Regulations Amending the Canada Grain Regulations: SOR/2021-113

Canada Gazette, Part II, Volume 155, Number 12

Registration
SOR/2021-113 June 1, 2021

CANADA GRAIN ACT

P.C. 2021-462 June 1, 2021

The Canadian Grain Commission, pursuant to paragraph 116(1)(a) footnote a of the Canada Grain Act footnote b, makes the annexed Regulations Amending the Canada Grain Regulations.

Winnipeg, April 30, 2021

Doug Chorney
Chief Commissioner

Patty Rosher
Assistant Chief Commissioner

Lonny McKague
Commissioner

His Excellency the Administrator of the Government of Canada in Council, on the recommendation of the Minister of Agriculture and Agri-Food, pursuant to paragraph 116(1)(a)footnote a of the Canada Grain Act footnote b, approves the making of the annexed Regulations Amending the Canada Grain Regulations by the Canadian Grain Commission.

Regulations Amending the Canada Grain Regulations

Amendment

1 Subsection 5(1) of the Canada Grain Regulations footnote 1 is replaced by the following:

5 (1) The following seeds are designated as grain for the purposes of the Act: barley, beans, buckwheat, canaryseed, canola, chick peas, corn, fababeans, flaxseed, lentils, mixed grain, mustard seed, oats, peas, rapeseed, rye, safflower seed, soybeans, sunflower seed, triticale and wheat.

Coming into Force

2 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.

REGULATORY IMPACT ANALYSIS STATEMENT

(This statement is not part of the Regulations.)

Executive summary

Issues: Canaryseed is the largest volume grain crop in Canada that is not covered under the Canada Grain Act (CGA). Since canaryseed is not a designated grain, canaryseed producers are not eligible for compensation under the Safeguards for Grain Farmers Program of the Canadian Grain Commission (CGC), or for any grading information or binding determination of grade, quality, and dockage services. The 2019 failure of a CGC-licensed company that left many canaryseed growers in financial hardship due to non-payment for their deliveries has triggered a renewed discussion across the sector of whether canaryseed should be regulated under the Canada Grain Act.

Description: The regulatory amendments update subsection 5(1) of the Canada Grain Regulations (CGR) to add canaryseed to the list of seeds designated as grains for the purposes of the Canada Grain Act.

Rationale: These amendments ensure that canaryseed producers are eligible for compensation under the CGC Safeguards for Grain Farmers Program and for its other grain grading and quality assurance services. This supports the CGC's core responsibility to ensure that domestic and international markets regard Canadian grain as dependable and safe and that farmers are fairly compensated for their grain.

Estimated annual gross cost to stakeholders of these regulatory changes is $180,138.

Issues

Section 2 of the Canada Grain Act (CGA) defines grain as “any seed designated by regulation as a grain for the purposes of this Act.” Subsection 5(1) of the Canada Grain Regulations (CGR) lists the grains covered by the provisions of the CGA. While canaryseed is not one of the designated grains in this subsection, it is the largest volume grain crop in Canada that is not covered under the CGA, and is larger in volume than a number of regulated grains including rye, fababeans, sunflowers, peas, triticale, and buckwheat. Therefore, canaryseed producers are not eligible for compensation under the Canadian Grain Commission's (CGC) Safeguards for Grain Farmers Program or for binding determination services associated with grade, dockage, and quality.

In addition, subsection 5(2) of the CGR states that “the grade names and the specifications for grades of grain are those set out in Schedule 3.” As canaryseed is not a grain designated under the CGA, there are no official grades and grading standards for canaryseed in Schedule 3. Therefore, the CGC does not provide any official inspection services or on-request services (e.g. issue letters of analysis) to assist the sector in marketing this commodity.

The 2019 failure of a CGC-licensed company that left many canaryseed growers in a situation of significant financial hardship triggered a renewed discussion across the sector of making canaryseed a regulated grain under the CGA. This situation repeated in November 2020, when three additional CGC-licensed companies failed financially, leaving some canaryseed producers unpaid for canaryseed deliveries. Once a commodity is listed as a regulated grain, it is subject to all provisions of the CGA.

Background

The CGC is responsible for establishing and maintaining Canada's grain quality standards. Its programs result in shipments of grain that consistently meet contract specifications for quality, safety and quantity. The CGC regulates grain handling to ensure that Canadian producers receive fair compensation when they deliver grain to licensed grain handlers under the provisions of the CGA and CGR by

Safeguards for Grain Farmers Program

The CGC licenses and regulates grain handling companies in accordance with the CGA. The CGA requires all licensed elevators and grain dealers to post security to cover their outstanding liabilities to producers. This security is used to compensate producers when a licensee fails or refuses to meet its payment or delivery obligations to producers. Producer payment protection seeks to balance the interests of producers for reduced transactional risk and the interests of grain companies for reduced costs and minimal administrative burden.

Licensees must tender security by way of bond, letter of credit, payables insurance or other acceptable form. Security instruments must be tendered by a CGC-approved underwriter. The CGC establishes the amount of security required on an individual basis for each licensee based on their potential monthly outstanding liabilities to producers. This information is obtained from a monthly liability report form, which is submitted to the CGC as a condition of licensing.

Licensees are also required to report grain quality data and grain handling information to the CGC, which are used by producers and the grain industry to facilitate business decisions and trade. The licensing requirement also ensures that producers who deliver to licensed primary elevators can access their right to be paid on the basis of grade and dockage, as determined by a CGC inspector, rather than by the grain handler.

Canaryseed production in Canada

Canada accounts for over 80% of global canaryseed exports (other major exporting countries are Argentina and Hungary), with Saskatchewan being the world's leading producer and exporter of canaryseed. About 300 000 acres of canaryseed are grown in Saskatchewan, and the province accounts for over 95% of Canadian acreage and production. More than 50 countries regularly buy Canadian canaryseed, with the top export destinations being Mexico, Belgium, Brazil, Spain, the United States and Colombia.

Canaryseed companies in Canada

There are 28 registered canaryseed buyers in Canada. These are companies registered by the Canary Seed Development Commission of Saskatchewan (CSDCS) to collect and submit the canaryseed levy. footnote 2 Of these 28, a total of 25 are already licensed by the CGC as they handle other regulated grains. Based on canaryseed purchase data obtained from the CSDCS, licensed companies accounted for approximately 99.5% of canaryseed purchases in the 2018–2019 crop year. Therefore, the remaining three unlicensed companies accounted for approximately 0.5% of canaryseed purchases, with two of the three recording no purchases in the 2018–2019 crop year.

In 2019, a CGC-licensed company failed financially. While producers received over $11 million, representing full compensation for unpaid deliveries for other grains covered by the CGA, no compensation was available for unpaid canaryseed deliveries. As a result, 44 canaryseed producers were unpaid for amounts totalling more than $2 million. This situation resulted in a formal request from the CSDCS to the Minister of Agriculture and Agri-Food and the CGC to designate canaryseed as a grain under the CGA. Additionally, in November 2020, another three interrelated CGC-licensed companies were placed into receivership. As in the 2019 case, producers were fully compensated for all unpaid deliveries for grains covered by the CGA through the CGC's Safeguards for Grain Farmers Program. However, given that canaryseed is not currently a designated grain, the CGC did not obtain details about the number or value of canaryseed deliveries that remained unpaid as part of the claims process.

Objective

Including canaryseed under the CGA ensures that canaryseed producers are eligible for compensation under the CGC's Safeguards for Grain Farmers Program and for its grain quality assurance services.

Description

The regulatory amendments update subsection 5(1) of the CGR to add canaryseed to the list of grains designated under the CGA. A concurrent amendment to add a grading schedule for canaryseed to Schedule 3 of the CGR (Grades of Grain) is being implemented as part of a separate regulatory package.

Regulatory development

Consultation

Past consultations

From 2002 to 2003:

In 2005:

Recent consultations

In 2020:

Note: Standards committees recommend specifications for grades of grain and select and recommend standard samples to the Commission. Recommendations are based on careful study and review of grading issues to ensure that any grading system changes reflect the interests and concerns of all parts of the Canadian grain sector. The Western Standards Committee is composed of a minimum of 21 but no more than 25 members. Grain standards committees are consultative, and members consist of representatives of Agriculture and Agri-Food Canada (AAFC), the CGC, and all segments of the grain industry, including producers, processors, exporters and others as the Commission deems appropriate.

Consultation process following publication in the Canada Gazette, Part I

These regulatory amendments were published in the Canada Gazette, Part I, on March 13, 2021, followed by a 30-day consultation period. The CGC did not receive any submissions during that time period but did receive several informal email commendations from stakeholders on these amendments.

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 these regulatory amendments. The amendments do not result in any direct impacts to Indigenous peoples.

Instrument choice

Using a regulatory instrument to add canaryseed to the list of grains designated under the CGA is the only available option.

Regulatory analysis

Benefits

Guided by the CGA, the CGC works in the interests of grain producers to establish and maintain standards of quality for Canadian grain, regulate grain handling in Canada, and ensure that grain is a dependable commodity — all factors that benefit the economy, trade, business and health and safety of Canadians. Specifically, the Safeguards for Grain Farmers Program regulates grain companies to mitigate the risk of payment failure, and to support the grain quality assurance system. Producers of grain that is regulated under the CGA are

The regulatory amendments ensure that canaryseed producers are eligible for compensation under the Safeguards for Grain Farmers Program and for the grain quality assurance services offered under the CGA. This benefits the economy by supporting the CGC's mandate to protect the interests of grain producers.

Costs

Estimated annual gross cost of the regulatory amendments to industry stakeholders is $180,138.

In the 2017–2018 and 2018–2019 crop years, an average of 132 200 tonnes of canaryseed was produced on approximately 242 400 acres in Saskatchewan, with an average yield of 1 200 pounds per acre. footnote 3 Saskatchewan accounts for over 95% of Canadian acreage and production, with the remaining 5% being produced mainly in Manitoba. World demand for canaryseed remains relatively constant from one year to the next. An important price determinant is the production and inventory in Saskatchewan, along with the willingness of producers to sell at any given price. In recent years, the price paid to growers has ranged from 20 to 30 cents per pound. footnote 4

Value of canaryseed production in Canada:

Average cost of obtaining security

Under the provisions of the CGA and CGR, licensed grain companies are required to provide security to the CGC to cover funds owed to producers for grain deliveries. Licensees are not required to disclose the cost of obtaining their required security to the CGC as this is commercially confidential information and, in many cases, non-disclosure agreements have been signed that prohibit disclosure.

However, there are three data sources that the CGC had access to, which enabled the following estimate for the cost of obtaining security:

  1. In 2019 and 2020, information disclosed during a court proceeding indicated the cost of security to be 0.8% of the total value of the security provided to the CGC.
  2. In 2013, the CGC conducted a survey of 143 licensees to determine the costs of obtaining security. Based on responses, the security level and security cost data indicated an average cost of 1% of the security.
  3. In 2009, the CGC conducted a survey of 166 licensees to determine appropriate security levels. Results indicated that licensees paid an average of 1.5% for their security.

Based on this information, the CGC estimates that security costs on average 1% of the total value of the security. No attempt has been made to calculate the cost of lost opportunities with reference to collateral that licensees utilize to support obtaining security.

Incremental cost of obtaining security to all companies registered to handle canaryseed

For first-time licensees the CGC sets the security requirement based on a conservative estimate of 60-day coverage (i.e. 30 days for a payment cheque to be issued and 30 days for it to clear the financial institution).

Security requirement = (projected annual purchases ÷ 365 days) × 60 days

Using this calculation, the overall annual security requirement to cover the total value of canaryseed production is estimated to be $12,575,343 [($76.5 million ÷ 365 days) × 60 days].

By applying the average 1% cost factor, the annual estimated cost of obtaining security for canaryseed is $125,753 ($12,575,343 × 0.01). This results in an average annual cost of $4,491 for each of the 28 companies registered to buy canaryseed.

Costs to CGC-licensed companies registered to handle canaryseed

The regulatory amendments entail compliance and administrative costs and result in an estimated total cost increase of $121,776 annually ($112,275 for compliance costs + $9,501 for administrative costs) to the 25 grain companies that handle canaryseed and are currently licensed by the CGC.

Compliance costs

Incremental cost of posting additional security for canaryseed

As calculated above, the estimated total annual cost to industry of obtaining security for canaryseed is $125,753, which represents an average cost of $4,491 for each of the 28 companies registered to handle canaryseed. For the 25 companies already licensed by the CGC, this equates to $112,275 in annual incremental compliance costs ($4,491 × 25).

Administrative costs

CGC-licensed companies are already required to issue CGC-approved documents such as grain receipts, elevator receipts, and cash purchase tickets to producers for all grain deliveries, and to provide financial statements, monthly liability reports and statistical reports to the CGC. Licensees must provide weekly statistical reports respecting all grain handlings; canaryseed volumes are already being reported to the CGC. Therefore, only minor adjustments to the wording and completion of standard CGC-approved documents and reporting templates are required. The estimated nominal cost to add canaryseed wording to the existing reporting templates and to the standard documents to be completed is $380 per licensee, or $9,501 annually for the 25 companies. Detailed assumptions are provided in the “One-for-one rule” section below.

Costs to unlicensed companies registered to handle canaryseed

The regulatory amendments entail compliance and administrative costs and result in an estimated total cost increase of $58,362 annually ($23,805 for compliance costs + $34,557 for administrative costs). Note that this may not be the case for all three currently unlicensed companies, as two of them recorded no canaryseed purchases in the 2018–2019 crop year, and as a result may not incur these costs. The analysis below is a highest cost scenario; it was conducted under the assumption that the two companies will remain in the market in the future.

Compliance costs

Annual cost of CGC licence

Out of the 28 registered grain companies, 3 would need to obtain a CGC licence at a monthly cost of $287 (or $3,444 annually) to continue purchasing canaryseed from producers. This amounts to a total annual cost of $10,332 across all three companies ($3,444 × 3). The one-time costs associated with sending in documents to request a licence and filling out applications have been included in administrative costs estimates below.

Incremental cost of posting additional security for canaryseed

As calculated above, the estimated total annual cost to industry of obtaining security for canaryseed is $125,753, which represents an average cost of $4,491 for each of the 28 companies registered to handle canaryseed. For the three companies which are not already licensed by the CGC, this equates to a total of $13,473 ($4,491 × 3).

Total annual average compliance costs across the three unlicensed companies registered to handle canaryseed is estimated to be $23,805 ($10,332 + $13,473).

Administrative costs

As part of being licensed, these three companies will be required to apply for a licence, issue grain receipts, elevator receipts, and cash purchase tickets to producers, and provide financial statements, monthly liability reports and statistical reports to CGC. Details on assumptions used to estimate the costs are listed in the “One-for-one rule” section below. The costs associated with these requirements vary depending on grain company business models but are on average approximately $11,519 per licensee. The regulatory costs associated with liability reporting and statistical collection and reporting are included in this figure and are viewed as the “cost of good business practices” by most licensees. Based on this estimate, the total nominal average administrative cost of becoming licensed for the remaining three unlicensed grain companies is estimated to be $34,557 ($11,519 × 3).

The total estimated annual cost to all grain companies is $180,138 ($121,776 + $58,362).

Costs to Government

Incremental costs associated with the regulatory amendments are negligible for the CGC. Additional work related to the three new licensees in terms of risk assessment, administration, monitoring, audit, and enforcement associated with the licensing process will be covered by existing Licensing, Auditing and Statistics staff at the CGC. The cost of this additional work will be fully recovered through the annual licence fee. In addition, the technical sampling, grading, and testing expertise, equipment, and analytical capability to offer services for canaryseed is currently available at the CGC.

Costs to canaryseed producers

There are no expected direct costs to canaryseed producers. However, there is a likelihood that a portion of the increased costs incurred by licensees may be passed onto producers via increased fees or lower grain prices.

The regulatory amendments provide significant benefits to producers, as described in the “Benefits” section, and exemplified in 2019, when a licensee failed financially and canaryseed producers were left unpaid for amounts totalling more than $2 million, because canaryseed was not a designated grain under the CGA.

Small business lens

To limit the regulatory burden imposed on small businesses, the CGC considered the potential impacts of the regulatory amendments. The requirements for licensing are already in place pursuant to the CGA and are designed to impose only those requirements that are necessary to achieve the regulatory outcomes. Although additional regulatory flexibility is unavailable for small businesses, the CGC's Safeguards for Grain Farmers Program already seeks to balance the interests of grain companies for reduced costs and minimal administrative and compliance burden with the interests of producers for reduced transactional risk.

As of September 2020, there were 25 licensed grain companies that handle canaryseed. Of these, two 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.” Since both companies are already licensed, they will only incur the additional compliance costs associated with posting additional security for canaryseed purchases. Depending on the volume of canaryseed handled by these companies, this cost may be less than the calculated average annual cost of $4,491 per company. Additional administrative costs to include canaryseed wording in required standard documentation will be minimal at an average annualized cost of $380 per licensee.

One-for-one rule

The one-for-one rule refers to the government initiative to reduce regulatory red tape and control administrative burden to Canadian businesses. The one-for-one rule applies to these regulatory amendments and is considered an “IN” under the rule with an overall annualized increase of $44,059 in administrative costs across the affected grain companies. For the one-for-one rule reporting purposes, as required by the Red Tape Reduction Regulations, this value is measured from a perspective of 2012 and is subject to nine additional years of discounting at an annual rate of 7% which has a value of $23,966 or $855.91 per affected business.

Specifically, the administrative cost increase to the 25 CGC-licensed grain companies who handle canaryseed is minimal. For these companies, the CGC estimates that the annualized average increase in administrative costs associated with completion of additional data fields for canaryseed on existing statistical and liability reports is $9,501 (discounted to 2021).

The three unlicensed grain companies will experience a larger increase in administrative burden associated with the regulatory requirements of the Safeguards for Grain Farmers Program due to the provision of financial statements, monthly liability reports and weekly statistical reports to the CGC, as well as issuance of grain receipts, elevator receipts and cash purchase tickets to producers. For these companies, the CGC estimates that the annualized average increase in administrative costs is $34,558 (discounted to 2021).

The assumptions used in calculating the administrative costs are based on feedback from previous consultations with a representative group of both small- and medium-sized licensed primary elevators, and on internal CGC business knowledge. These assumptions are presented below.

One-time costs
Ongoing costs

Regulatory cooperation and alignment

The regulatory amendments do not have any linkages to international agreements or obligations and are 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 Regulatory Reconciliation and Cooperation Table, the Canada–European Union Comprehensive Economic and Trade Agreement Regulatory Cooperation Forum).

An assessment of other jurisdictions and international organizations identified that these regulatory amendments are specific to Canadian requirements (e.g. canaryseed is not a designated grain under the United States Grain Standards Act footnote 5). Canaryseed is a registered grain under the Seeds Act.

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 these regulatory amendments.

Implementation, compliance and enforcement, and service standards

Implementation

These regulatory amendments are targeted to come into force on August 1, 2021.

As part of implementation, a communication strategy will involve notification to grain sector stakeholders and updates to the CGC website prior to these Regulations coming into force.

CGC program documentation and information technology will be updated to support the regulatory amendments.

Compliance and enforcement

The CGC will ensure compliance using its existing enforcement and compliance tools.

Contact

Melanie Gustafson
Acting Manager of Policy
Canadian Grain Commission
303 Main Street
Winnipeg, Manitoba
R3C 3G8
Telephone: 204‑292‑5721