quality of service at a competitive price.

Wade Sobkowich is executive director, Western Grain Elevator Association. Kevin Hursh, executive director, Inland Terminal Association of Canada.

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