CGC Fees Changes Opposed

SASKATOON - May 23/13 - SNS -- Both the Western Grain Elevator Association and the Inland Terminal Association of Canada are opposed to the fee increases which will be enacted by the Canadian Grain Commission (CGC) effective August 1.

The changes were mandated by the federal Conservative government and are viewed as an "unfair and unnecessary increase in costs" which will increase the financial burden on Canadian farmers without increasing their benefits from the system.

The following article is by Wade Sobkowich, Executive Director, Western Grain Elevator Association and Kevin Hursh, Executive Director, Inland Terminal Association of Canada.

Conservative Amendments to CGC Act

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

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

- Allows the Canadian Grain Commission (CGC) flexibility in ways to have elevators post security

- Removes mandatory nature of having the CGC do inward weighing and inspection

- Moves the CGC to monitoring on outward weighing

Who Saves Money?

These are generally positive changes that will result in cost savings, but to whom? Government funding to the CGC is decreasing from approximately $37 million dollars to $5.4 million dollars, or down from 50% to 9%. Meanwhile, outward inspection costs are more than tripling from $0.51 per MT to $1.60. Elevator licensing fees are increasing from approximately $100 per elevator per year to a staggering $3,300 per year. In both cases, the increased cost does not come with any change in the nature of services provided by the CGC.

Looking then at outward inspection which will now be the CGC's most significant revenue stream, the cost of a single Certificate Final for a 50,000 metric ton (MT) vessel will increase from $25,500 to $80,000. The annual cost to an export terminal handling 5 million MT of grain per year will now be $8 million.

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

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

Outward Inspecion Should be Optional

Having the CGC provide outward inspection should be optional. It should be available for customers that require it, but other third parties could provide the same service as well. Certain buyers that require an export certificate do not necessarily require that it be provided by the CGC, and other customers accept third party inspection regardless of the CGC certificate, resulting in a duplication of costs. Qualified third parties can provide an export certificate at considerably less expense, approximately $0.40 per MT, which is similar to what US exporters pay for certificates final.

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

The root of the issue is that the CGC performs some functions for the good of Canada, and is being required to include the costs for these other functions in its cost calculations for user fees. There is an inherent conflict of interest when a regulatory agency operates on a complete cost recovery basis. Rather than being primarily motivated to undertake activities that are in the best interest of the Canadian grain industry, the primary interest becomes one of seeking to create and apply regulations, policies and procedures in a way that generates the most revenue for the Commission itself. As a regulated service provider, the CGC should not be burdened with trying to find ways to extract enough revenue to cover its operating costs. The CGC should be focussing on providing the right services most appropriate in a rapidly changing industry, which may or may not be the optimal path for procurement of funds.

The Bottom Line

Bottom line – at August 1, 2013 the cost of the CGC is increasing from about $1.25 to $1.80 per MT, again assuming 30 million MT of exported product. At one MT per acre yield, this is an added cost of $2,750 over a 5000 acre farm. Why, as an industry, have we seemed to accept the notion that the CGC needs to be completely funded through user fees?

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

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