[Recorded by Electronic Apparatus]

Thursday, March 11, 1999

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The Chairman (Mr. John Harvard (Charleswood St. James—Assiniboia)): We'll bring this meeting to order. Good morning, members, and good morning to Mr. Senft and Mr. Kennedy of the Canadian Grain Commission. It's a pleasure to have you here.

Members, I think you all know that in recent weeks and months we have become aware of certain challenges before the Canadian Grain Commission. As you know, they've had a so-called program review that has caught the attention of a number of people, particularly the stakeholders in the Canadian grains industry. I know that Mr. Senft will be telling us a lot more in a few moments. In the wake of that program review there have been extensive consultations with stakeholders. As I understand it, those consultations are still in progress.

We all know how important the Grain Commission is to the grains industry in this country. Grain is a very important export for Canada. We as a country have a great reputation when it comes to supplying the markets with grain products. One of the reasons we have such a great reputation is because of our work over recent years and over all the years that the Grain Commission has been in existence.

The Grain Commission has done a good job and we have monitored very closely the quality of the grains that we sell, and standards are kept. When we hear that certain challenges face the Grain Commission, we as politicians would like to know more about that. That's basically why we have Mr. Senft with us today, and as usual we'll have a presentation.

Mr. Howard Hilstrom (Selkirk-Interlake, Reform): Mr. Chairman, may I make a couple of comments? This committee generally works in a spirit of cooperation. We've had to deal with a lot of major issues since I came on the committee in September. I'd like to see that spirit of cooperation continue. I understand that the Liberal caucus had a briefing last night and, as a result, I see no members here this morning, because they're already well aware of what's going on. The rest of us at this side of the table are a little at a disadvantage, but we'll do the best we can today.

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Taking note of that, Mr. Chairman, I would ask that you voluntarily not ask questions that take up the time that the NDP and I and the other opposition members would like to use to elicit the information that we need from these gentlemen today. Could you give me some undertaking like that? Certainly you have to do your job as the chairman, but the nuts and bolts of this is that we need an opportunity ourselves, on the opposition benches, to have a question period with these people.

Could I have your comments, please?

The Chairman: All I would say, Mr. Hilstrom, is that I conduct myself as chair with a considerable degree of restraint, and I will continue that. I certainly won't be asking questions that would take time away from you. I'm sure you'll have time, as will everybody else. If I have one or two questions and I feel there's room to do that, I will do it. So that's the undertaking I will give you. If you're asking me to be totally silent for two hours, I'm not going to give you that undertaking.

Mr. Howard Hilstrom: No, I'm not asking you to be silent, Mr. Chairman. It's just that you do have some excellent questions over the course of time, but you do tend to ask a lot of questions compared to other chairmen that I've seen on committee. This is an issue that could be brought up at a future date, and probably will be, by the opposition members. Today I'd like to see us continue on. I just wanted us all to be thinking in terms of having as much opportunity in the limited time that we do have with these gentlemen to ask our questions.

Thank you.

The Chairman: I'll give you as much time as I can, Mr. Hilstrom.

Would you like to go ahead, Mr. Senft?

Mr. Barry Senft (Chief Commissioner, Canadian Grain Commission): Thank you, Mr. Chairman. I wish to thank the standing committee for inviting us to appear before you.

It is no secret that Canada's grain producers are under significant economic pressure and that Canada's grain industry faces many challenges. The Canadian Grain Commission has been doing its part to help the industry and the producers respond to those challenges. I appreciate the opportunity to share with you some of the things we've been doing in this regard.

The CGC has long been committed to continuous improvement for our services and operating methods. Last September we embarked upon a comprehensive review of the services the CGC provides to its clients, the grain producers, marketers and grain companies. Today I'd like to tell you about what we've learned from that review and from the consultations that we've had with our stakeholders. It just gives you a description of the issues that we'll touch on this morning.

With me this morning is Dennis Kennedy, our chief operating officer of the CGC, and Marilyn Kapitany. She is the director of industry services and she will be helping me with the slides and then helping me address questions following the presentation.

The CGC was established in 1912 and we've undergone many changes since that date. But our reason for being remains the same, and that's to provide services and regulations that help bring integrity to the system and give Canadian producers and companies a competitive edge. Our corporate vision is excellence in grain quality assurance. As stated in our mission statement, we strive to be a leader in providing grain quality management and quality assurance. We are dedicated to excellence and responsive service, supporting producers in all sectors of the grain industry and their customers.

Section 13 of the Canada Grain Act reads:

We respond to this mandate by functioning as a neutral third party. This neutrality is essential. If the CGC were to be an advocate for any specific sector of the industry, this bias would prevent it from ensuring the integrity of the system. The integrity of the system, with the emphasis on fairness and accountability, is what protects the interests of producers, grain companies and their customers.

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The CGC is a special operating agency reporting to the Minister of Agriculture and Agri-food. We have approximately 750 staff and an annual operating budget of about $55 million, and we operate from 19 offices across Canada. Our headquarters are in Winnipeg.

Our activities include setting grain standards, performing grain quality research, official grain inspection and weighing, and regulation of the industry to ensure a safe, dependable commodity for domestic and export markets.

Over the years we have continually taken steps to make sure we are able to meet the rapidly changing needs of our clients. Producers in the industry have said they support the CGC, but not at any cost. They expect us to be responsive, flexible, and innovative.

Further, based on the expressed needs of our clients, we must respond to new challenges. Additional resources for research in rapid instrumental testing are needed to assist the quality of new varieties being developed.

The growth of the special crops industry means that CGC must allocate additional resources to support its needs. This is the case in both eastern and western Canada.

Customer concerns about food safety are increasing the demand for new, more sophisticated testing.

Customers are increasingly buying grain on the basis of specifications different from those of the established grades. The CGC must be able to assess those specifications.

Other countries are placing more emphasis on quality and research to better compete with Canada. The CGC must play a leadership role in maintaining Canada's traditional grain quality edge.

Finally, the CGC's financial situation demands attention. As I mentioned earlier, CGC has a staff of about 750 people and an annual budget of $55 million. Traditionally, 90% of our costs have been paid by the users of our services, with the balance provided by government. As well, we have a $12 million line of credit to cover temporary deficits.

CGC revenues come mainly from the weighing and inspection of grain exported from terminal and transfer elevators. Our finances depend on grain shipment patterns and the size and makeup of the annual crop. During the past seven years the major fees of CGC have remained constant, as have our salaries—and that's our major expense—which account for about 80% of our operating costs.

During the current fiscal year we faced a significant deficit, for a number of reasons. Considerably less grain is available for export through terminal elevators. Volumes have declined about 20% since 1995 and the trend is expected to continue. Based on settlements to date, public service contract settlements are expected to increase salary and benefit costs by roughly $3 million. Continuous operations of the west coast terminal elevators have increased our budgeted expenses by approximately $3.5 million.

The projected operating deficit for this fiscal year is approximately $10 million. Sometime in 1999 the CGC's line of credit will be exhausted. Without changes in revenues and expenses, we would expect an accumulated debt of about $29 million in the fiscal year 2001-02.

Our financial situation, as serious as it is, would have been much worse had we not made several significant changes since the early 1990s. These include a complete reorganization, which saw five divisions compressed to three; the introduction of a culture of continuous learning; an emphasis on technological innovation to automate systems; re-engineering of services—for example, our inward weighing services—to reduce costs. A reduction in staffing has occurred at various points in the 1990s when made possible by re-engineering, most recently in June 1998, when we downsized 52 positions. We have proposed further staffing reductions involving 50 to 70 positions. This will depend on the outcome of our program review process, which I will describe in a moment.

My point here is that the CGC is leaner and better organized than it ever has been. Our staff has been reduced by 65 positions over the past six or seven years, and that takes into consideration the increased staffing requirements in both Vancouver and the prairies.

But to meet the needs of the CGC stakeholders as we enter into the new millennium, and to ensure we have a sustainable quality assurance system, we need to make sure that additional changes take place, some of them quite significant.

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The current objectives of the CGC are to be financially stable, to be more responsive to our clients, to be more adaptable. In short, we want to make Canada's grain quality assurance system a sustainable system in a rapidly changing environment. The tool we've used to help us meet this objective is program review.

The process we have followed has been transparent, involving both our employees and our clients. Employee working groups reviewed all of our external services. We set up an industry-producer focus group to advise us, and the working groups surveyed our clients extensively. In December we concluded our external review and drafted a report, which was circulated widely in January. We also began our review of the internal services, an exercise that will be completed later this month. We conducted extensive consultations in eastern and western Canada, and I will have more to say about those in a minute.

We are now at a point where some decisions have to be made, both internally and by the government. We will soon be making our recommendations to the Minister of Agriculture and Agri-food. The report we issued on January 4, 1999, is lengthy, technical and detailed, and I wish here to touch on some of the more significant proposals we have included within it.

Reforming our funding structure is a key objective. The report speaks of three kinds of services, each of which should be paid for differently. We have identified these three kinds of services. First, public interest services have costs that should be paid by government appropriation because they are for the general benefit of Canadians. Services associated with grain safety, certain types of research, and protection of producer rights would fall into this category.

Second, in the area of client-specific services, these are services that are directly requested by the clients. The commission proposes that these types of services ought to be offered as long as the clients are willing to pay for them. The third area is that of quality assurance. These are services that provide shared benefits for all of the industry. Again, I will discuss this more in detail in a moment.

Often there is considerable overlap between the three categories of services. The benefits of a given service may be shared between specific clients and the grain industry in general, or between the public interest and a specific sector of the industry. In the report we identified those overlaps and suggested how costs for given services ought to be shared.

There are two types of quality assurance services. These are direct services, such as weighing and inspection of grain as it is loaded onto the vessels for export. We refer to these services as outward weighing and inspection, and they benefit producers who export grain through terminal elevators. As well, there are services such as grain quality research and the setting of grain standards, which benefit all producers, including those who export grain by land to the United States and those who process grain domestically.

Currently both kinds of quality assurance services are mainly paid for by outward weighing and inspection fees. In other words, producers who export grain through the terminals are paying for the quality assurance services, while those whose grain is used domestically or exported to the United States are getting the benefits of the quality assurance system for free. Our proposal is to reduce outward weighing and inspection fees so that they pay for only the direct costs of those services.

The other kind of quality assurance services, those related to research and grade standards, would be paid for by a quality assurance fee that would take the form of a check-off when grain is first delivered into a primary licensed or any type of licensed elevator in the country. For producers who export through terminals, this measure would be cost-neutral. Their fees would go down at the terminal elevators and up at the primary elevators.

We believe a phased approach is necessary. The CGC proposes to restructure the fees at the terminal elevators to separate out the quality assurance component of the services, effective August 1, 1999. The commission would immediately begin discussions with the stakeholders on the merits of moving this fee from the terminals to the licensed facilities where grain first enters the system. Ideally, this would take place August 1, 2000.

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We believe farmers will support this when they have all the facts. Polling of western Canadian producers we conducted 14 months ago showed that over 90% of farmers support Canada's quality assurance strategy. When asked if they would support the idea of a check-off to pay for the quality assurance costs in the system, close to 70% of the producers said the concept had their support.

Our program review report contains proposals to make our services less costly. Two proposals, the centralization of inward inspection and the use of mobile teams to provide outward weighing and inspection, would reduce our staffing requirements by about 60 positions. These measures would allow us to make better use of our staff while meeting the needs of clients. Inward weighing and inspection of grain refers to the weighing and inspection services performed by the CGC when grain is received at the terminal elevators. It is required by the Canada Grain Act, and it was originally intended to add integrity to the handling system, especially when the shipper and the receiver of grain were different.

Most grain companies today believe this protection should not be mandatory. Often the shipper and the receiver are the same and don't see the need to be protected against themselves. The CGC agrees with that position. We have proposed that inward weighing and inspection be provided by the CGC on a voluntary basis. This proposal would require legislative changes.

We have also proposed that the CGC accredit third-party companies to provide analytical service where it makes sense to do so. For example, it would benefit eastern Canadian producers if analytical tests we perform for them in Winnipeg were conducted in accredited laboratories in Ontario. Under no circumstances would the CGC propose accrediting terminal operators to officially certify their own grain exports.

For many grains there are two grade standards: one applied at the primary elevator and a stricter one applied at the terminal elevator. We have observed an interesting trend that provides an opportunity to simplify the grading system. More than 85% of the grain shipped from primary elevators meets the export standard. Therefore we have proposed to eliminate the primary standard and apply one grading standard at primary and export positions.

A long-standing issue among grain producers has been the wide variability in protein testing results they receive at primary elevators. This issue is important because producers are paid a premium for protein, and results that are out by a fraction of a percent can cost them money. Under the Canada Grain Act the CGC is empowered to arbitrate when producers and elevator operators cannot agree on the grade, dockage, and moisture of the grain. We have proposed in our program review report that this be extended to cover protein testing as well. In cases where there is a dispute over the grade, dockage, and moisture of protein, the CGC decision would be binding.

Finally, we have recommended that the costs of administering the CGC's producer security program be paid for by the licensing fees paid for by grain companies. Currently, outward weighing and inspection fees cover the costs of administering the security program. We believe it is inherently unfair to burden exporters of grain with costs that should be shared by all licensees.

The entire package of recommendations in the report, if they are accepted, will have implications for our clients. The first is fairness. Those who benefit from a service will pay for it; those who don't benefit will not pay. The second is that fees will change. Some will increase because they are not covering the costs of services right now. Others will decrease because they are subsidizing other services unfairly. The third point is that our clients will have greater flexibility to choose which services make sense for their business.

The cumulative impact of all of the recommendations I have mentioned, and there are more within the report, will make the quality assurance system sustainable, one that provides services that are needed at a fair price to the clients who benefit directly.

Since the release of our report on January 4, we have consulted widely with producer and industry groups in eastern and western Canada. As this process continues, we plan to continue this consultative approach. As you can imagine, we have received a wide range of views. Given the diversity of the players, we cannot claim consensus on some of the key issues.

Some principles that have emerged have had some support. Most stakeholders agreed that there is a greater role for government appropriation funding, particularly in the area of research. Most agreed with the principle that those who benefit should pay. Virtually all agreed with the importance of grain quality, and most applauded the CGC for undertaking this review.

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From the producer perspective, grain producers generally support the view that government should contribute more appropriation funding to the quality assurance system than it does now. Some have equated measures such as centralized inspection with abandoning their interests and are opposed to any reductions of staff. Others have said that the grain industry should be less regulated. Generally, producers are interested in the outcome of this process and want to work with us to develop a sustainable quality assurance system.

From the industry perspective, which includes the Canadian Wheat Board and the elevator companies, they have indicated support for some of the CGC recommendations. They believe government should play a larger role in funding CGC research programs and regulatory costs. At the same time, some of them favour an approach that is less regulatory and more market driven. Still, they show a willingness to work with us individually and as an industry to design a system that maintains Canada's reputation for quality.

I've been making certain that the Minister of Agriculture is fully briefed on our situation.

We are now at a stage where decisions are required. Internally, the CGC must make operational decisions about which services to re-engineer and how best to accomplish that in order to provide effective services at least cost. Our recommendations related to centralized inward inspection and using mobile teams to provide outward weighing and inspection services fall into this category.

There are regulatory decisions the government will be asked to make with regard to realigning fees according to the principles I have described. I am not in a position to explain precisely what those might be. The prerogative rests with the minister and the cabinet. However, an example of this kind of decision would pertain to the proposal to establish a quality assurance fee or to adjust the existing fees to reflect their true costs.

There also may be decisions of a legislative character. Examples in this category would include our proposals to make optional the provision of inward weighing, inward inspection, and weigh-overs. There are proposals for the government to review. Once again, I am not in a position to discuss those at this point either.

Our objective throughout has been to put forward proposals for a sustainable quality assurance system. This process of renewal will not be concluded quickly. I foresee a lengthy process, which includes all stakeholders.

In conclusion, I observe that the grain industry and the world economy are changing rapidly. Our proposals have been developed in consultation with the producers and the industry. They are designed to ensure as much as possible that the CGC is positioned to meet the needs of Canada's grain producers and the industry in the years ahead.

Again, thank you for having us participate in this meeting. We'd be pleased to address your questions. Thank you.

The Chairman: Thank you, Mr. Senft. I think that's a good start.

We'll go right to questions, starting with Mr. Hilstrom for seven minutes.

Mr. Howard Hilstrom: Thank you, Mr. Chairman.

I certainly welcome you fellows here today. It's nice to see you here.

I guess you're a special operating agency. Is that your terminology now, as a department? You basically have a monopoly on the business, I'm sure. There's not too much private grain inspection or weighing going on.

Mr. Barry Senft: As it relates to mandatory services, the CGC must fulfil the obligations of the Canada Grain Act. In the non-mandatory areas of inspection and weighing and what have you, there are alternatives other than the Canadian Grain Commission.

Mr. Howard Hilstrom: We have a fair bit of time today, so we'll get into the nuts and bolts of things.

I'd like to deal with a more current issue. Were there pickets at the Vancouver port this morning?

Mr. Barry Senft: Marilyn Kapitany, the director of industry services, has been working very closely with this on an hour-by-hour basis, so I'll let Marilyn reply to that.

Ms. Marilyn Kapitany (Director, Industry Services, Canadian Grain Commission): There are pickets at the James Richardson elevator and at Cascadia in Vancouver this morning. The other three elevators are operating with union staff, and that's on the day shift.

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Mr. Howard Hilstrom: Are there any of the commission staff...? They wouldn't cross the picket line anyway, but—

Ms. Marilyn Kapitany: I don't believe there would be any point in their crossing the picket line anyway, because my understanding as of this morning is that the grain workers are not crossing, nor are the longshoremen, so there won't be any operations out of those two elevators during the time the picketing is going on.

Mr. Howard Hilstrom: Okay.

This is a really big deal for these farmers, as you well know. You know the situation the farmers feel they're in—and in fact are in, not just feel. They are in a real financial crunch here. Is there anything you're able to do to keep the grain moving by different inspection processes or something in the emergency situation that would still satisfy the customer?

Ms. Marilyn Kapitany: We've been doing that as this has progressed. As you know, it's been a fairly lengthy labour dispute, and so we have had management staff in Vancouver able to service the terminal elevators. We've been focusing on the outward movement, and so we have not had any outward movement other than with our qualified weighing managers who have been taking care of that. On the inward weighing service, we have provided service wherever we were able, and in cases where we were absolutely not able because we just don't have enough people, we have granted exemptions on the inward service.

That's been on a limited basis and on a shift-by-shift basis. We watch it shift by shift, and if we're not able to provide service on a particular shift, then we grant the exemption for that shift and we monitor it as we go along. As Mr. Senft said, we've been watching it really on an hour-by-hour basis.

So, yes, the movement has been slowed somewhat, but our management staff has done a very credible job of keeping the grain moving in a difficult situation.

Mr. Howard Hilstrom: It's really good to hear that you're doing as much as you can there.

On the extent to which exports have been slowed down, have you any statistical figures indicating volumes that haven't left the country that could have left the country?

Ms. Marilyn Kapitany: It's been very insignificant in terms of volumes on the export side. In a sense we hit a fortunate period, if there is such a thing, because there wasn't a huge movement outwards and we have been able to manage the vessel shipment with our management staff.

There has been some interruption on the inward, the flow of grain into the port, particularly at times when there has been picketing and we haven't been able to unload any grain at all. We've spoken with the Wheat Board and we've spoken with other exporters; I don't believe there have been any significant delays on export shipments.

Mr. Howard Hilstrom: Do you have staff up at Prince Rupert now?

Ms. Marilyn Kapitany: Yes, we do.

Mr. Howard Hilstrom: Is there grain moving through Prince Rupert? I'm not talking about the strike, but just generally is there grain moving through Prince Rupert now?

Ms. Marilyn Kapitany: Yes.

Mr. Howard Hilstrom: At the same volumes as last year? Is there the same number of staff this year as last year, and is the volume of grain the same, or have you made adjustments by lowering staff up there when there's not as much grain going through?

This may be back to Mr. Senft.

Mr. Barry Senft: Again, as you know, the PRT has quit receiving grain and is going to be shipping out stocks, and if on the longer term there are going to be ongoing seasonal shutdowns of the port, we're going to have to look seriously at how we service that port. Again, we can't afford not to be doing work, to have people paid for not doing the job, so we're going to have to look at the longer term. It's now been two years that there's been a shutdown of a lengthy period, so it is something we're going to have to take into consideration.

Mr. Howard Hilstrom: Do you have the flexibility within the present union contracts to make those management decisions, or is it something we in the government should be negotiating out of those contracts now? Can you now do your management decisions, or does there have to be a change in the contracts with these unions?

Ms. Marilyn Kapitany: We do have some flexibility in that if volumes are lower in a particular year, we can use what's called “off-pay status” to reduce our staff on a temporary basis, and in fact that's what we will be doing when Prince Rupert ceases operations this year, in anticipation of them coming back on-stream in the fall.

Mr. Howard Hilstrom: Are those decisions made based on projections, or is it that after the volume has dropped you then make the decision, or is it made on projections from the Wheat Board and that telling you they have x amount of exports? Which is it?

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Ms. Marilyn Kapitany: They're made on projections. For example, we're projecting now that Prince Rupert is going to shut down, as Mr. Senft said, later this month, so we already have issued notice to the staff that there will be off pay. We look at projections, and then we also monitor as the information becomes more recent and adjust accordingly.

Mr. Howard Hilstrom: I suppose not, but is there any opportunity to move staff between Vancouver and Prince Rupert? Or is Vancouver more or less going to have to be staffed right full, because it always has lots of grain?

Ms. Marilyn Kapitany: There is some opportunity because we have some term employees in Vancouver, and so we can release term employees and move full-time employees from Prince Rupert. But we don't pay the staff for relocation or for expenses other than a very minor allowance, so it's quite difficult for them if they have families in Prince Rupert and have to maintain two residences. But we do make that option available to staff, and last year there were some who did avail themselves of that option.

The Chairman: We're out of time. Thank you.

There are no Bloc representatives here today, but Mr. Desrochers has granted his seven minutes to Mr. Proctor, so we'll go to Mr. Proctor for that time.

Mr. Dick Proctor (Palliser, NDP): Thanks very much, Mr. Chair.

I want to bring the discussion back to your presentation, Mr. Senft, and thank you for it. I'm sure you know better than I that there are some criticisms about the proposed changes that seem to be coming about at the Grain Commission under your direction as the chief commissioner.

Some of your critics are saying that you're moving away from the mandate that's there for the commission under the Grain Act, and I remind the members of the committee that this says in part:

I note that the vision statement that has been put out—and some would say initiated—by you seems to move away from acting solely in the interests of grain producers. It says “valuable and responsive agency to the grain industry and the farmers”.

So my first question is do you believe the first priority of the Grain Commission is to regulate grain handling in the interests of the producers, as it says in the act?

Mr. Barry Senft: Yes.

Mr. Dick Proctor: Can you explain, then, the vision statement and the differences between what the act says and what the vision statement says?

Mr. Barry Senft: There is a vision statement within the CGC that you're referring to and there also is a mission statement, and the mission statement includes the issue of protecting producer rights. So although it isn't referred to in the vision statement, it is addressed in the mission statement. Again, on the issue of moving away from the protection of producer rights, we feel that the proposals we're presenting in fact strengthen those producer rights.

One of the examples is that of the inclusion of protein in the grade and dockage. Among visitors to our building, and when we've been out to trade fairs over the last two years, the number one issue producers are raising with us is this inaccuracy in protein testing. Again, as they're moving as of August 1 to one-tenth settlements on protein settlement, that is becoming a more important issue. So we're strengthening that.

Producer cars is another issue that we as a commission administer for the protection of producers, and the alternative to the system in place, and that again is something we're protecting.

On the issue of licensing and security, security was identified as important to producers—the security of the licensed grain dealers or grain operators. This is something that's continuing in this program review.

Mr. Dick Proctor: You mentioned in your opening statement that some recommendations will be going forward to the minister. Will one of these be to change the act so that it reflects the vision statement more in terms of working on behalf of the grain industry and producers?

Mr. Barry Senft: Again, we don't believe this is in fact happening in the vision statement. The vision statement is that of assurance in grain quality, and it has some subheadings to identify what that exactly means, but again, in our mission statement we clearly identify producers as being the reason for being for the CGC. Everything relates to the integrity and fairness in the system.

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As I said, if you're asking whether it's an issue of protecting producer rights or being an advocate, we are a third party, and we are identified as a third party, and again adding integrity means the protection of producers in there.

Mr. Dick Proctor: Let me move a little more specifically. On the on-site grain inspection versus the centralized system, we've had calls and letters from farmers who are saying this is going to harm our country's international reputation. I'm aware, as I'm sure you are, that the three Wheat Board directors' subcommittee, which looked at this, the 3-H committee of Hill, Halyk and Hanson, expressed opposition to any centralized system. Are you aware of that report? Have you seen it?

Mr. Barry Senft: Again, we've met with those three individuals and we've met with the total Canadian Wheat Board. I think, and you can correct me if I'm wrong, that this was talked about with the Wheat Board on Tuesday, and the Canadian Wheat Board supports the move toward central inspection, again given some requirements along with that.

Mr. Dick Proctor: Just as an aside, I can say that one of those three H's has been in touch with me to say that Mr. Harrison, when he was here on Tuesday, was not reflecting what the subcommittee said on that point about centralized grain and has a very sharp difference of opinion. So we will need to pursue that as a committee, as I'm sure you will as the chief commissioner.

Mr. Barry Senft: We know that individually there have been some issues brought up, but again from the organization—and we have people who are discussing these proposals, not only this one but other ones, on a weekly or daily basis—they have some requirements around that. But again, our indication is that they're supportive of it.

Mr. Dick Proctor: Can I ask, as my final question, where is the driving force for the change coming from? Is it you as the commissioner? Is it the minister? Is it the producers? Is it your fellow commissioners? What's the driving force behind it, or is it simply the deficit that is making you do all this?

Mr. Barry Senft: As indicated in my presentation, there are a number of factors. The changes in the industry right from the producers up through to the customers are having us look at how we do things and what we do. Of course we want to do it in a cost-effective manner. The issue is that we have to compete in a world market and we need to have our producers as competitive, and the industry as competitive, as possible. So there are a number of issues that warrant the review of the services we provide.

Mr. Dick Proctor: Mr. Chairman, thanks very much. I appreciated the extra couple of minutes. I think this really is an important issue and I think it's excellent that we're hearing from Mr. Senft, but we also need to hear from producers. We need to hear from the staff who are involved in this—we as the committee. I would just make that plea to you and to the other members of the committee. Thank you very much.

The Chairman: Thank you, Mr. Proctor.

We'll go to Mr. Calder.

Mr. Murray Calder (Dufferin—Peel—Wellington—Grey, Lib.): Thank you very much, Mr. Chairman.

As a farmer from eastern Ontario, I have been involved in this ever since my election in 1993. I went through the change to the WGTA, and the feed freight assistance program. I've watched with great interest the move towards central elevation out west, where all the other smaller elevators are disappearing. You're going to a central receiving system now, which obviously has brought a lot of changes and will bring a lot of changes to the CGC.

I understand the review process is on, and it would be interesting for you to let us know how long you think this review process is going to go on. Also, what can be implemented in-house by you people in terms of changes? And basically what is going to need new legislation, if anything, once this review process is finished?

Mr. Barry Senft: Again, what particular areas they cover will be dependent on the timeframe for this. For example, moving towards a centralized inspection and weighing service is something we can, again, after consultation and making sure we and all the stakeholders are comfortable, do within our own means. Something like fees would take a regulatory change, so that is a longer process. Something like changes and making optional some services that are now mandatory within the act are of course legislative changes, which would take a longer period of time.

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Mr. Murray Calder: Now, who's involved in this review process?

Mr. Barry Senft: All the stakeholders. Again, we started this process in September with a meeting of all the industry, which included producer groups from western Canada—and I can't remember if eastern Canada was represented at the first one or not, but eastern Canada was involved in one of the meetings. There were the producer groups, the grain marketers, the Wheat Board, and the elevator companies. I guess that was about it. We started the process off with them.

The mandate, the parameters of the review that we started with, was to look at whether there is still a need for the particular services we are now offering; and if there isn't, then what are the implications if we don't do it, and how do we move out of providing that service? If they are required by one of the particular stakeholders, how do we provide them more efficiently, and how do they pay? And is there anything else we should do that we aren't doing today to provide services to the particular areas of interest, whether they're the producers, the companies, or the marketers?

Mr. Murray Calder: I just want to qualify the point, though, that all stakeholders that are involved within the grain industry in Canada are also involved in that review process.

Mr. Barry Senft: Yes, and then they went out and consulted, and we went through the process of defining and bringing forward our proposals. That was done at the end of December. We again met with the focus group. Then in the early part of January we went out and held meetings in Alberta, Saskatchewan, Manitoba, Ontario, and Quebec regarding these issues.

Mr. Murray Calder: I'm just going to switch gears here for a bit. We thought the cost of recovery was the be-all and save-all at one time, but we're beginning to find that within the farming community it can be a bit of a curse too, because we're getting hit from all angles.

I would just like to take a shot at one thing, and that's grain research. Do you think there would be a problem with cost recovery through the CGC, that it would put grain research at a disadvantage, that it would basically force a farmer to brown-bag it in larger amounts than what he already is? I've also heard that because of that, the seed companies are even kicking around the idea of a restrictor gene.

Mr. Barry Senft: Dennis do you want to address that issue on the research?

Mr. Dennis Kennedy, (Chief Operating Officer, Canadian Grain Commission): As we do attempt to recover more of our costs through fees—and that would include some of the research costs in the proposals that were put forward—it does increase the cost for plant breeders. For example, if we introduce a cost for testing their varieties, then they have to pass that on to their customers. So I guess the potential is there that it could lead to what you call the brown bag of using commercial production for seed purposes.

However, I point out that the level of cost recovery we're proposing on services like that is very small. It does sound like a fairly high fee. Say, for barley, it might be $1,000 to test the line of barley for a year. But given all the other costs of producing that variety, $1,000 is a pretty small portion of their cost.

I would also say the Grain Commission is certainly not trying to pass on the cost that fields the basic background research into varietal identification, and all of their research that goes into making them the experts in varietal evaluation. We are not trying to pass those costs on to the users of the research as such. We understand those are general research benefits that should not be passed on to specific users.

Mr. Murray Calder: This is my final question, Mr. Chair. Seeing that the CGC is under review—and obviously you're looking for goals for the future—one of the goals would be that you are not going to be running in a deficit position. How do you hope to achieve that?

• 0955

Mr. Barry Senft: The package we're bringing forward has both cost-cutting measures and those of increased revenues. Increased revenues come either by fees or by additional appropriation.

The Chairman: Thank you.

Now we go to Mr. Hoeppner, followed by Mr. Bonwick. You have five minutes.

Mr. Jake E. Hoeppner (Portage—Lisgar, Ref.): Welcome, ladies and gentlemen.

I'm going to start where Murray probably left off. I see you've laid off 52 people up to now. You're going to lay off another 50 or 70 by the year 2002. You're going to have a deficit of $29.2 million by that time. Out in the rural communities, a farmer will ask this question: Why do we need you? You march to the Wheat Board's orders anyway, so why should we spend all this money for something that doesn't give us much value?

Mr. Barry Senft: Again, the issue is that we're that of a third party, independent of the Wheat Board, independent of the other private grain companies. We work closely with each one of those identities, but that's to the benefit of the grain quality strategy. What we're hearing and have heard over the last period of time is that producers feel the grain quality strategy we've had in place is supported by them.

There are a couple of issues. One is what the competition is doing. For example, Australia and the emphasis they're putting toward quality should assure us that we are on the right track. The other issue is that of the sophistication of the processing. More and more processors are wanting commodities that not only are of quality but have continuity, consistency. That's part of the quality assurance system. I think it's going to be even more important in the future to have a good quality assurance strategy than it has been in the past. It has served us well in the past, but I think it's going to be more important.

Mr. Jake Hoeppner: What kind of authority have you to enforce regulations, or grades? The big issue in western Canada has been that for the last couple of years we've had illegal, unlicensed American grains coming in. They're funnelled into the milling system, which is illegal according to the Canadian Grain Commission. People are paying huge premiums outside the pooling system to get a certain kind of grain. To me, that isn't regulation, or it isn't doing much good to the farmers who depend on the pooling system. How much clout do you have to go after these guys who are doing this?

Mr. Dennis Kennedy: Well, a person delivering unlicensed varieties to the elevator system is required to identify them as unlicensed varieties, and if they do so, they're not eligible for the top grades of that grain.

Mr. Jake Hoeppner: Are they eligible to go into the milling system?

Mr. Dennis Kennedy: If it were wheat, there would be some question of the Wheat Board's authority there, but in terms of the Canada Grain Act there'd be nothing to stop unlicensed varieties from going to a mill for processing as long as it was known to be an unlicensed variety.

Mr. Jake Hoeppner: Then how can we segregate our grains and keep them up to the standards that foreign buyers may want?

Mr. Dennis Kennedy: For grain coming into the licensed elevator system, it gets into our bulk handling system and eventually, perhaps, gets exported from Canada. There, it's very important that unlicensed varieties be identified as that and be kept separate from our bulk handling system. If they were mixed with the Canadian grain, it would affect the intrinsic quality of that grain and end users would be unhappy with the mixed results they would get from that product.

There's a vigilance by the elevator operators to try not to accept unlicensed varieties unwittingly, and we also have monitoring programs where we do check, on a random basis, the makeup of shipments of grain from various areas to try to detect unlicensed varieties. If we identify an area where there is a problem, we'll step up the monitoring; we'll also step up the training of the elevator managers in that area.

So we do put great effort into making sure unlicensed varieties don't affect the quality of export grain.

Mr. Jake Hoeppner: Can you point to any incident where you've stopped this from happening, where you've investigated and shut it down? I know it's happening.

• 1000

Mr. Dennis Kennedy: In the fall, there were some car lots detected with unlicensed varieties in them. They were traced back to the shipping station of origin. There was an investigation with the shippers involved to determine how this happened. They checked their records and deliveries, and the problem was overcome.

Mr. Barry Senft: Again, the penalty there is that if grain companies purchased it as a top grade, it goes down to the lowest grade within that class. That's quite a severe penalty in itself.

The issue on varietal identification is something the Grain Commission has had a great interest in for a long period of time. In my remarks, I briefly mentioned what we call RIOT, rapid instrumental objective testing. Either through digital imaging, mirror infrared technology or DNA, we can test some of the qualities and varieties that I talked about earlier in terms of what some of the customers are dividing. They're not only starting to want particular classes of wheat, they want varieties within those classes of wheat. We have to have the ability to ensure that this can in fact take place and that there's some assurance that what they're getting is in fact the percentage of what they've requested.

Mr. Jake Hoeppner: I would hope you are successful with that.

The Chairman: Thank you, but we're out of time. We can come back to you, Jake. I think we'll have time to do that.

Mr. Bonwick, five minutes.

Mr. Paul Bonwick (Simcoe—Grey, Lib.): For my own sake, I would like some clarification. Following up on Mr. Hoeppner's statement, I tried to write down his comments, but I'm a little confused over the mandate. I read it in your presentation, and I heard from you about being independent of the CWB. Mr. Hoeppner said you take your marching orders from the CWB. Is Mr. Hoeppner right or wrong? Does the CGC take its direction from the CWB?

Mr. Barry Senft: No, we're a third party, an independent. We report directly to our Minister of Agriculture. In fact, at this point they have a different minister to report to. Again, we're third party to both the Canadian Wheat Board and private marketers. We do work closely with them—that's all part of the sales strategy—but we are independent.

Mr. Paul Bonwick: I was certainly aware that you're reporting to two different ministers, so it would have been difficult to take marching orders from one or the other.

I would like to come to the point on comparisons. It appears to be very obvious to me, and I guess to most people, that the service you provide is absolutely essential to the grain industry. Without knowing what your recommendations are to the ministers, I should commend you for realizing that it's an ever-changing industry, and for rationalizing on how you're going to deliver service in order to make sure it's done as efficiently as possible, keeping in mind the limited amount of funds that you have to deal with. It's in that regard that I would like to draw some comparisons.

I have two or three questions here. Maybe I'll run them off, and then you can address them all, because they're all in the same vein.

How does the CGC compare to like types of agencies in other markets? If you're looking internationally at grain monitoring agencies, how do you compare? More specifically, from a budgeting standpoint, how do you compare in terms of an overall budget versus the amount of grain you actually inspect? Can you provide any assessments or comparisons with regard to cost recovery or user fees being implemented or being proposed for implementation on Canadian producers, versus the European Union, versus the United States, versus Russia, versus wherever?

What I'm trying to do is look at the international measuring stick in order to find out where we rank, if others are in fact running into deficit situations, or how they're handling that.

Mr. Barry Senft: It's hard to make a direct comparison to the GISPA, for example. That's the Grain Inspection, Packers and Stockyards Administration, which is the closest, being our counterparts in the United States, the U.S. inspection and weighing agency. Of course, their functions and ours aren't apples and apples. We do a lot more research on the basic issue of quality. There, that is done either through the USDA, through the universities, or through the private sector. So on a cost-per-tonne basis, it's not comparable because we do such different functions.

• 1005

Mr. Paul Bonwick: There's likely no model in Canada, regardless of what sector of the economy we look at, that is identical to another market or to another model in some other country. But we still are able to draw comparisons. And if that means extrapolating through USDA or whatever agency, we still have to find some safety check or some check and balance that ours is as competitive as anybody else's.

Mr. Dennis Kennedy: As Barry said, the grain inspection agency in the U.S. is probably the best comparison because it's the most similar to our own. In that organization they have about a 70% cost recovery level. But as Barry said, they're only recovering those costs on a lower...they don't have the background research. So if you compare the services that they're cost-recovering at 70%, we recover them at 100%.

Mr. Paul Bonwick: If you do collect any information, please feel free to submit it through the chair, and he'll make sure we all get a copy of it from a comparative level.

On cost recovery, you said those who benefit will pay, and those who don't, won't. I'd like you to expand on what your definition of “benefit” is. There are producers who are telling us that they're producing and they're exporting at a loss. So if we're directing user fees or cost recovery fees to them, are they experiencing the benefit of the system? Yes, but the benefit is not equating to dollars and cents for them, so all we're doing is putting them deeper in the hole if in fact that's actually the case.

Mr. Barry Senft: Again, the issue of “who benefits will pay” is relating to moving the funding for the quality assurance program from the terminal back into the country where both exporters and the domestic users benefit from the research that goes on in our laboratory, from the standard-setting that we do within the organization. So right now it's distorted to those exporting paying for the benefits that others are receiving.

One of the other areas where the example could be used in the opposite is moving to the optionality in some of these services. If a shipper and a receiver don't need to be protected from themselves today, they're paying for it and they're questioning whether they need to be protected by it. They are indeed paying, and we're suggesting that this be optional. If the marketer and the receiver of that product need that service, we will provide it, but it wouldn't be forced upon them.

Mr. Paul Bonwick: Thank you.

The Chairman: We now go back to the Reform Party. I have Mr. Hilstrom on the list.

Mr. Howard Hilstrom: Thank you, Mr. Chairman.

Farmers are certainly paying a portion of your cost recovery fees in that. You've indicated in the program review that you consulted with farmers. The farmer out there always says he was never consulted. Where does the farmer have ongoing input to the Canadian Grain Commission? On a semi-annual or annual basis, do they have anything? Where does that come in?

Mr. Dennis Kennedy: Again, one of the things we found out through this process is that producers are quite interested in knowing what's going on in closer detail with the Grain Commission. As I mentioned earlier to one of our other questions, we had three meetings in Alberta, two in Saskatchewan, two in Manitoba, and a couple in Ontario and Quebec. When we came back, we felt that we should do this on an ongoing basis, perhaps every six months. Every six months might be the time to have the people come together to talk about the issues that are facing them along with the CGC.

Mr. Howard Hilstrom: That's great. As you travel through the west and the east, when you hold a meeting in a given area—say, London, Brampton, or Brandon—I would ask you to make a point of inviting the local member of Parliament and the local MLAs to attend, not necessarily to make presentations but to listen and possibly ask questions, because they also represent these farmers and constituents.

You don't have to answer to that.

• 1010

Mr. Barry Senft: Perhaps I could just comment further. I don't want it to be left that we haven't been in consultation since 1912, because we have attended trade shows, we do have assistant commissioners who are out talking to producer groups. We have, when invited, participated in the annual meetings of farm organizations, etc. So I don't want it to be believed that we haven't been out trying to consult. These producer meetings we have held is one additional means we can use to keep in contact with producers.

Mr. Howard Hilstrom: I encourage that and I agree with you.

I would like to shift gears a little bit here. What's your basic stand on the Estey report as it affects the Canadian Grain Commission?

Mr. Barry Senft: In the system in place today, we have the checks and balances that we feel are needed from a quality assurance perspective. If there are changes to the way that grain is delivered or brought forward, we as the Grain Commission will have to adapt to those changes and put different checks and balances into that system. We'll work with what the system involves too. As I said, we have those in place today, but if the system changes we will need to be involved in the process of how and to what that evolves.

Mr. Howard Hilstrom: The reason I ask is that the time to be involved with the Estey report is right this minute, right now. It's not a question of waiting to see what happens, of what the government does later on. It's important to be involved now and help effect those changes for the benefit of the farmer. You're set up by government, so it's a myth to say that you're a third independent. Well, you are a third independent party, but you're like the Wheat Board; you're part of government, and there are no ifs, ands or buts about that. You're set up by regulation. You have to operate by those regulations.

In regard to the Estey report, for instance, one very plausible recommendation—and a lot of people are in favour of it—is cleaning grain to export standards at the inland terminals. The industry is gearing up for that. They're fully capable of it. What effect will that have on you? What changes would you make in order to lower costs at port even though you may have to replace those costs inland? Can you comment on that?

Mr. Barry Senft: Yes. There is a change in the way grain is being procured, and again we've been making some of those changes along with that. We have over the last period of time been putting emphasis on having a presence in the prairies. At one point in time we did this through the government elevators, but when that ceased to exist there was really very little presence of the CGC in prairie locations, for example.

For likely three or four reasons, we've decided we need to be involved in the prairie region. One issue is that the marketer wants us to inspect the grain that's shipped into the U.S., and that has been to the benefit of both the shipper and the customer.

The second issue is that we're seeing companies wanting to know exactly what the grade is by a CGC inspector before they ship it to a terminal location either in Thunder Bay or Vancouver. So we're seeing more of that business.

The third issue refers to the question Mr. Proctor had about producer interest in some of the proposals. Producers will now have better access to some of the services the CGC provides. For example, we have within the provision of the Canada Grain Act the subject of grain dockage; they'll have a quicker turnaround time for that. They'll have the ability to go into our offices and get a sense of what their grain is as far as grain dockage is concerned when they go out to market that grain. As we know, grain procurement is changing and the time at the elevator row is changing. More is going onto commercial trucks, so we sense that producers want to make sure they know what they have before they put it onto a commercial carrier.

So it is a real benefit to the producer to have that presence. That's part of the issue. We're starting to have an infrastructure in the prairies, and that has an impact on what we are suggesting on some of the inward services we're providing at terminals. We have to streamline the costs, and you can't just add costs on and on to what you referred to already as commodity prices that are challenging. So that's part of the streamlining we're proposing in the inward services at the terminal locations.

• 1015

The Chairman: Thank you. Now we'll go to Mr. Hoeppner.

Mr. Jake Hoeppner: Mr. Breitkreuz wanted to ask some questions. I'll let him go first.

The Chairman: Go ahead.

Mr. Garry Breitkreuz (Yorkton—Melville, Ref.): Thank you very much. I regret I wasn't able to take in all of your presentation because of other commitments.

What work have you done or are you doing on the quality of genetically modified grains? Biotechnology advances are creating anxiety in the minds of some customers of Canadian grain. In your work in this area, what are you finding? How are you helping to alleviate the concerns people have in the area of seeds that have had their DNA artificially modified to be resistant to certain chemicals?

I'd also like your personal views, if you'd care to offer them, on where you think this is all going. Farmers are very concerned in my area and would like to know what the experts think about grain quality as grains are being altered. Will there be a change in the nutrition of those grains? Is it possible that other crops may be contaminated because of the changes being made?

How do you see this whole scenario playing out in our trade relations? We just came back from Washington, and some countries, as you know, are throwing up barriers. What is being done to help farmers continue to access all of these markets?

Mr. Barry Senft: I'll start to answer some of your questions, and then Mr. Kennedy or Ms. Kapitany can follow up.

On the whole issue of GMOs, our work is done from a quality perspective. As long as it constitutes the quality set out in the requirements, that's what we're looking at from the research point of view. The issues of how they're traced or how they need to be segregated are areas we are pursuing quite strongly.

I don't know if you were present when we talked about the rapid instrumental objective testing, where we want to put some emphasis on DNA testing for varietal identification. The other discussion paper we've just released in the last year is on identity preserved systems.

What we have now is a bulk handling system. You're suggesting, to make sure commodities are segregated for whatever reasons, there needs to be a process that is different from how we've traditionally handled our grain.

Mr. Garry Breitkreuz: I'm going beyond that. What kind of research is being done to ensure the grain is of good quality, and to assure our customers it's just as nutritious as some of the other grains they've traditionally been able to access from us?

Mr. Barry Senft: I'll just follow up on the IP system and then Dennis can answer that for you.

In consultation with everyone involved, we're talking about how the process of packaging a product and moving it through the system can take place, just from a service perspective and not from a mandatory perspective. So we're putting a lot of emphasis toward that.

Mr. Dennis Kennedy: We've added the research capacity and directed it toward trying to be able to identify the GMO varieties that are produced by getting the DNA markers, and developing rapid tests to be able to identify those within the system. That would enhance the identify preserve system Barry was talking about, as a means of keeping these products separate from other non-genetically enhanced materials.

We test every variety of grain, including new varieties that are genetically enhanced. We test the quality and safety of those grains by known standards. In other words, we test whether they perform as well as the comparable varieties for the production of bread and wheat. We also check them for residues and that kind of thing.

However, some of this is a psychological issue on the part of customers. I think it is more of a marketing issue, but we are trying to work with the marketers to see exactly where we could play a role in that as well.

Mr. Garry Breitkreuz: I'm wondering, if you haven't begun research—and this is a major project—whether it would be good to do research in the area in which they are expressing concern, especially the Europeans. There are blocks being put up to our grains because they are afraid something might be wrong with them; they might be a health risk and so on. Wouldn't the onus be on us to try to alleviate some of that with our research?

• 1020

Mr. Barry Senft: Yes, and again it depends on what particular areas they are. No matter what research we do, I guess we can understand that the customer, for whatever reason, may not want that. So I think we agree we have to do it from the quality perspective and assure them the food is safe. On the other hand, if doesn't convince them, we have to assure them they're getting the—

Mr. Garry Breitkreuz: I also asked for your personal opinion on where you think this is headed. Is there really a risk in these grains? It seems to me they're really not all that different from those that resulted from the long process we've often used to develop grains. Now it seems to be short-circuited. That's my opinion. What would your personal opinion be?

Mr. Barry Senft: It would be similar to yours. But again, the customer is right and they have to be assured it is a safe food product.

The Chairman: Thank you.


Mr. Jake Hoeppner: Thank you, Mr. Chairman.

I want to follow up on Mr. Bonwick's issue about the grading system. As you probably know, when you come to the Hill here sometimes you run into a little bit of BS. You have to deal with it and try to side-step it.

When I was elected, the first issue I ran into was the Grandin wheat coming into Canada illegally. This is where I think you people run into problems. Mr. Wiebe, the guy who brought some of that first wheat in, lived very close to me. He told us very plainly that although industry officials say the first Grandin seed wheat came into the prairies illegally, one of the first farmers to import it said Agriculture Canada officials told him how to do it. He didn't have to use the name; he could use it by lot. How do you beat something like that?

I was in Alberta two winters ago when the deer feces issue broke. The Japanese refused it. How was it possible that type of contaminated barley got over to Japan? It had to be cleaned again. I was told there were two unit trains in Alberta sitting waiting for feed lots to pick that stuff up. It probably cost farmers millions of dollars. How could that have happened?

Mr. Dennis Kennedy: As I said, the import of unlicensed varieties is not illegal, but there are controls in the Canada Grain Act to keep these out of the licensed handling system so they're not commingled with Canadian grains.

Mr. Jake Hoeppner: Can they be brought in to be grown as seed? They had to be reproduced, and that's what the big issue was.

Mr. Dennis Kennedy: Yes. As far as the Canada Grain Act goes, there's nothing to stop farmers from bringing in unlicensed varieties and growing them. But there is a responsibility on the farmer to identify grain as unlicensed when they're selling it to a licensed elevator.

Mr. Jake Hoeppner: Does that happens every time?

Mr. Dennis Kennedy: It may not, but that's why we have the monitoring programs in place to try to help the industry—

Mr. Jake Hoeppner: This is where I see you have some big problems, and I hope you have a big stick to fix some of these issues. Just to know the problem is there doesn't fix it.

Mr. Barry Senft: The deer excreta issue was an unfortunate situation. For a number of reasons—the deer population, the crops that were out that wintered, the crops that were stockpiled outside—there was a heavy concentration of excreta in that grain.

It was felt the cleaning systems would deal with it as it went through the system, but as we are aware, that didn't happen. Our sampling system did not pick it up. We have what's known across the world as an acceptable or more than acceptable state-of-the-art type of sampling equipment, and that didn't pick up the excreta. It ended up going into the hold and we had to deal with that.

We started a different protocol, but it slowed down the system. Now, after consultations with producers, marketers and everyone who was involved, we have gone to zero tolerance on excreta right from the primary elevator through, because it's something that is hard to clean out once it's in the system.

• 1025

Mr. Jake Hoeppner: In the Peace River area, where this grain came from, we've had grain outside all winter long year after year, and we've never run into that problem before. I maintain that with the technology today, that should never have happened if somebody was doing the job properly.

Mr. Barry Senft: The fact of the matter is that it was more extensive than just the Peace River. We thought it was the original issue of northern Alberta and Peace, and it ended up all over. It wasn't because of grain that wintered, it was because of the stockpiles. It ended up in high concentration. A lot of it was taken out through the cleaning methods, but it wasn't all taken out. I think it was just given the year and how grain was stored for that year that gave us a...and it was unfortunate. Again, we went into a different protocol as to how those ships were inspected, but it was a system that took longer than normal.

Mr. Jake Hoeppner: The bad part about it is that farmers paid for it in the long run, and that's where it hurts.

Mr. Barry Senft: With regard to slowing down the system, farmers will pay for it through the slowdown to have a different protocol, or if you go to a different type of inspection, farmers are going to pay for it. So again, it's what can we do in the most efficient manner.

The Chairman: Thank you.

Mr. Calder.

Mr. Murray Calder: Thank you very much, Mr. Chairman.

Barry, I want to go back to efficiency and cost-effectiveness, which are the two bugaboos for the farmers right now, because we get into this cost recovery business again. When the WGTA was done away with in 1995, the CGC saw its business go down by about 20%. The reason is that the grain out of Manitoba and eastern Saskatchewan is being shipped a different way. It has a beef skin, a pork skin, or a sheep skin wrapped around it. It's my understanding that what this has done to you guys is that you're going to be running about a $10 million shortfall this year, and then through different changes you're going to be doing you're going to try to get that down to between $5 million and $7 million afterwards.

Obviously you can't keep running a deficit year after year, so you have to get down to a zero balance. How do you think you're going to get down to that zero balance? Are you in fact looking at raising fees? Who's going to pay for that? Just how are you going to restructure to get to that zero balance?

Mr. Barry Senft: Again, the program review addresses the issue of the deficit twofold: one is that of streamlining and reducing costs of doing our business, and the other is that of revenue. Revenue can come in either of two ways: one of additional fee increases or that of appropriation. That's what we'll have to be discussing in the near future.

Mr. Murray Calder: Are you concerned about the fact that if you do increase fees you're basically putting our western farmers in the situation where they are now not going to become competitive or they are less competitive?

Mr. Barry Senft: Very much so, and that's why we are suggesting some of the streamlining effects we have in the proposal. We looked at how we can do our services that stakeholders have said needed to be done in a more efficient manner. My father and brother farm, and I know what's going on as far as the margins within their operation are concerned. So we understand the issue of increased costs to farmers. That's why we've suggested some of the streamlining proposals within the program review.

Mr. Murray Calder: Let's get into that streamlining a wee bit. As we see the elevators centralizing, obviously you will be close to Thunder Bay. You'll probably be centralized wherever the mega-elevators are out west. Then you're proposing something you're calling a flying squad. Can you explain that a little bit more?

Mr. Barry Senft: I'm going to let Marilyn comment on that.

Ms. Marilyn Kapitany: What we had proposed is that flying squads or mobile service teams would operate within the terminals in Thunder Bay or Vancouver where it makes sense. What we found when we were doing program review was that particularly in Thunder Bay there isn't a vessel at every elevator every day. There are seven elevators in Thunder Bay. Right now we have outward inspection and weighing staff at every one of those elevators, anticipating a vessel being there. We think we can do things more reasonably if we have fewer squads that are available to move to where the vessels are. So we provide the timely service and the outward services when they're needed, but we're able to cut our costs by having a lower total level of staff in the port.

• 1030

In Vancouver it's less clear because there is more often a vessel at every port in Vancouver. So we'll be doing it very carefully in Vancouver, if in fact we do go to the mobile service teams in that port.

Mr. Murray Calder: How would you be handling Churchill? Obviously that affects Manitoba and eastern Saskatchewan. I'm very much aware of the fact that they only operate maybe two or two and a half months out of the year. I think Prince Rupert falls into that category too. How would you be handling that?

Ms. Marilyn Kapitany: Churchill is literally a flying squad. We fly them in at the beginning of the season. They stay there during the season, and then we fly them out. Because of the geography, we can't do the same kind of thing as we would in Thunder Bay. We would have an inspection and a weighing team in Churchill, and they would stay. It's too costly to fly them back and forth depending on when the vessels are in place. In Prince Rupert it's the same thing. Because there is only the one facility there, we can't use the mobile service team model. We're looking at other ways to streamline the operations in Prince Rupert and Churchill. But the mobile service team model doesn't fit in those two locations.

Mr. Murray Calder: Given all these changes we've just talked about, do you think you can get down to the zero balance?

Mr. Barry Senft: It's going to take a combination of streamlining and some costing pieces, including revenue increases.

Mr. Murray Calder: Thank you.

The Chairman: Mr. Hilstrom.

Mr. Howard Hilstrom: Mr. Chairman, thank you.

When is this plan going forward to the minister? You mentioned it a few times.

Mr. Barry Senft: Within the next month.

Mr. Howard Hilstrom: Okay, great.

It's my understanding that there are always little trial balloons floating around all the time, and I think the unions involved have been making some points in the media. What are the two key points of your plan that's being put forward that the unions disagree with? Central inspection would probably be one. I suppose it would be anything that would lower the number of employees required. Can you touch on that for us?

Mr. Barry Senft: I think central inspection would be the biggest issue from their perspective, and, as Marilyn reminds me, the mobile teams.

Mr. Howard Hilstrom: Have you commented at all on anything in regard to solutions such as final-offer arbitration in dealing with contracts and such that would help ensure that your costs are as low as possible by not having labour disruptions and all these things?

Ms. Marilyn Kapitany: We don't develop the contracts with our employees; Treasury Board does that on our behalf. We take different ideas to the Treasury Board in terms of what we might need in contracts, and they carry them forward.

Mr. Howard Hilstrom: So that doesn't form part of your formal proposals.

When you refer to farmers in the boardroom or whatever, do you refer to them as customers? What do you refer to them as? Where's their classification in all of this?

Mr. Barry Senft: Producers want to be identified as producers. What we found out through the consultations is that some describe them as being part of the industry. What we've heard is that they want to be identified as producers and the industry. So we've identified them as producers. They fit clearly what we feel is a client or a stakeholder.

Mr. Howard Hilstrom: On this side of the table there are three farmers. There's one chicken farmer right over there, and as for Mr. Bonwick, I'm not sure. I don't believe Paul is a farmer, and as for Mr. Murray, I'm not sure.

Any time I pay for something on my ranch I think I'm a customer, because I'm paying either for a service or a good, and you guys are producing either a service or a good I'm paying for. I think that distinction is more important than it may seem on the surface, that a farmer should be considered and looked on as a customer because he is paying.

In looking at who pays—and this is a really big thing with you guys right now—in this area of GMOs, in order to properly handle that, you have to have a lot of relatively new expensive technology. How do you sort out who is the big benefactor in this? The farmer is going to benefit by using GMO, herbicide-resistant or insect-resistant crops or whatever, but the big money makers are the processors who have that better quality product or seed to process. The plant breeding companies are the big money makers. How do you make sure they pay and not the farmer?

• 1035

You have the farmer in your hand. He's no problem. But what about these other fellows?

Mr. Barry Senft: The proposal on the RIOT, the rapid instrumental objective testing, which I think addresses the issue you're talking about—we've come together with a business plan where it would take between $12 million and $13 million to fund that. The approach to raising the funding for that initiative is from the stakeholders, some of whom you mentioned already, everyone who benefits from that technology. For example, yes, producers would contribute. We would hope the grain elevators would contribute to it, the marketers, the Canadian Wheat Board.

Mr. Howard Hilstrom: What about the plant breeders, Monsanto, and these guys?

Mr. Barry Senft: Yes.

Mr. Howard Hilstrom: Specifically, how would you get money out of Monsanto?

Mr. Barry Senft: By approaching them, and that's what our plan is in the next period of time, to approach them for funding.

Mr. Howard Hilstrom: Send them a bill or just approach them, have a meeting and try to see if they'll give you something?

Mr. Barry Senft: Well, sending them a's their prerogative whether they pay it or not. Hopefully it would be a mutual agreement.

Mr. Howard Hilstrom: A negotiated type of thing. Okay. That's fine.

It's just that we've been talking around here since last September about the terrible crunch the farmers are in, for the most part. When the good years come, they're a business like anything else, but they're just at the end of the rope or at the end of the economic business food chain. They're down there at the bottom and it's a real problem. That's why we bring up these questions around here.

The Chairman: That's five minutes. Jake.

Mr. Jake Hoeppner: Yes, I have just one question. I want to go back to one of your paragraphs, where it says:

As a farmer I get a little hot under the collar when I see you guys coming here to make recommendations and you haven't got the permission from the farmers to do it. If they're that top secret...good Lord, why can't we discuss them right here and give the government our input as to whether it's a good deal or not?

Mr. Barry Senft: It isn't our mindset that we wouldn't discuss this with producers. What I mean in the description of that issue is that again, because it's a mandatory requirement within the grain act, it would be ultimately the government's decision as to whether they wanted to change that or not.

Mr. Jake Hoeppner: Who does the government represent? Who's the government?

Mr. Barry Senft: Again, it has to go through the parliamentary process.

Mr. Jake Hoeppner: Well, we're here. We'd like to discuss it. This is Parliament. This is the highest court of the land. You can't have a court with just a judge. You need some prosecutors and you need a defence.

Mr. Barry Senft: It isn't that we don't want to talk about the reasons we're making the proposals. That isn't the issue. The issue is ultimately it's the government's prerogative whether they want to change the legislation or not. It's not that we don't want to talk about the issue, and if you have questions pertaining to that, we'd be happy to address them.

Mr. Jake Hoeppner: If I go back to the farming community and have town hall meetings, they're going to ask me questions. I will say I don't know what's being proposed to the government because we haven't seen the recommendations. So what can I tell them?

Mr. Barry Senft: Again, this is part of the material that's been talked about with those town hall meetings. Again, if further discussion is needed in meetings you're organizing, we'd be pleased to attend and talk about the issues.

Mr. Jake Hoeppner: After the government has set the legislation.

The Chairman: I noticed your wink, Mr. Hoeppner. I think you have to understand, Mr. Hoeppner, that we have not reached any legislative stage yet.

Mr. Jake Hoeppner: I appreciate that.

The Chairman: I know it's sometimes difficult for you to grasp these things, especially if Liberals are implicated, but no one is ruling out a legislative stage and no one is ruling it in right now. We're in the early stages of all this.

Mr. Bonwick.

• 1040

Mr. Paul Bonwick: I have a couple of points. Mr. Hilstrom has identified who the farmers are, and the Reform Party representative on the agriculture committee also mentions Mr. Calder's obvious expertise in the industry as a farmer. We're fortunate not only to have Mr. Calder, but obviously the minister is a long-time farmer and has vast experience and expertise in the industry as well. It's something we continue to draw on, from Mr. Calder, our parliamentary secretary, and Mr. Vanclief. We draw on their expertise. Thankfully, the minister also recognizes the need to have a good cross-section from the Liberal side, representing a cross-section from right across Canada, representing various ridings and not simply farmers. I think that's important to recognize, that there is that cross-section on the Liberal side.

I want to get to the point that Mr. Hoeppner and Mr. Hilstrom brought up, I guess for the third time. The Reform Party representatives seem to be having a great deal of difficulty in understanding what it means to operate as a third-party, independent body. I would ask you, I guess for the third time, to expand on it so that maybe their obvious confusion in this regard could be clarified. They seem to be suggesting that the government or the minister has a direct role in the day-to-day operations or somehow influences you in your day-to-day operations or what levels you're going to be putting in place.

So I wonder if you might clarify that for their benefit, for the third time.

Mr. Barry Senft: Again, we have the Canada Grain Act from which we derive our power. Again, we're a special operating agency that reports to the Minister of Agriculture and Agri-food. Again, there are issues, as far as what is within our operational requirements, that we can do on a day-by-day basis. There are issues from a regulatory process that we need approval for, and then there are issues, again, in terms of what the legislative requirements might be. It is laid out for us what powers the commission has in each of those respects and the process for the commission to follow.

Mr. Paul Bonwick: Hopefully then, with that explanation, my colleagues across—

Mr. Jake Hoeppner: We need more. It's not quite clear.

Mr. Paul Bonwick: With that explanation, on the third occasion, perhaps my colleagues in the Reform Party have now grasped it, and perhaps they would like to ask a fourth time about the independence of it.

Mr. Jake Hoeppner: One more question. I would like to—

The Chairman: Hold it. We have only 16 minutes to go, and with all due deference to Mr. Hilstrom, the chair is going to ask a couple of questions.

Do I take it, Mr. Senft, that the layoffs that occurred in 1998 have not impaired the work of the commission?

Mr. Barry Senft: We have not stopped any service that we were providing before the downsizing, in some of the capacity, and that's what we had to do through that process. We had to prioritize where we felt the work didn't need to be on as timely a basis. So we didn't cease any service; it was a streamlining of the particular services.

The Chairman: Okay. I just want you to give me clarification in two or three areas as quickly as possible.

You allude to what you call ongoing operations at the ports that have resulted in increased costs to you, I think $3.5 million. Can you just explain to me what we had before ongoing operations so that I have a better understanding of those increased costs?

I'm not exactly sure, and I suspect it's more of a comment on my own ignorance of some of these issues. You want to go towards central inspection. Well, what do we have now that would be dropped so that you would replace it with central inspection? I just want clarification.

The other thing is, you mention in your opening statement, Mr. Senft, that one of the original intentions of the Canada Grain Act was to add integrity to the handling system, especially when the shipper and the receiver of grain were different entities. Most grain companies today believe this protection should not be mandatory. Often the shipper and the receiver are the same and don't see the need to be protected against themselves. If you can give me clarification of that, I think I'll be quite happy.

• 1045

Ms. Marilyn Kapitany: I can speak to the first question on ongoing operations at the ports. In the past, until last year, Vancouver operated the same as the Grain Commission did, on five days. If they shipped or received on weekends, it was an overtime situation. They made changes to what is called continuous operations. We don't have the ability to do that within our existing contracts, so we still work on five days. They work on seven. We have to provide people around the clock for their operations. In the past we were able to recover the overtime that we paid to our employees. We can't do that any more. That resulted in our having to have more people in place to cover the shifts seven days, three shifts a day, as well as not being able to recover the overtime in the way we did before.

The Chairman: Okay, and the other two areas?

Ms. Marilyn Kapitany: Right now we have inspectors on site at every elevator in Vancouver and Thunder Bay to provide service at the peak levels. The way railcars arrive in grain elevators, it's not a regular flow. We could have a push of railcars in and we would unload those railcars, and then it could be a while before the next push would come in. Our inspectors then are waiting for that work to come. So there are real peaks and valleys in the way the work is done.

We're proposing with centralized inspection to try to smooth the workflow to allow us to provide this service more efficiently. There would still be a CGC presence in every elevator to take the sample, to do the moisture and protein on the sample. Then they would package up the samples, and we would have those samples collected on a regular basis and sent to a centralized location, where every sample would still be graded. Just as before, the grading information would be provided—

The Chairman: But you're not going to have a presence at every terminal every minute of the day?

Ms. Marilyn Kapitany: Yes, we will.

The Chairman: You're going to move—

Ms. Marilyn Kapitany: We will have one person there to collect the sample and do the moisture and protein, and bag up that sample. In some elevators there are three or four people who are on site to provide service when it's required, and there are too many peaks and valleys to allow us to do it effectively.

The Chairman: Yes. Okay.

Ms. Marilyn Kapitany: Can I add one more thing to that, Mr. Chairman? We've said to the elevator companies that would be our base level of service and we would speak with them on an individual basis to find if they want more service than that, and then we would negotiate that with them. We are meeting with each of the companies now to see if that is an effective way to do the business and if we can reduce those costs or if we are going to work differently with them to provide a higher level of service.

Mr. Barry Senft: With regards to your third question, an example of what we're meaning there is that we're seeing more and more of the same grain company shipping non-board into their facility at the terminal. so the settlement has been made with the producer out in Saskatchewan, Manitoba, or Alberta. They've made the settlement. The producer is out of the loop now. The grain company moves their commodity through the system, and what we're telling them to do today is they need to inspect and weigh that grain. Really, it isn't an issue of quality because we have the checks and balances of the outward inspection and weighing that are going to deal with that. It's an issue that we're inspecting grain and really there's not going to be any transaction taking place.

In the area of the Wheat Board grains, as it stands today, when the grain is moved into the terminal, the transaction takes place between the grain company and the Wheat Board. The Wheat Board has said they want that third-party presence on an ongoing basis. That's the particular area where we would provide service for the marketer and for the receiver. In other cases, that third-party presence wouldn't be needed.

The Chairman: Okay, we'll leave it at that.


Mr. Jake Hoeppner: I just have a short question. I wouldn't want to have Mr. Bonwick leave this meeting not being somewhat enlightened. We know that the farmers and the industry people pay practically all your wages. Who appointed you to the job?

Mr. Barry Senft: Through the Minister of Agriculture, it was an appointment from the Privy Council.

• 1050

Mr. Jake Hoeppner: Thank you very much. That should resolve somewhat the issue of how independent some government bodies are.

Mr. Howard Hilstrom: We're sharing our time, Mr. Chairman.

Mr. Jake Hoeppner: We've got five minutes, I think.

The Chairman: I want to end this in about three or four minutes. Go ahead.

Mr. Howard Hilstrom: Okay. This isn't as frivolous a conversation as it might seem, the question of who's calling the shots and what's happening, and I think it's important that farmers do understand the difference, if there is any, between a special operating agency, a full government department, and a crown corporation. If a farmer were to ask you that question, what would you specifically say? What extra independence do you have that's not available to these other ones?

Mr. Barry Senft: Again, I'm going to let Mr. Kennedy address that. He was one of the key people who moved it from its past status into the special operating agency.

Mr. Dennis Kennedy: The special operating agency status, coupled with the fact that we report directly to the minister and that we are in the revolving fund, gives a fair amount of independence to the—

Mr. Howard Hilstrom: Of what? I'm sorry, a revolving...?

Mr. Dennis Kennedy: A revolving fund is a funding arrangement whereby the government has given us a line of credit that we can draw upon. They also contribute a certain amount of money, $6.3 million, to us each year. But outside of that, we must generate enough revenue to cover our expenses within the limits of that line of credit. We have a direct reporting of our chief commissioner to the minister, which gives us a high degree of independence. There is no relationship with the department except on a mutual cooperation and efficiency point of view. There's no reporting relationship. That really is the thrust. It's clearly independent of the rest of the government. It's responsible for carrying out its mandate, and it must carry out its obligations within its financial constraints.

Is that okay?

The Chairman: That's fine.

Mr. Garry Breitkreuz: I have one point of clarification.

The Chairman: Go ahead.

Mr. Garry Breitkreuz: In regard to the question I asked about the genetically modified grains, you're not doing any research at the present time on the quality; you're only identifying the varieties. You're not doing any research on whether there are any health risks or anything like that. That is not being done at the present time. I just wanted to make sure that's clear.

Mr. Dennis Kennedy: Oh yes. As with any other variety that was being considered for registration or testing, we would test the baking quality, we would test that it performs as it is. We would be testing it for known safety factors, and that would be mainly for residues and toxins in the grain. So it would undergo all of those tests as well as the general research.

Mr. Garry Breitkreuz: Okay, yes.

The Chairman: I think it should be pointed out, Mr. Breitkreuz, that the commission is not the only agency here involved in food inspection or food safety. The CFIA is mandated to do that work as well.

Mr. Garry Breitkreuz: Yes.

The Chairman: Thank you.

I just wanted to say something, members, and I suppose this is in reply to a suggestion or a reference made by Mr. Proctor just before he left. He was wondering out loud that perhaps others should be heard. I think it should be pointed out that in the wake of the program review and the consultation process, and in light of what Mr. Senft has said, which was that the consultation process will go on probably for another two, three, or four weeks and that he would make his recommendation to the minister in a month's time, I really don't think we should be interfering with the consultation process.

I think it was good to have the commission members here, because of the stories out there, to give them an opportunity to give a full accounting of where they're at, what they're doing, and some of their ideas, but I would certainly not be in favour of having all kinds of hearings or meetings on this issue. I think once the recommendations go to the minister and the minister replies, and if there are changes involving either regulation or possibly legislation, there may be a role for the committee at that particular juncture or junctures.

• 1055

But I would say right now that I think we should be grateful that the commission officials were here. I think we've had a good meeting and I think we should just leave it here. If someone disagrees, I suppose we can bring it up at a steering committee meeting, but that's where I would leave it.

If there are no other comments, Mr. Senft, Madam Kapitany, and Mr. Kennedy, I want to thank all of you. I think you've done a yeoman's job today. We appreciate your time here, and I wish you well. I think I can speak for everyone—golly, even Mr. Hoeppner—in saying that we think the commission—

Mr. Jake Hoeppner: You've done a good job today.

The Chairman: —does good work, that you always have the best of intentions, and we just wish that you can come through this difficult period perhaps even stronger than you were in the past.

Mr. Barry Senft: We will.

The Chairman: Thank you. This meeting is over.