Canada Gazette, Part I, Volume 155, Number 21: Regulations Amending the Canada Grain Regulations
May 22, 2021
Canada Grain Act
Canadian Grain Commission
REGULATORY IMPACT ANALYSIS STATEMENT
(This statement is not part of the Regulations.)
Issues: The Canadian Grain Commission (CGC) fees for official inspection and official weighing are generating a surplus in the CGC's revolving fund due to the continued increase in grain production and grain export volumes. The CGC's fees were last updated in 2018 with the intention to generate no material surpluses or deficits over a five-year cycle. While the 2017–18 fee and grain volume model updates significantly reduced the accumulation of surplus, in-year surplus growth continues.
Description: The proposed regulatory amendments would update Schedule 1 of the Canada Grain Regulations to realign four official inspection and official weighing fees with an adjusted grain volume forecast.
Rationale: This proposal would limit the accumulation of additional in-year surplus moving forward by realigning official inspection and official weighing fees with an adjusted grain volume forecast. The proposed fees would come into effect on August 1, 2021, the start of the 2021–22 crop year.
The proposal should result in gross savings to stakeholders of $55.15 million for the next three-year period (2021–22 to 2023–24).
CGC fees for official inspection and official weighing are generating a surplus in the CGC's revolving fund due to the continued increase in grain production and grain export volumes. When CGC fees were last updated in 2018, the intention was to generate no material surpluses or deficits over a five-year cycle. Although the 2017–18 fee and grain volume model updates significantly reduced the accumulation of surplus, in-year surplus growth continues.
To limit the accumulation of additional in-year surplus and surplus growth moving forward, the CGC is proposing to realign four fees for official inspection and official weighing services with an adjusted grain volume forecast. The CGC has not conducted a comprehensive costing or fee review as part of this targeted fee adjustment proposal to allow for the current Canada Grain Act review process to advance and inform future work. A comprehensive fee review would be targeted effective April 2025.
The CGC is structured as a revolving fund, receiving approximately 90% of its funding from charging fees for its services and the balance from appropriation sources. The intention of the CGC is to align all fees with the cost of providing services and to not generate material surpluses or deficits. This aligns with the Government of Canada's revolving fund policy that requires revenues and expenses be balanced over a specified business cycle (e.g. five-year time horizon).
The CGC last comprehensively updated its fees in Schedule 1 of the Canada Grain Regulations (CGR) on April 1, 2018. Prior to this, the CGC made amendments only to official inspection and official weighing fees on August 1, 2017, and made comprehensive fee amendments on August 1, 2013. As part of the 2013 fee update process, the CGC established a review cycle that repeats every five years to help ensure that CGC fees remain aligned with the costs of providing services and licences. The CGC also indicated that it would address issues outside the five-year fee review cycle as warranted. The current five-year review cycle ends March 31, 2023.
Official inspection and official weighing fees
Grain volumes subject to official inspection at licensed terminal elevators are the basis upon which the CGC establishes its fees. The baseline for existing service and licence fees was established in 2017–18 for the five-year period ending March 2023, and was based on a $62.5 million budget and an annual average official inspection and weighing volume of 34.405 million metric tonnes (MMT). CGC management monitors costs on an ongoing basis and allocates resources within its annual operating and capital budgets to meet both ongoing and emerging requirements. The expenditures for the highest area of cost, inspection services, may vary from year to year according to the quality and volume of the crop. Since fees were implemented in 2018, costs have remained relatively stable, but the CGC has consistently inspected and weighed higher-than-forecast grain volumes. This situation has resulted in continued in-year surplus generation.
In fiscal years 2017–18, 2018–19, and 2019–20, official inspection and official weighing grain volumes were 36.96 MMT, 39.54 MMT, and 38.65 MMT, respectively, which generated in-year surpluses of $8.89 million, $3.66 million, and $2.96 million. For fiscal year 2020–21, the CGC is projecting an in-year surplus of over $11 million. This is in addition to the approximately $15.51 million in surplus accumulated from fiscal years 2017–18 to 2019–20.
The 2017–18 grain volumes model did not anticipate several factors that are contributing to the continued accumulation of surplus, including unprecedented increases in grain production and export grain volumes; major private sector infrastructure investments in the grain handling system; and relatively stable CGC operating costs.
Given this situation, the CGC has updated its model for forecasting the volume of grain that it expects to officially inspect and weigh upon discharge from terminal elevators and is projecting a level of approximately 48.1 MMT annually for the next three fiscal years (2021–22 to 2023–24). The model uses statistical time-series analysis based on monthly official inspection and weighing grain volumes for the 1983-to-2020-year period. The model is objective, reproducible, and “self-improving” as more export data can be added with each update of the forecast. Forecast volume estimates of terminal exports are consistent with official Agriculture and Agri-Food Canada (AAFC) medium-term outlooks for grain production and exports. The updated model is similar to the forecasting model used by the Federal Grain Inspection Service, the CGC's counterpart in the United States, and was previously peer-reviewed and validated by AAFC, the University of Saskatchewan, and Transport Canada.
To further improve the forecasting model, an additive factor has been included for recent major infrastructure investments that have the ability to increase the overall export capacity of the grain handling system going forward. This factor was calculated by using, as a proxy, the minimum estimated capacity for the new Vancouver, B.C., terminal elevators based on comparable turn ratios for similar terminal elevators in the region. A turn ratio is the total annual throughput grain volume divided by the terminal capacity. In addition, while the CGC has typically generated a volume forecast based on a five-year period, the updated model uses a three-year forecast as a shorter forecast period allows for timelier volume adjustments should there be abrupt volume changes.
Annual inflation factor
The Service Fees Act, which came into effect in June 2017, establishes an annual inflation factor that automatically applies to all fees fixed in regulations. Beginning in fiscal year 2019–20, the CGC started adjusting fees annually for inflation each year on April 1 to be consistent with the Service Fees Act. The adjustment is based on the April All-items Consumer Price Index for Canada.
The objective of this proposal is to limit the accumulation of additional surplus in the CGC revolving fund by updating four fees related to official inspection and official weighing services to reflect the adjusted grain volume forecast for the next three-year period (fiscal years 2021–22 to 2023–24).
CGC service fees are outlined in Schedule 1 of the CGR. The proposed amendments to Schedule 1 would replace the four fees for official inspection and official weighing services with reduced rates that are aligned with the adjusted grain volume forecast for the next three fiscal years. The proposed amendments would be effective August 1, 2021, the start of the 2021–22 crop year.
The fees would be amended as follows:
- Official inspection – ships: $1.00/tonne
- Official inspection – railway cars, trucks, containers: $90.12/inspection
- Official weighing – ships: $0.05/tonne
- Official weighing – railway cars, trucks, containers: $4.96/railway car, truck or container
The CGC conducted extensive fee consultations in 2016, 2017 and 2018 with all affected stakeholders, including grain producers, producer organizations, licensed grain handlers, industry associations and relevant government organizations. As part of the fee consultation process, Ipsos, on behalf of the CGC, conducted a qualitative survey of grain industry representatives and a quantitative survey of western Canadian grain producers. Survey results provided information on the perceptions and impressions of Canadian grain producers and grain industry representatives regarding CGC services, satisfaction levels with CGC services, and opinions on fee adjustments. The final PDF report of the CGC's (ARCHIVED) 2017 Client Satisfaction Survey (PDF) is available on the Library and Archives Canada's website.
Consultation feedback indicated that stakeholders felt it was important to control the accumulation of any additional CGC surplus revenue and were supportive of reduced fees. All stakeholders were supportive of the CGC's grain volume forecasting methodology. As a result, official inspection and official weighing fees were amended effective August 1, 2017 (Canada Gazette, Part II, July 12, 2017), and comprehensive fee amendments were implemented effective April 1, 2018 (Canada Gazette, Part II, March 21, 2018).
Given the current agricultural operating environment and the CGC's continued accumulation of in-year revolving fund surplus, this proposal should again result in positive stakeholder reaction given further reduced costs and improved profit margins. This prepublication period provides stakeholders with the opportunity to comment on the proposed fee amendments. All feedback from this process will be addressed in the Canada Gazette, Part II.
Modern treaty obligations and Indigenous engagement and consultation
The CGC conducted a modern treaty assessment and determined that there are no modern treaty obligations associated with this proposal. The proposed amendments are not anticipated to result in any direct impacts to Indigenous peoples.
To limit the further accumulation of revenue surpluses from collection of fees for service, the official inspection and weighing fees must be reduced. Using a regulatory instrument to revise service fees is the only available option.
Benefits and costs
The amended fees would take effect August 1, 2021, the start of the 2021–22 crop year. For fiscal year 2021–22, fees paid by grain sector stakeholders would be reduced by approximately $13.79 million, a cost decrease of 19%. This calculation is based on existing 2021–22 published fees and the updated grain volume forecast (48.1 MMT) that the CGC expects to officially inspect and weigh annually for the next three-year period. Savings for the 2022–23 and 2023–24 fiscal years are expected to be approximately $20.68 million annually, which represents a cost decrease of 29%. When directly compared to the published 2021–22 fee levels, the proposal represents a cost decrease of $0.43 per tonne for official inspection and weighing services for ships, and a cost decrease of $37.88 per official inspection and weighing of a railway car, truck, or container.
|Fee name||Unit (per)|| Current published fee table 1 note *
| Proposed fee table 1 note *
| Savings to stakeholders
|Official inspection–railway cars, trucks, containers||Inspection||$126.01||$90.12||$35.89|
|Official weighing–railway cars, trucks, containers||Railway car, truck or container||$6.95||$4.96||$1.99|
Table 1 note(s)
AAFC's Canadian Medium Agriculture Outlook (2017–2027) is forecasting world grain and oilseed prices to grow moderately over the next decade. While CGC fees represent a small portion of costs for grain sector stakeholders, they still reduce profit margins. Published 2021–22 CGC official inspection and weighing fees represent approximately 4% of the cost of transporting grain from a mid-prairie point to the export position. The proposed fee reduction would decrease this portion to 3%. footnote 1
Over the next three fiscal years, the CGC's fee revenue would be reduced by an amount equal to the approximate $55.15 million benefit accruing to stakeholders through the reduction of the four fees for official inspection and official weighing services. Adjusting these fees such that surplus funds do not continue to accumulate provides a benefit to Canadians and the economy in that the funds are better used by sector stakeholders to provide economic value than if accumulated in the CGC revolving fund. On an ongoing basis, it is the CGC's intention to align all fees with the cost of providing services, and to generate no material surpluses or deficits. This aligns with the Government of Canada's revolving fund policy, which requires revenues and expenses to be balanced over a specified business cycle (e.g. five-year time horizon). The proposed amendments are expected to limit the possibility of additional CGC surplus accumulation and reduce costs to stakeholders.
In this regard, grain handling companies that directly pay official CGC service fees would have the opportunity to put the cost savings generated from reduced fees toward alternate uses, and to improve their market competitiveness. In practice, grain handlers generally pass the costs of official inspection and official weighing services back to producers as part of their handling tariffs. Reduced CGC fees and a subsequent reduction in elevator handling tariffs would also potentially benefit producers through higher net prices for grain deliveries.
The CGC does not anticipate any material costs or a consequential effect on its operating budget as a result of this regulatory proposal. Its current budget would fund any transitional costs necessary to support implementation of the proposed fee amendments, including communications to stakeholders, and information technology and financial system updates. The CGC revolving fund balance is sufficient to adjust to any future fluctuations in grain volumes and demand for official inspection and official weighing services. There would be no risk for the fiscal framework of needing to provide the CGC with ad hoc appropriation. Further, the updated grain volume model uses a three-year forecast that allows for timelier volume adjustments should there be abrupt volume changes.
Small business lens
To limit the regulatory burden imposed on businesses, the CGC considered potential impacts of the proposed regulatory amendment, as discussed in the section above on benefits and costs. This analysis indicates that the proposed fee amendments would result in a combined official inspection and weighing fee reduction from $1.48/tonne to $1.05/tonne for ships. Moving forward, this represents a 29% reduction and savings to all impacted businesses.
As of March 31, 2021, the CGC licensed 36 grain handling facilities as terminal elevators, the businesses that pay directly for official inspection and weighing services. Of these, none fall under the small business category as defined in the Policy on Limiting Regulatory Burden on Business: “A small business, for the purpose of the small business lens is: any business, including its affiliates, that has fewer than 100 employees or less than $5 million in annual gross revenues.” Therefore, the CGC does not anticipate any direct impacts to small businesses as a result of this proposal. Small businesses may indirectly benefit from reductions in costs to grain handling facilities if these cost savings are passed on to grain producers; however, this would be a secondary impact of these amendments.
The one-for-one rule does not apply to this proposal, as there is no change in administrative costs to business.
Regulatory cooperation and alignment
The proposal does not have any linkages to international agreements or obligations. The proposal is not related to a work plan or commitment under a formal regulatory cooperation forum (e.g. the Canada–United States Regulatory Cooperation Council, the Canadian Free Trade Agreement's Regulatory Reconciliation and Cooperation Table, and the Canada-European Union Comprehensive Economic and Trade Agreement Regulatory Cooperation Forum). An assessment of other jurisdictions and international organizations identified that this regulatory proposal is specific to Canadian requirements.
Strategic environmental assessment
In accordance with the Cabinet Directive on the Environmental Assessment of Policy, Plan and Program Proposals, a preliminary scan concluded that a strategic environmental assessment is not required.
Gender-based analysis plus
No gender-based analysis plus (GBA+) impacts have been identified for this proposal.
Implementation, compliance and enforcement, and service standards
These regulatory amendments are targeted to come into force on August 1, 2021.
As part of implementation, a communication strategy would involve notification to grain sector stakeholders regarding fee amendments and updates to the CGC website prior to the proposed amendments coming into force.
The CGC would update its information technology and financial systems to support the regulatory proposal.
Official inspection and weighing fees would be reviewed if services change or if, for example, actual CGC operating costs became considerably unaligned with grain export volumes.
Compliance and enforcement
Where a fee is not paid by the person obliged to do so (as stipulated in the CGR), then that fee payable would be a debt owing to the Crown. That fee would be collected as per standard practice.
The CGC consulted with stakeholders and established service standards that reflect the expected level of service when fees were updated in 2018. Service standards are not proposed to change with the proposed fee amendments. The service standards are commitments with recourse for underperformance, as per the Service Fees Act.
Policy Unit, Innovation and Strategy
Canadian Grain Commission
PROPOSED REGULATORY TEXT
Notice is given that the Canadian Grain Commission, pursuant to paragraph 116(1)(r) of the Canada Grain Act footnote a and subject to the approval of the Administrator in Council, proposes to make the annexed Regulations Amending the Canada Grain Regulations.
Interested persons may make representations concerning the proposed Regulations within 15 days after the date of publication of this notice. All representations must cite the Canada Gazette, Part I, and the date of publication of this notice, and be addressed to the Policy Unit, Innovation and Strategy, Canadian Grain Commission (tel.: 1‑800‑853‑6705; TTY: 1‑866‑317‑4289; email: firstname.lastname@example.org).
Ottawa, May 13, 2021
Assistant Clerk of the Privy Council
Regulations Amending the Canada Grain Regulations
1 The portion of items 1 and 2 of Schedule 1 to the Canada Grain Regulations footnote 2 in column 4 is replaced by the following:
Coming into Force
3 These Regulations come into force on August 1, 2021, but if they are registered after that day, they come into force on the day on which they are registered.