Cost recovery may place CGC in conflict

The retention of the Canadian Grain Commission surplus by the CGC raises questions about the organization’s purpose, services and sources of funding.

The CGC’s budget is covered through user fees paid by the farmer through grain companies. The industry has no say in the establishment of CGC’s budget but is required to cover these costs. Weighing and inspection fees at a charge of $1.42 per tonne of grain for the loading of vessels is by far the largest generator of revenue for the CGC.

In today’s global grain market many grain buyers and suppliers prefer to sell and buy grain with a certificate of analysis from an agreed upon third party inspector. These requests by international customers make the mandatory nature of CGC outward weighing and inspection of export vessels outdated, and only add costs to the system. In Canada, more than 80 percent of grain exports have this contractual obligation, meaning that for 80 percent of the exports, CGC inspection service is redundant. Farmers are paying for it, not once but twice.

It may appear senseless to carry out two analyses but it is important to emphasize that Canadian exporters are responding to customers’ needs. Third party analysis is preferred due to a number of factors:

  • Timeliness — On average, third parties provide their inspection certificates in a timelier way.
  • Services — Third parties are not limited in their ability to undertake additional analysis at the request of the exporter.
  • Consistency — Many companies have an international presence and, in many cases, the end-use company is looking for the same company to do the assessment at vessel load versus unload.
  • Costs — Qualified third parties can provide an export certificate at considerably less expense, about 50 cents per tonne. When additional non-mandatory services are needed, third parties provide these at a lower cost.

The good news is that this area also represents the greatest opportunity for cost savings. It is the most relevant example of where the CGC should be retained as the regulator, but removed as the service provider.

The CGC would accredit third parties to provide outward inspection services that adhere to the CGC grading system to introduce the element of competition for both service and price. Certificates Final would be issued by the CGC based on third party inspection of cargoes where the customer requires it, and allow commerce to transact outside the CGC on cargoes where a customer requests a certificate of analysis from a third party inspector instead. The accredited third party would collect a sample for phytosanitary testing through the Canadian Food Inspection Agency where required. In fact, the CFIA already accredits and uses third parties for phytosanitary analysis.

CGC oversight would ensure standards are upheld while introducing competitive costs to the system and allowing for only one inspection. The concept follows the principle of fostering lower cost alternatives while providing enhanced and more efficient services.

Costs incurred by third parties to gain CGC approval and to maintain certification would presumably be charged back to industry, but it should be nominal.

The CGC’s 2018-19 budget is increasing to $70.5 million, which is up more than $10 million from 2016-17. At the same time, CGC full-time employment numbers have increased to provide services that many customers do not require.

However, if grain inspection and weighing services were removed from CGC’s responsibilities, it could reduce costs by more than 50 percent.

The CGC has the ability today to authorize third parties to undertake official inspection on its behalf, and it would not require a change to the Canada Grain Act. But it won’t do this because it jeopardizes its funding.

There is an inherent conflict of interest when a regulatory agency is made to operate on a cost-recovery basis.

Rather than being primarily motivated to undertake activities in the best interest of the Canadian grain industry, the agency risks being motivated by a need to create and apply regulations in a way that generates the most revenue for itself.

Wade Sobkowich is executive director of the Western Grain Elevator Association.

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