Canada Gazette, Part I, Volume 151, Number 16: Regulations Amending the Canada Grain Regulations
April 22, 2017
Statutory authority
Canada Grain Act
Sponsoring agency
Canadian Grain Commission
REGULATORY IMPACT ANALYSIS STATEMENT
(This statement is not part of the Regulations.)
Executive summary
Issues: Over the past three and a half years, the Canadian Grain Commission (CGC) has inspected and weighed higher than expected grain volumes, resulting in revenue surpluses. CGC user fees are intended to generate revenues that match the costs of providing its services. The CGC is proposing to reduce fees for official inspection and official weighing services earlier than the end of its current five-year user fees cycle, which is March 31, 2018.
Description: The proposed amendments to Schedule 1 of the Canada Grain Regulations (the proposed amendments) would reduce user fees for official inspection and official weighing services for a portion of the 2017–2018 fiscal year. Two supplementary fees for official inspection, the time and one-half overtime fee and the double time overtime fee, would be eliminated. These costs for overtime would be included directly into the official inspection fee. Reduced fees would align with updated costs and grain volume forecasts for official inspection and weighing services, and control the accumulation of additional surplus in the CGC revolving fund.
Cost-benefit statement: The benefit to affected stakeholders of the proposed fee reductions is $9.99 million for the 2017–2018 fiscal year, and is expected to be around $15.14 million thereafter. This represents approximately $72.07 million in present value terms over a six-year period from 2017–2018 to 2022–2023. CGC user fees revenue would be reduced by the same amount for this time period, which results in a zero sum net benefit proposal, but any monies that might contribute to the surplus under the status quo would appropriately remain with the grain sector. Grain handling companies, the direct users of CGC official inspection and official weighing services, would pay reduced fees which would increase available operating cash flow and potentially overall market competitiveness. Producers could also benefit through higher net delivery prices, as cost savings are generally passed down from grain handlers by way of lower handling tariffs that include CGC fees. The transactional costs of tracking, billing and paying for overtime costs would also be reduced for grain companies and for the CGC.
“One-for-One” Rule and small business lens: The proposed amendments would update CGC fees for official inspection and official weighing services, and would not result in any additional compliance or administrative costs to small business. The small business lens does not apply to this proposal, as there are no new costs to small business.
Domestic and international coordination and cooperation: There is no expected conflict with international trade agreements or obligations.
Background
The CGC is structured as a revolving fund, receiving the majority of its funding from charging fees for its services. The CGC last updated its user fee schedule in Schedule 1 of the Canada Grain Regulations on August 1, 2013. Prior to this, CGC fees had been frozen for 22 years. As part of the 2013 fee update process, the CGC established a review cycle that repeats every five years to help ensure that CGC user 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, 2018.
Official inspection and official weighing fees
Official inspection grain volumes from licensed terminal elevators are the basis upon which the CGC establishes its fees. The fees implemented in 2013 were based on a $60 million budget and an annual average official inspection and weighing volume of 23.3 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. While costs have remained relatively stable, the CGC has inspected and weighed higher than expected grain volumes resulting in revenue surpluses. To calculate the annual average of 23.3 MMT, the CGC used a 15-year average of grain volumes inspected and weighed between 1995 and 2010.
In fiscal years 2013–2014, 2014–2015, and 2015–2016, official inspection and weighing grain volumes were 30.4 MMT, 37.9 MMT, and 38.4 MMT respectively.
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 34.4 MMT annually for the next five fiscal years. The updated model uses time-series analysis that includes official inspection and weighing grain volumes for the 1983–2016 period. The updated model is similar to the forecasting model used by the Federal Grain Inspection Service, the CGC's counterpart in the United States. Using this grain volume forecast for recalculating fees would result in substantially lower fees for official inspection and weighing services.
Overtime fees for official inspection
The CGC's overtime costs have historically been recovered separately from the fees for official inspection. As part of the CGC's review of its official inspection fees, the organization looked at ways to reduce the administrative burden on government and businesses using CGC services. The repetitive transactional task of tracking and billing for overtime for official inspection is disproportionately burdensome given the low dollar impact of the fee.
Issues
Official inspection and official weighing fees
The CGC's fees for official inspection and official weighing are generating a surplus in the CGC's revolving fund. When the CGC's fees were last updated in 2013, the intention was to generate no material surpluses or deficits over a five-year cycle.
Overtime fees for official inspection
Tracking and billing for overtime costs for official inspection services causes an additional transactional burden for the CGC and the grain sector businesses that use official inspection services. Eliminating two of the supplementary fees for official inspection, namely the time and one-half overtime fee and the double time overtime fee, would reduce transactional costs. Overtime costs would be incorporated into the official inspection fee.
Objectives
The three objectives of this proposal are as follows:
- limit the accumulation of additional surplus in the CGC revolving fund related to the official inspection and official weighing fees;
- update the fees to reflect the costs of providing official inspection and official weighing services; and
- reduce the transactional burden of tracking and billing for official inspection overtime costs.
Description
The user fee schedule is outlined in Schedule 1 of the Canada Grain Regulations and identifies fees charged for services until the end of the 2017–2018 fiscal year. The proposed regulatory amendments to Schedule 1 would
- replace the user fees for official inspection and official weighing services for fiscal year 2017–2018 (the final year of published fees in Schedule 1), with reduced rates that are aligned with the updated costs and grain volume forecasts for official inspection and official weighing. These fees would still be subject to the CGC's 2018–2019 five-year user fees review cycle. The proposed fees for fiscal year 2017–2018 would continue to apply unless they are amended as part of the 2018–2019 user fees review; and
- eliminate two of the supplementary fees for official inspection, the time and one-half overtime fee and the double time overtime fee. Incorporate these overtime costs into the official inspection fee.
Regulatory and non-regulatory options considered
The CGC considered two options: status quo and reducing the user fees for official inspection and weighing services prior to March 31, 2018, the end of its five-year fee review cycle.
Status quo — retain current CGC fees for official inspection and official weighing services
With this option, CGC user fees for official inspection and weighing services would remain unchanged in Schedule 1 of the Canada Grain Regulations for fiscal year 2017–2018. Currently, official inspection and weighing services are generating the majority of the CGC revolving fund surplus. Without a reduction in user fees for these services, the CGC projects an accumulation of $9.99 million in additional surplus revenue in fiscal year 2017–2018.
The Government's revolving fund policy requires that organizations balance revenues and expenses over a five-year horizon. When the CGC user fees were updated in 2013, they were intended to be aligned with the costs of providing official inspection and weighing services and to generate no material surpluses or deficits over a five-year fee cycle. This option was not selected, as it is counter to CGC and Government costing objectives. Grain sector stakeholders would continue to pay a disproportional amount for official inspection and weighing services relative to the cost of providing these services.
Reduce the CGC fees for official inspection and official weighing services prior to the end of the five-year fee review cycle
The CGC's regulatory framework to amend user fees, which are listed in Schedule 1 of the Canada Grain Regulations, is currently in place. As part of the 2013 fee update process, the CGC indicated that it would address issues outside the established five-year fee review cycle as warranted. Under this option, user fees for official inspection and weighing services would be reduced early to control the accumulation of additional CGC revolving fund surplus and to better align them with the operational costs of providing these services. Affected stakeholders would benefit, as any monies that might contribute to the surplus under the status quo would appropriately remain with the grain sector. Reduced user fees would facilitate increased compliance with CGC and Government costing objectives. There would be no consequential effect on the CGC's current operating budget.
There are no other options available to the CGC to control the accumulation of additional surplus in the CGC revolving fund related to the official inspection and official weighing fees.
Benefits and costs
The proposal is expected to provide both quantitative and qualitative benefits to grain sector stakeholders and the CGC.
For fiscal year 2017–2018, user fees paid by grain sector stakeholders would be reduced by about $9.99 million, a cost decrease of 15%. The CGC's fee revenue would be reduced by an amount equal to the $9.99 million benefit accruing to stakeholders through a reduction in user fees for official inspection and official weighing services. The accumulation of additional surplus in the CGC revolving fund would be controlled, and user fees would better align with the operational costs of providing official inspection and weighing services. Any monies that might contribute to the surplus under the status quo would appropriately remain with the grain sector.
The CGC does not anticipate any additional costs or a consequential effect on its operating budget as a result of this regulatory proposal. The CGC revolving fund balance is sufficient to adjust to any future fluctuations in grain volumes and demand for official inspection and weighing services. There would be no risk to the fiscal framework of providing the CGC with ad hoc appropriation.
The calculation of $9.99 million is based on existing 2017–2018 published fees, the implementation date of August 1, 2017, and the updated grain volume forecast (34.4 MMT) that the CGC expects to officially inspect and weigh annually. When directly compared to published 2017–2018 fee levels, the proposal represents a cost decrease of $0.44 per tonne for official inspection and weighing services for ships, and a cost decrease of $40.42 per official inspection and weighing service for a railway car, truck, or container.
| Fee Name | Unit (per) | Current Published Fee 2017–2018 ($CA) |
Proposed Fee 2017–2018 ($CA) |
Savings to Stakeholders ($CA) |
|---|---|---|---|---|
| Official inspection — ships | Tonne | $1.70 | $1.35 | $0.35 |
| Official weighing — ships | Tonne | $0.16 | $0.07 | $0.09 |
| Official inspection — railway cars, trucks or containers | Inspection | $153.43 | $121.12 | $32.31 |
| Official weighing — railway cars, trucks or containers | Railway car, truck or container | $14.78 | $6.67 | $8.11 |
Agriculture and Agri-Food Canada's Canadian Agriculture Outlook (2015–2024) is forecasting lower prices for grain over the next decade. While CGC fees represent a small portion of costs for grain sector stakeholders, they still reduce profit margins. Current CGC fees represent approximately two percent of the total cost of moving grain from a mid-Prairie point to an export position. The proposed fee reduction would decrease this portion by one percentage.
Grain handling companies that directly pay official service fees would have the opportunity to leverage cost savings generated from reduced fees for alternate uses and to facilitate their market competitiveness. In practice, grain handlers generally pass the costs of official inspection and weighing services back to producers as part of their handling tariffs. Reduced CGC user fees and a subsequent reduction in elevator handling tariffs could also potentially benefit producers through higher net prices for grain deliveries.
In accordance with the Treasury Board Secretariat's Canadian Cost-Benefit Analysis Guide: Regulatory Proposals, the total quantifiable benefit to affected grain sector stakeholders of the proposed amendments, over the six-year period from 2017–2018 to 2022–2023, (see footnote 1) would be approximately $72.07 million in present value terms. CGC user fee revenues would decrease by the same amount, resulting in a zero sum total quantifiable net present value for this proposal. The standard discount factor of 1/(1+0.07)t was used for this analysis.
| Cost-Benefit Statement | Base Year 2017–2018 |
Final Year 2022–2023 |
Total Present Value |
Annualized Average |
|---|---|---|---|---|
| A. Quantified impacts Benefits (in millions of $CA) Benefits to grain sector |
||||
| Reduction in official inspection and official weighing service fees | 9.99 | 15.14 | 72.07 | 15.12 |
| Total benefits | 9.99 | 15.14 | 72.07 | 15.12 |
| Costs (in millions of $CA) Costs to Canadian Grain Commission |
||||
| Reduction in fee revenues collected | 9.99 | 15.14 | 72.07 | 15.12 |
| Total costs | 9.99 | 15.14 | 72.07 | 15.12 |
| Net present value (in millions of $CA) | ||||
| 0 | ||||
| B. Quantified impacts in non-$ | ||||
| The proposed amendments eliminate two supplementary official inspection service fees from the CGC fee schedule. This would reduce the transactional burden of tracking and billing for overtime costs for grain sector businesses and for the CGC. | ||||
| C. Qualitative impacts | ||||
| On a distributional basis, the proposed amendments would keep any monies that might contribute to the accumulation of additional CGC revolving fund surplus with the grain sector. Costs would decrease for grain sector stakeholders and could result in increased profit margins and available operating capital. The proposed amendments would facilitate increased compliance with CGC and Government costing objectives. There are no expected impacts on consumers or conflicts with international trade agreements or obligations. | ||||
“One-for-One” Rule
The “One-for-One” Rule does not apply to this proposal, as there is no change in administrative costs to business.
Small business lens
The small business lens does not apply to this proposal, as there are no costs to small business.
Consultation
Targeted consultations on this regulatory proposal, consisting of either in-person meetings or conference calls, were held with grain handlers, industry associations and producer organizations in August 2016. Stakeholders were decidedly supportive of the proposal to lower fees for official inspection and official weighing as it would decrease their costs and improve profit margins. Stakeholders indicated it was important to control the accumulation of any additional CGC surplus revenue. Stakeholders also reacted positively to reducing the transactional burden by eliminating the overtime fees for official inspection.
Rationale
The proposal to reduce fees for official inspection and official weighing would result in fees that better reflect the operational costs of providing these services. As a result, the proposal would limit the accumulation of additional surplus in the CGC revolving fund. The CGC expects that it has sufficient surplus in its revolving fund to withstand future fluctuations in official inspection and weighing grain volumes past the end of fiscal year 2017–2018, when the published fee schedule outlined in the Canada Grain Regulations ends.
The proposal to eliminate two of the overtime fees for official inspection and incorporate them into the official inspection fee would reduce the transactional costs of tracking and billing for official inspection overtime costs.
Implementation, enforcement and service standards
Implementation
These proposed regulatory amendments are planned to come into force on August 1, 2017.
As part of the implementation of the proposed amendments, a communication strategy would involve notices to stakeholders regarding updated fees and updates to the CGC website prior to the proposed amendments coming into force.
The CGC's information technology and financial systems would be updated to support the regulatory proposal.
Enforcement
If a user fails to pay a CGC fee, then that fee payable would be a debt owing to the Crown. This would be collected as per standard practice.
Service standards
The CGC consulted with stakeholders and established service standards for official inspection and official weighing when fees were updated in 2013 as per the User Fees Act. Service standards are not proposed to change with the proposed fee reductions. The service standards are commitments with recourse for underperformance, as per the User Fees Act.
Performance measurement and evaluation
As per the User Fees Act, each year the Minister is required to table a report on user fees in Parliament. This report includes an explanation of the service to which the user fee applies; the related service standards and actual performance levels; and the costs related to individual services to which a fee applies.
The CGC has also established a five-year review cycle. These reviews build on the annual report to Parliament; include a review of services offered; identify and address fee inconsistencies and opportunities to simplify the fee structure; and examine services that are no longer cost-recovered or are inefficient.
In addition, the CGC developed a Performance Measurement and Evaluation Plan (PMEP) for its 2013 proposal Regulations Amending the Canada Grain Regulations – User Fees for CGC Services and Licences. The purpose of a PMEP is to ensure that regulatory activities continue to meet their initial policy objectives and are renewed accordingly on an ongoing basis. It provides a road map to plan, monitor, evaluate, and report on results throughout the regulatory life cycle. A description of the CGC's PMEP was provided in the Regulatory Impact Analysis Statement for the Regulations, which were published in the Canada Gazette, Part II, on June 19, 2013. The amendments proposed herein would not require updating the PMEP, which is available upon request from the contact listed below.
Contact
Melanie Gustafson
Policy Economist
Canadian Grain Commission
303 Main Street
Winnipeg, Manitoba
R3C 3G8
Telephone: 204-292-5721
Email: melanie.gustafson@grainscanada.gc.ca
PROPOSED REGULATORY TEXT
Notice is given that the Canadian Grain Commission, pursuant to subsection 116(1) (see footnote a) of the Canada Grain Act (see footnote b), proposes, with the approval of the governor in Council, to make the annexed Regulations Amending the Canada Grain Regulations.
Interested persons may make representations concerning the proposed Regulations within 30 days after the date of publication of this notice. All such representations must cite the Canada Gazette, Part I, and the date of publication of this notice, and be addressed to Melanie Gustafson, Policy Economist, Corporate Affairs, Canadian Grain Commission, Government of Canada (tel.: 204-292-5721; TTY: 1-866-317-4289; email: melanie.gustafson@grainscanada.gc.ca).
Ottawa, April 13, 2017
Jurica Čapkun
Assistant Clerk of the Privy Council
Regulations Amending the Canada Grain Regulations
Amendments
1 The portion of items 1 and 2 of Schedule 1 to the Canada Grain Regulations (see footnote 2) in column 4 is replaced by the following:
| Item | Column 4 Fee by Fiscal Year |
||||
|---|---|---|---|---|---|
| 2013-14 | 2014-15 | 2015-16 | 2016-17 | 2017-18 | |
| Outward Official Inspection | |||||
| 1 | $1.60 | $1.63 | $1.65 | $1.68 | $1.35 |
| 2 | $143.99 | $146.29 | $148.63 | $151.01 | $121.12 |
| Item | Column 4 Fee by Fiscal Year |
||||
|---|---|---|---|---|---|
| 2013-14 | 2014-15 | 2015-16 | 2016-17 | 2017-18 | |
| Outward Official Weighing | |||||
| 4 | $0.15 | $0.16 | $0.16 | $0.16 | $0.07 |
| 5 | $13.87 | $14.09 | $14.31 | $14.54 | $6.67 |
3 Items 8 and 9 of Schedule 1 to the Regulations are repealed.
Coming into Force
4 These Regulations come into force on the first day of the month following the day on which they are registered.
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