A. Overview

Canada’s grain production is diverse and makes up the largest sector of Canadian agriculture. It consists mainly of oats, wheat, corn and pulse (chickpeas, dry peas, beans and lentils). Canadian production of oilseeds includes canola, soybean and flaxseed.^[51] Wheat, canola, barley and flax are primarily grown in Alberta, Saskatchewan and Manitoba, while corn and soybeans are mainly grown in Ontario and Quebec. Grain and oilseed production in Canada is dominated by wheat (including durum wheat), followed by canola and corn. Once primarily focused on the production of wheat and coarse grains, grain production in Canada has seen a continuing trend of diversification into crops such as canola and peas. For example, the production of canola more than doubled in the last 10 years and now represents almost one quarter of all farm receipts. In the Maritimes, the recent decline in the red meat industry, which traditionally absorbed most of this area’s production of coarse grains, has led producers to increase soybean and canola acreage to the point they are now in a position of exporting oilseeds.

Table 1: Field crops supply and disposition for crop year 2011/2012 (thousand tonnes)

	Area Seeded (Thousand ha)	Production	Import	Export	Domestic Use<	Carry out Stocks
All Wheat	8,736	25,288	78	17,506	9,395	5,916
Coarse Grains	5,543	22,889	920	5,039	18,959	3,433
Oilseeds	9,543	19,305	338	11,831	9,403	1,098
Pulse and Special Crops	2,411	4,551	123	3,779	1,302	1,080

Source: Agriculture and Agri-Food Canada, Canada: Outlook for Principal Field Crop, 19 December 2012

At a very broad level, the grains and oilseeds supply chain can be deconstructed into three main elements: the crop is grown, moved, and used. Plant breeders, input producers and suppliers, seed growers, and farmers are all involved in growing crops. Primary elevators collect the grain and transfer it into the rail system, and transfer elevators or terminal elevators move the grain by ships, train or trucks to the end customers. Flour milling and crushing companies convert the grain into food ingredients; secondary processors such as bakeries or pasta manufacturers produce the finished products and deliver them to consumers around the world. The majority of grain production in Canada is exported either in bulk or processed. Canada is the second-largest world exporter of malt, and over 85% of the canola grown in Canada is exported as a whole seed or first processed into oil and meal.

Canada’s grain supply chain is primarily a bulk handling system. Grains must be transported in a cost-effective and efficient manner, and therefore, the supply chain system has been designed to primarily move a homogenous product while maintaining the purity and quality of the grain in order for customers to quickly receive a quality final product.

There has been a great deal of consolidation in the supply chain, resulting in fewer stakeholders and larger companies, in order to gain efficiencies. According to the 2011 census, there are 61,692 farms primarily engaged in growing oilseeds and grains in Canada, down from 69,671 in 2001.[52] In the Prairies, some 5,000 grain elevators have been gradually replaced with approximately 200 facilities that collect grain from a wide region and transfer it to the rail system. For some witnesses, this rationalization has occurred at the farmers' expense, but for many others, those gained efficiencies allowed for Canada to stay a large player on the international market. With respect to processing, Canada’s canola crushing capacity has almost doubled since 2006. However, some witnesses point out that there is still a lack of processing facilities for certain products or in specific regions.

The federal government is involved in the supply chain in a number of ways. It provides a robust grain grading and quality assurance system through the Canadian Grain Commission (CGC). Through various programs, Canada provides technical marketing support, which helps ensure customers are informed of the valuable properties of Canadian grain, and this ultimately encourages them to purchase the product. The government also provides funding for research to develop, for example, new products from the grains, which creates new opportunities for crops in food and industrial applications. Finally, the federal government regulates a number of aspects that directly affect the supply chain, including railways and food safety. Witnesses have stressed that public policies and regulatory structures need to keep pace with the rapid changes in the marketplace. The government has taken significant steps on this front, first with the removal of the Canadian Wheat Board's (CWB) single desk, and the amendments to the Canada Grain Act that were passed in C-45, A second Act to implement certain provisions of the budget tabled in Parliament on March 29, 2012 and other measures.

Since 1 August 2012, the western wheat and barley marketing system has changed, as the CWB is no longer the single desk seller of western wheat and barley. While it still remains a period of transition, most witnesses are looking at the new situation in a positive way. One witness mentioned a recent survey conducted by a private company, which measured the position of producers with respect to the new wheat and barley open market. Approximately 84% of producers saw the new situation as a benefit to the profitability on their farm. Among the positive changes, witnesses noted the ability to make marketing decisions with transparent price signals and arrange delivery targets that meet their cash flow requirements. Some producers, however, have had some difficulties in adjusting or have not seen better prices after the removal of the CWB monopoly. Some witnesses still believe that the loss of the CWB marketing power will be detrimental to farmers collectively in the longer term. Farmer-owned inland terminals also experienced many adjustments, but their representative indicated that the transition has happened with far fewer difficulties than expected. Most signals in the new post-single desk era have been positive. Prices are generally high and large volumes of grains have been traded:

The three major western ports have experienced higher overall volumes so far this year — about 5% in Vancouver, 16% in Prince Rupert, and about 20% in Thunder Bay. Also, two grain companies have reported to us that the current crop year has allowed them the ability to increase unit train loading to slightly over 80%, which is a 10% increase over last year.[53]

Some witnesses, however, cautioned that it may be premature to say that the system is trending toward continued improvement, or that improvements currently seen are a direct result of the removal of the single desk. Other factors may be contributing to this ease of movement, such as exceptionally good harvest conditions, small grade spreads and a mild fall period. The exceptional market conditions, high grain prices, and droughts in the U.S. and Russia are also factors for why this year might constitute a distorted benchmark for future comparison.

The overall message heard by the Committee is to look at continual improvements in the supply chain. However, the challenge is to identify what can be done to be even more effective. Witnesses indicated that an organization around the value chain such as the Canola Council of Canada has been a significant factor in the success of the canola industry. Through the Canola Council, seed companies, growers, crushers, and exporters all sit together at the same table to set goals for the industry, and devise strategies in which they can be achieved. The model allows for the industry to work closely with government officials in order to develop policies together. For both government and the industry, this model increases the understanding of industry issues and challenges, and of the limits of government. The Committee heard that efforts are currently being undertaken to create national organizations to represent the interests of Canada’s wheat and barley value chains. These organizations will develop objectives for their respective industry, including the stimulation of research and market development.

B. Production

Growing the crops is the first step in the supply chain, and includes stakeholders such as input producers, suppliers and farmers. According to witnesses, most efficiency gains at this stage of the supply chain are related to improving yields and managing risks.

1. Improving Yields

It has become increasingly important for farmers to control the variability of yields and to optimize efficiencies on inputs, including machinery. Because diseases and pests continually adapt, the focus on crop genetic improvement and inputs needs to continuously be addressed. Production practices must also continually improve. Research on varietal development and crop management, and access to new technology are therefore the main areas for concerted action in the supply chain.

Witnesses provided a broad overview of the crop research environment in Canada: the private sector has invested a great deal of money in a few crops such as canola and soybean. For example, the private sector is spending about $100 million on canola research in Canada, and private investments in soybeans are in the range of $500 million to $600 million in North America. On the other hand, there is insufficient investment in plant breeding by private companies for some crops. Research in areas such as crop rotations, which can be undertaken over 10 to 15 years before producing results, is also something in which the private sector is unlikely to invest. Many witnesses therefore stressed the importance of maintaining public sector research in plant breeding and crop management, and at the same time increasing collaboration with the industry to set the right priorities.

Increasing partnerships between publicly and privately funded research institutions is a concern shared by many witnesses. It has been mentioned that farmers and private companies are willing to invest in varietal development for crops that are currently under-researched. For some witnesses, those investments can be realized if the government facilitates access to research facilities, funding and germplasms. One witness indicated that no seed developer is currently taking advantage of the off-patent technologies, and that there needs to be clearer rules on the use of germplasm with genes that are no longer protected by intellectual property rights.

A few witnesses also suggested that Canada sign the 1991 International Convention for the Protection of New Varieties of Plants (the "UPOV Convention"). Current plant breeders’ rights legislation in Canada is based on the 1978 UPOV Convention. The 1991 Convention would increase protection for new varieties, and according to witnesses, would allow companies to recover investment in varietal research programs. A few witnesses expressed the concern that the 1991 UPOV Convention would have an impact on farmers’ ability to save and reuse varieties of seed on their farms. Also, it would give the owner of those plant breeders' rights exclusive control on both the conditioning of the seed and its stocking.

Recommendation

The Committee recommends that Agriculture and Agri-Food Canada examine all federal policies affecting the plant breeding sector including available grants and contributions, in-house research programs, intellectual property rights, and regulatory processes; and develop a policy strategy that will encourage the development of new varieties of grains and oilseeds and improve competition in the plant breeding sector.

2. Managing Risks

Since 2007, world agricultural markets have become increasingly volatile and uncertain. With imperfect information and limited control over the markets, farmers are managing increased production and cost risks associated with producing their crop. How farmers manage these risks is critical to the success of their operations.

The Government of Canada, through various programs, provides risk management tools for producers. Some witnesses addressed the need to maintain strong business risk management programs such as AgriStability under Growing Forward 2. Others spoke about the Producer Payment Protection Program, administered by the Canadian Grain Commission (CGC), which has been recently modified. Under this program, licensed companies must provide security to cover amounts owed to producers for grain deliveries. Grain companies will be required to carry insurance to insure payment to farmers instead of a bonding system. Some witnesses pointed out that there are still gaps in the guarantee of payment even under an insurance-based model, particularly for producers exporting directly to customers in another country. The Western Barley Growers Association suggested a clearing-house concept, where both sellers and buyers would set a fee upfront when signing a contract, which would guarantee payment as well as delivery of the product.

In addition to government programs, witnesses mentioned the growing importance for producers of good price discovery mechanisms to establish the value of their crops, for example, the ICE Futures contracts for wheat in Chicago or Minneapolis. Those mechanisms are not necessarily available for all crops. One witness indicated that there has not been much uptake of ICE Futures contracts for barley, which makes price discovery a challenge for this crop.

C. Handling and Transportation

Moving large volumes of grains over long distances to reach customers is the key element of a functioning grain supply chain. It is also a part of the supply chain where the federal government plays an important regulatory role. Therefore, it is no surprise that the movement of grain was the topic most addressed by witnesses.

1. The Canadian Grain Handling and Transportation System

Grains produced in Canada must be hauled over long distances before reaching the consumer: in the prairies, grain travels an average of 1,400 kilometres to reach a port position and then overseas to its final destination.[54] Therefore, railways have been central to the movement of grain in Canada. The Canadian rail system is dominated by two companies: Canadian National (CN) and Canadian Pacific (CP). These companies have major lines with an east-west configuration, which allows shipments of grains from the Prairies to Pacific ports or the Great Lakes and St. Lawrence Seaway, with most of the infrastructure built around this system. Recent trends in the grain handling and transportation system (GHTS) include the rationalization of elevators in the Prairies and investments in high through-put facilities. In the Atlantic Provinces, the trucking industry plays a more important role. With a more recent expansion of crop production, this region still lacks infrastructures such as commercial drying and storage facilities, and loading infrastructure in harbours.

The overall impression shared by the witnesses is that the Canadian GHTS is functioning efficiently. Quorum Corporation, which has been under contract with Agriculture and Agri-food Canada and Transport Canada since 2001 to act as the grain monitor, provided data to confirm this impression:

On the time that grain remains within the system, one of the key performance measurements that we use in the monitoring program has fallen to just over 47 days, from a high that reached over 80 about 10 years ago. […] elevator churn ratios have improved significantly, to 6.3 times annually, on average, from as low as 3.7 times. One key area of focus for both the program and the shippers of grain is railway performance, and the program tracks that in two ways: one, by measuring the total cycle time, and two, by the loaded transit time. Both measures gauge how efficiently the railways utilize their fleets. Railway car cycles, for instance, have fallen to under 14 days from over 21 days 10 years ago. An important measure for the GHTS performance is loaded transit time. It has fallen from a high of over eight days to under six days — a 25% improvement. […] Overall, we can safely state that the prairie GHTS has seen significant performance improvements over the last 12 years.[55]

According to the representative from Quorum Corporation, there are periods where one part of the supply chain experiences a regression in performance; when this occurs it can extend for long periods, adding costs to the system and damage to Canada’s trading reputation. Many witnesses expressed concerns regarding the market power exerted by railways. With the closure of grain elevators and rail line abandonment in recent years, there is often only one option for a producer to move his/her grain. Others witnesses have mentioned issues with levels of services such as timely arrival and railcars orders fulfillment.

The government introduced Bill C-52 on 11 December 2012. The Bill would give shippers the right to a service agreement with railways, and would also create an arbitration process to establish an agreement when commercial negotiations fail. Witnesses indicated they were looking for balanced accountability between the railways and the shippers, and identified the mechanisms defined in the bill as paramount to the improvement of rail services.

Service-level agreements, however, are only one aspect in improving the GHST. Witnesses emphasized the need for greater collaboration across the whole supply chain, and indicated that the renewal in November 2012 of the Crop Logistics Working Group is a step in the right direction. Its mandate is to improve the performance of the grain industry’s supply chain by focusing on innovation, building industry capacity, and increasing stakeholder collaboration.

More importantly, a large number of witnesses stressed the importance of measuring adequately the performance of the GHTS. For example, data that could be collected include the number of cars ordered and cancelled by customers, and the number of cars delivered by the railways — the supply of railcars (or order fulfillment) is currently not monitored. Some witnesses would like to see more ongoing and current information as opposed to after-the-fact statistics as currently provided by the Quorum Corporation monitoring system. All agreed that the government can play a very important and active role in monitoring the GHTS performance. In relation to this, the representative of the CGC role noted that the CGC's role in collecting and disseminating statistical information should be clarified. With the changes and modernization within the industry, it needs to be clearly established how the CGC can deliver adequate and reliable information.

Recommendation

The Committee recommends that Agriculture and Agri-Food Canada and Transport Canada review, in cooperation with the industry, the design of the Grain Monitoring Program to define additional criteria to monitor and measure the performance of the Canadian Grain Handling and Transportation System, and look at different options to disseminate the information as close to real time as possible.

Witnesses have also mentioned other areas where the government can improve the GHST. For example, the Canadian Federation of Agriculture (CFA) would like the government to perform a full rail transportation costing review, as the current measures used to calculate the revenue cap were developed in 1992 and no longer reflect the actual costs of the railways. For example, it does not take into account any efficiency gains made by the rail companies. Others have indicated that the government must ensure that producer cars remain an economic and convenient alternative. Finally, witnesses from the Atlantic Provinces saw a role for the government to facilitate studies on new handling infrastructures in this region.

2. The Canadian Grain Commission

The Canadian Grain Commission (CGC) plays an important role in the grain supply chain. The CGC is mandated to establish and maintain standards of quality for Canadian grain for both international and domestic markets. Grain grades and standards are based on research conducted in the CGC grain research laboratory and are regularly reviewed by standards committees composed of industry stakeholders.

Grades are important because they establish grain quality and facilitate fair transactions for producers. They also reflect the end-use characteristics required by our customers and ensure the consistency of product from cargo to cargo and from year to year. [56]

The CGC plays a role in grain safety and grain safety assurance. It screens, monitors, and certifies grain shipments to assure that export cargoes meet international safety tolerance standards. It also assures that weights are accurate at terminal elevators. Final certificates issued at export indicate the official CGC grade and weight, and assure that a cargo meets contract specifications. In 2010–11, the CGC inspected over 30 million tonnes of Canadian grain for export. Quality and grain safety assurance activities are supported by the CGC grain research laboratory. The CGC is also involved in the Canadian Food Inspection Agency's variety registration process, by which new cultivars are evaluated for disease resistance, agronomics, and quality. It provides technical support when an international market issue arises.

I can give you a recent example of our market access support regarding the Triffid incident with Canadian flax. We work with the European Union, Japan, and Brazil to develop protocols for flax shipments to ensure continued access to these important markets.[57]

Finally, the CGC provides direct services to Canadian grain producers through several activities, including decisions on grade and dockage — which provides producers a way to solve disagreements about the grade they receive at licensed primary elevators. It also facilitates access to producer cars and provides a payment protection program. The submitted sample service and the harvest sample program give producers important information about their grain, such as grade, dockage, moisture, and protein. The CGC also publishes quality data and statistical information.

The CGC is currently funded through a combination of appropriations and user-fee revenues. However, most of the CGC user fees have not been updated since 1991 and no longer reflect the costs of delivering services. This has caused some issues since the CGC is mandated to provide these services under the Canada Grain Act. The CGC has been reliant on ad hoc public funds since 1999, and therefore, there has been mounting pressure to address the Act and the CGC fee structure. Bill C-45, A second Act to implement certain provisions of the budget tabled in Parliament on March 29, 2012 and other measures, introduced a number of changes to the Canada Grain Act, such as eliminating mandatory CGC inward weighing and inspection. With the exception of a few witnesses, who believe it would undermine Canada’s grain quality assurance system, testimony was largely positive about the removal of the mandatory inward inspection. It would eliminate duplication and excess costs. More importantly, the CGC still has the power under the Act to arbitrate a disagreement and provide a final grade and dockage.

A few witnesses also suggested that outward inspection should become optional and be left to the contract participants. ITAC indicated that in a number of cases, the overseas customer buying grain does not want the services of the CGC and would rather rely on another service provider such as SGS or Intertek. The CGC, however, cautioned that in case of a market access problem, the government of the import country will become involved and will look at another government body in order to resolve the issue. It is therefore important for the CGC to remain involved to offer market access strength to Canada.

Perhaps there are other checks and balances we could put in place. But we have to be very cautious that we don't tamper with what has given us our Canada brand at the current time.[58]

On 30 November 2012, the CGC ended its consultation on proposed changes to its user fees structure. The proposal was tabled in Parliament on 7 February 2013 and published in Canada Gazette Part I on 16 February 2013. The new fee structure is expected to be in force on 1 August 2013. The regulatory impact analysis states that “the net benefit in present value terms of the proposed Regulations is $162.14 million over 15 years, using 2013-14 price levels”. A number of witnesses were concerned about which services would be considered “public good” or a private benefit to industry participants. Under its proposal, the CGC estimated that “91% of its activities constitute a private benefit to individual stakeholders while 9% of the organization’s activities provided public benefits to Canadian as consumers of grain products”. Some witnesses believe a number of activities that provide public benefits will be funded by user fees rather than public funds. For example, they indicated that activities related to food safety and policy development should be considered part of the public good.

If you went through all of that, rather than 7% or 8% or 10% of the budget being considered public good, it should be 20% or 25%. It would take millions of dollars of costs out of the system that then wouldn't have to be collected from shippers and farmers in user fees.[59]

The industry has been discussing further reforms to the CGC for a number of years. The CGC indicated that during its consultation process on user fees, many comments and proposals were made on a number of potential changes. These proposals included changes to the CGC governance model, implementing a non-binding decision review mechanism to review CGC decisions, providing the CGC authority to oversee the existing system of declarations in the grain handling system, and allowing the CGC use the Administrative Monetary Penalties Act.

Recommendation

The Committee recommends that the Government of Canada continue its efforts toward a comprehensive reform of the Canadian Grain Commission to make it more efficient in the service of Canadian grain producers.

D. Grain Use and Processing

Grains and oilseeds are used in a vast number of food and industrial products. Discussions on this area of the supply chain therefore focussed on ensuring that customers receive the attributes they are looking for. The success of the grain supply chain will therefore depend on producing those attributes, but witnesses also addressed the need to diversify the sources of revenue, and attempt to keep most of the value of the products in Canada.

While canola processing capacity has doubled in the last decade, the same cannot be said for other grains. There has been some debate around what has prevented the development of the processing industry. For some witnesses, there was a perception that the CWB monopoly was one of the factors that held back further processing in Western Canada, and recent announcements and plant expansions are a sign of a more positive investment atmosphere since the removal of the CWB monopoly. It is their opinion that even though some of those announcements have not yet materialized, it might be a matter of current economic conditions in the marketplace. On the other hand, other witnesses indicated that although processors would prefer to deal directly with farmers, the CWB did not seriously impede the economics of the value-added projects.

In the Atlantic region, the lack of processing is certainly due to a lack of economies of scale. As a result, all grain requiring processing must be exported out of the region and processed products must all be imported. The issue is becoming more serious as the region is increasing its presence in export markets such as Japan. Processing locally would reduce the pressure on the transportation system during harvest time and help the production grow in this region.

1. Market Development

Although processing more in Canada is generally seen as a positive outcome, some witnesses cautioned that there is already significant international competition in traditional markets such as wheat flour. One witness mentioned that Turkey has heavily invested in flour mills to the point at which there is excess capacity, making it difficult to compete. For the majority of witnesses, Canada has a greater opportunity in developing new products such as pulse flours, and demonstrating the health benefits and the processing attributes of those products. Developing new markets is also a means to diversify the revenue stream for more traditional crops such as wheat. The development of biofuels, for example, is an opportunity where some of the lower quality wheat, which is harder to dispose of, could be allocated.

In the pulse industry, we are really trying to move from a product that was sold on the basis of colour, size, and shape to one that is now an ingredient that has to have functional characteristics.[60]

Witnesses agreed that market promotion is an area where the government can invest and assist the industry since it provides benefits to the entire supply chain. For example, the canola industry shares a $2.4 million program over four years with Agriculture and Agri-Food Canada to promote canola's health and culinary benefits in key markets around the world.

Venturing into new products or demonstrating health benefits, however, requires a very high level of knowledge in food science and health. One witness noted that research funds and market development funds come from two very different envelopes that rarely cross. As a result, there is often a gap between the research end and the commercial application. The government can play a significant role by ensuring that there is funding available for innovations at the point of demonstration. Organizations such as the Canadian International Grains Institute (CIGI) can help bring the discovery to the processing sector.

A past example of that would be pulses, where we worked with companies in China to produce vermicelli noodles from yellow peas. They were making vermicelli from mung beans. They wanted to grow their industry, but the mung beans available were limited. We thought that we could make it from yellow peas. We did some research and discovered that yes, we could make it. Working hand-in-hand with the government, trade commissioners, and Pulse Canada, we were able to stay in front of the customer and show them that yes, it can be done. Finally, they took it up. Now, it is an annual market turning about 350,000 to 400,000 tonnes of yellow peas into vermicelli noodles in China.[61]

2. Trade and Market Access

Intertwined with market development is the issue of market access. As an export oriented sector, the Canadian grain supply chain can only thrive in a trading environment that is predictable and transparent. Witnesses have indicated their support of the federal government's current trade agenda in key markets, and pointed to a few issues that impede the development of the grain supply chain.

One witness identified tariff escalation as an impediment to the development of the processing industry in Canada. Tariff escalation occurs when a country sets higher import duties on finished products than on semi-finished or raw products, the lowest duties being levied on raw materials. This practice protects national processing industries and discourages processing activities in the countries where the raw materials originate. In the case of oilseeds, there are often zero tariffs on seed and high tariffs on oil. In other cases, products with similar end use are treated differently. One witness indicated that in Japan, soybeans have a better import tariff than canola. It is therefore important that Canada be able to negotiate equal rates for all products whether finished, raw or of similar use.

Disruption in market access can have an impact on grain farmers very quickly. The Market Access Secretariat, which is a cooperative initiative between the Canadian Food Inspection Agency and Agriculture and Agri-Food Canada, has been instrumental in responding to difficult market access issues, such as China's concerns with blackleg in canola.

Nevertheless, witnesses agreed that the most important role of the government in maintaining market access is ensuring food and plant safety through inspection and oversight of biosafety measures including pesticides usage. Products that travel into the grain supply chain are subject principally to the Food and Drugs Act and regulations. Although supportive of the changes to the legislative base of the Canadian Food Inspection Agency,[62] representatives from the processing industry highlighted the importance of reviewing and amending the Food and Drugs Act to keep up with changes occurring in the United States food inspection system.

3. Low-Level Presence of Genetically Modified Crops

In studying the market access issue, the Committee paid particular attention to the Proposed Domestic Policy on the Management of Low-Level Presence (LLP) of Genetically Modified (GM) Crops in Imports.

The use of GM grains has sparked lively debate around the world since they were commercially introduced in the 1990s. Countries have developed regulatory processes to approve the use and sale of these new varieties that take into account assessments of their health and safety impacts. Given that each country is responsible for its own assessments, some GM varieties that are approved in one nation may not be approved in another. This situation, called asynchronous approval, can disrupt trade. For example, if a shipment of grains is found to contain even trace amounts of GM ingredients approved and used in an exporting country but not yet approved in the importing country, the regulatory authorities of the importing country will refuse entry of the shipment and may prevent other shipments from entering the country.

This zero tolerance for unapproved genetic material is currently the policy of most trading nations because a variety that has not been approved is not yet considered safe. To avoid having varieties approved in one country but not in another, Canada’s industry has undertaken to seek approval in all the main countries where they intend to market a product. As a result, a canola variety is not marketed in Canada until it has been approved in its major export markets.

However, the issue has become more complicated: the number of GM varieties is increasing, the approval process for these products varies by country, and approval can be a very long time coming in some markets. Moreover, countries are developing GM crops for domestic use only. According to a 2009 report from the European Commission’s Joint Research Centre, the number of GM crops in commercial production around the world is expected to increase from about 30 to over 100 by 2015. Many of these products are for domestic use in countries other than Canada and are not for export. Consequently, asking other nations to approve them is hardly worthwhile. However, these products may be mixed in with exports destined for Canada, and as a result, the risk of LLP in products imported into Canada will increase.

Many Canadian stakeholders believe that the zero-tolerance policy is not realistic and that Canada needs to find a way to adapt its tolerance rules to international trade. Some organizations advocate establishing LLP standards or reaching LLP agreements. From 6 November 2012 to 19 January 2013, the Government of Canada asked for public input on a Proposed Domestic Policy and Implementation Framework on the Management of LLP of GM Crops in Imports.[63]

Under the proposed policy and framework, two conditions must be met for the GM content of an imported shipment to be considered LLP:

1. the GM crop must be approved for human consumption in at least one country; and
2. Canada must recognize that the foreign safety assessment is consistent with the Codex Guideline for the Conduct of Food Safety Assessment of Foods Produced Using Recombinant-DNA Plants.

The proposed policy would define two types of levels (or concentrations) of GM crops in shipments:

1. an action level of 0.1% or 0.2% above which regulatory bodies would consider taking action; and
2. threshold levels (varying by crop) that would set the maximum concentration of GM ingredients considered to be LLP.

During the Committee’s hearings, held between 26 February 2013 and 7 March 2013, a number of witnesses praised the Proposed Domestic Policy on the Management of LLP of GM Crops in Imports. Many of them believe that this initiative will position Canada well ahead of its competitors. In addition, such a policy could prevent international trade disruptions resulting from unintentional contaminations, thus enabling Canada to preserve and increase international market access. By adopting a transparent, predictable and science-based policy, Canada can persuade other countries to develop their own LLP management policies.

A number of countries are interested in the policy on LLP of genetically modified organisms (GMOs). In March 2012, Canada chaired the first international LLP meeting. The event was held in Vancouver and brought together representatives of 15 countries to discuss LLP policies around the world. A second international meeting took place in Rosario, Argentina.[64] Many witnesses recognize that there is a lack of coordination of risk assessments and approvals among countries, which makes it important to undertake international discussions on LLP policies.

While a number of grain industry stakeholders support the national LLP policy, some witnesses expressed reservations. Ms. Lucy Sharratt, Coordinator of the Canadian Biotechnology Action Network, noted that the LLP policy is based on the assumption that other countries will adopt a policy similar to Canada’s. However, there is no guarantee that other countries will follow Canada’s example. Moreover, Germany has already announced that it will oppose any EU decision to establish an LLP policy for food. Canada’s organic industry fears that this policy will have a negative impact on the organic sector:

An LLP [policy] will introduce new, unknown, and untested GMOs into Canada. It will increase the exposure of organic farms and manufacturers to contamination from GMOs, which are prohibited under our production system. Also, it will create an environment of heightened scrutiny and suspicion of Canadian exports, which will invariably result in increased costs for producer and trader and inhibit the progress we've made in market access.[65]

Given the scale of GM crop production, the organic sector feels threatened by the propagation of GM material through cross-pollination. The sector also argues that organic producers take no comfort in the growing international trade in GM products.

Importance of biotechnology for agriculture

The International Service for the Acquisition of Agri-Biotech Applications publishes an annual report on the status of agricultural biotechnology around the world. The report indicated that the amount of agricultural land devoted to GM crops reached a record high in 2012. About 420 million acres in 28 countries were planted to GM crops, an increase of 6% over 2011.[66] Canada was one of the first countries to produce GM crops and today is the world’s fourth-largest producer, with 29 million acres under cultivation.[67] Most canola, corn and soybean crops in Canada consist of varieties that have been improved using plant biotechnology. GM canola makes up virtually all (97.5%) canola production. GM corn has also passed the 80% mark, and GM soybeans account for 60% of total soybean production.[68]

Several witnesses believe that biotechnology plays a major role in both the technical and economic aspects of agriculture. Biotechnology has helped improve soil, air and water quality and has enabled Canadian farmers to compete on the global market. The revenues generated by biotechnology products are substantial:

Increased production due to plant science technologies, including products of plant biotechnology, generates $7.9 billion worth of additional economic activity annually for Canadian farmers of field, vegetable, and fruit crops. About 65% of Canada's $10 billion of food surplus can be directly attributed to increased yields that result from the use of crop protection products and plant biotechnology.[69]

Regulatory system

According to Dr. Stuart Smyth, Research Scientist in the Department of Bioresource Policy at the University of Saskatchewan, the European and North American systems approve new varieties in different ways. The North American regulatory system is based on scientific research, while the European approach is predicated on assessing risk.[70]

Tolerance threshold

At present, the zero-tolerance policy is in effect in both Europe and Canada. Under current Canadian legislation, the least amount of unapproved GM material constitutes non-compliance. When unapproved GM material is detected, the appropriate authorities are immediately alerted, and they take the necessary steps to restore compliance.[71] Some witnesses acknowledge that it is extremely difficult to market grains with a 0% tolerance threshold and that this is not realistic for Canadian export markets. Despite all the precautions taken throughout the supply chain, there is always a risk that unwanted products are mixed in with a shipment during grain handling. Thus, there is no way to completely eliminate the possibility of contamination. A minute quantity of unwanted materials can end up in a shipment and cause it to be rejected, resulting in significant financial losses.

In 2009, when the EU detected the presence of GM flax imported from Canada, it moved quickly to shut its borders to Canadian flax for several months. Witnesses condemned the EU’s unjustified decision to deny access to its flax market, which according to them, was based more on politics than scientific data. According to a study by Dr. Smyth on the consequences of trade disruptions caused by LLP, the closure of the European market to Canadian flax resulted in lost sales totalling $12 million. Moreover, the EU forced Canada to conduct tests that entailed further costs. Dr. Smyth estimated that, by the end of 2011, the Canadian flax industry had lost $30 million. However, these LLP-related financial losses may increase:

Another year has passed and we've been testing all of our flaxseed again for another year, and we will for another two years, so those costs will continue to increase over the next couple of years.

These are costs that are borne by Canadian farmers. They have to test their seed prior to it being planted, and they have to test what they harvest before they sell it to an export opportunity. They're not being reimbursed for this by anybody. These are out-of-pocket costs that are being experienced by Canadian farmers because of the European approach to zero tolerance.[72]

While the EU continues to apply the zero-tolerance policy for food products, it has a higher tolerance for animal feed products because it is heavily reliant on animal feed imports. The EU imports large quantities of soybean meal from South America. Knowing that its imports are likely to contain LLP of GMOs, the EU softened its rules to permit the presence of GM products in animal feed. In June 2011, the European Commission published an LLP regulation that replaced the 0% tolerance threshold with a new limit of 0.1%.[73]

A number of witnesses agreed that it is increasingly difficult to comply with the current 0% threshold. Some believe that the 0.1% and 0.2% levels proposed by the policy are also very low. Mr. Gordon Harrison, member of the Canada Grains Council and President of the Canadian National Millers Association, believes that no handling system can achieve such low levels. He proposes a threshold of at least 0.2% and an additional margin of error to allow for measurement uncertainty. Dr. Stephen Yarrow, Vice-President of Plant Biotechnology at CropLife Canada, stated that the grain industry envisions a threshold of 2% or 3%, or even 5%. Some witnesses said they could not comment on the threshold because they lacked sufficient information about the way the threshold would be calculated. Other witnesses suggested that the thresholds be set based on the product type and origin. These witnesses admitted that their level of confidence in the way different countries approve GM products varies from one country to the other. A number of grain industry stakeholders believe that the proposed LLP policy will prevent trade disruptions in cases where LLP is detected. It is important to note that the proposed LLP policy does not apply to the seed sector, which applies stringent control measures and continues to have a tolerance of zero. Despite very strict controls, it is nonetheless possible to detect GM materials in seed shipments:

Since most EU countries — not all, but most — have a zero tolerance for GE in seed for planting, our members are now facing existing contracts that are being modified, and new contracts are requiring legal declarations that the seed is 100% GE free. Some of our members have lost sales as a result of that because they cannot make that guarantee, and others have had shipments rejected. One shipment of timothy seed was actually rejected for the presence of .00009% GE, which is very, very, very small dust.[74]

Recommendation

The Committee recommends that the government establish, in collaboration with its trading partners, a tolerance threshold that is based on scientific studies and feasible for the industry in order to prevent trade disruptions when LLP is detected.

As in the seed sector, contamination from a minute concentration of GMOs in organic products can expose organic farmers to substantial financial losses. They risk losing their organic certification and, thus, their market. Should a Canadian LLP management policy be implemented, the organic sector recommends that imports undergo comprehensive and routine testing to detect GMOs and that the results be regularly shared with the sector. Furthermore, in cases of contamination, the organic sector would like to see all parties share responsibility and organic producers have access to compensation.

Coexistence

Although GM and non-GM crops are segregated around the world, coexistence is regulated in only some countries. Denmark is the first EU country to have passed a law on coexistence. The legislation provides recourse and compensation mechanisms. Moreover, it contains communication and transparency requirements for GM crop areas to enable neighbouring growers of GM and non-GM crops to prevent the spread of unwanted GM material.

Canada has no legislation governing the coexistence of GM and non-GM products. Trials of unregulated GM varieties can be done in the open air. The resulting GM products are not subject to any isolation or confinement requirements. It is up to farmers who do not want GM products to take the necessary steps to prevent contamination by GM material. The segregation and confinement method used is up to them.

According to Dr. Rene Van Acker, Professor at the Department of Plant Agriculture at the University of Guelph, GM and non-GM crops could still coexist in areas where the proportion of GM crops is not too great. A Danish study reported that the coexistence of GM and non-GM canola would be extremely difficult, if not impossible. In his testimony, Dr. Van Acker mentioned that GM and non-GM canola in Western Canada could not coexist because it would be difficult to produce guaranteed non-GM canola on a commercial scale since GM canola accounts for 99% of Canadian production.

Given the growing risk of GM material propagation by pollen that travels long distances or by GM seeds, the environmental organization AmiEs de la Terre de l’Estrie does not see how GM and organic crops can coexist. However, a number of witnesses believe that, in some areas where production is less concentrated, coexistence of GM, conventional and organic crops remains possible. They argue that each has its place in Canada’s agri-food chain.