Consultation document - Maximum shrinkage deductions at licensed process and transfer elevators

Background

Shrinkage is defined in the Canada Grain Act as “the loss in weight of grain that occurs in the handling or treating of grain.” Such gross weight loss is due to several factors, including loss of grain and dust during handling, transportation, and processing, and loss of moisture during handling, storage, and drying. The Canada Grain Act enables the Canadian Grain Commission to establish maximum shrinkage allowances by Regulation. Paragraph 116(1)(f) of the Canada Grain Act states “the Commission may, with the approval of the Governor in Council, make regulations fixing the maximum shrinkage allowance that may be made on the delivery of grain to an elevator.”

Although the Canadian Grain Commission has the authority to set maximum shrinkage levels at all types of elevators, the mandate does not require that maximums be set at all types of elevators. In terms of pure grain dealers as defined in the Canada Grain Act [1], the Canadian Grain Commission does not have the statutory right to prescribe maximum shrinkage allowances.

Currently, maximum shrinkage allowances for licensed terminal and primary elevators are regulated to zero. However, there are no maximum shrinkage allowances prescribed in the Canada Grain Regulations for grain delivered to licensed transfer elevators or process elevators. Shrinkage deductions are negotiable in the contract between the owner of the grain and the grain handling facility. Where there is not a prescribed maximum shrinkage allowance for a particular grain or elevator class, there is nothing to restrict the elevator from deducting whatever shrinkage allowance it sees fit subject to “good business practices”.

2001 Review

Maximum shrinkage allowances were last reviewed by the Canadian Grain Commission in 2001. At that time, only maximum shrinkage allowances at licensed primary elevators were under consideration. During this review the Canadian Grain Commission analyzed data from nine years of primary elevator weigh-over reports and consulted extensively with producers and industry stakeholders.

Based on the consultation results, the Canadian Grain Commission was convinced by the views of producer organizations that argued that elevator companies should be responsible for weight losses of the grain they have purchased from farmers. This view was further bolstered by the data analysis that was inconclusive in respect of the actual shrinkage losses in the grain handling system. Ultimately, it was decided to regulate shrinkage allowances at primary elevators to zero, effective August 2003.

Shrinkage allowances at licensed terminal elevators were regulated to zero in 1990.

Prior to August 2003 Regulation

Shrinkage allowances were traditionally set at levels so that most elevators would experience actual gross weight losses that were consistent with the maximum shrinkage allowances established for a particular type of grain. Prior to the August 2003 regulation, maximum shrinkage allowances at primary elevators for ‘Other Grains’ (this category encompassed all of the special crops) was 1.00% (percentage of scale weight) for both straight and tough or damp grades. These higher shrinkage maximums for ‘other grains’ were meant to reflect the wide variability of losses that were experienced for these grains, mainly special crops, over the past 10 to 15 years.

Industry practice indicated that grain dealers and process elevators were deducting the same maximum shrinkage allowances (i.e. 1.00% for special crops) as primary elevator companies.

Shrinkage in Other Countries/Industries

Shrinkage is largely self-regulated in the American and the Australian grain industries as well as in other industries. There is very little input from government in establishing maximum shrinkage allowances or in establishing the basis on which shrinkage should be deducted. There also appears to be no consistency in who absorbs the costs associated with shrinkage. In some cases, the handler and/or buyer of the product appears to absorb the costs associated with shrinkage with these costs being passed back to producers indirectly through lower prices (i.e. Australian grain industry, grocery industry). In other cases, it appears shrinkage costs are absorbed directly by producers (Canadian livestock industry, fertilizer industry, and the Canadian grain industry).

Current Situation

Although the Canada Grain Regulations no longer permits licensed primary elevators to charge producers for shrinkage, shrinkage deductions are still negotiable at licensed process and transfer elevators, and grain dealers. During the 2001 shrinkage review it was expected that process elevators would mirror the actions of primary elevators in order to remain on the same playing field.

However, over the past several years market competition has not resulted in this behavior. As a result, producer organizations have been requesting that process elevators and transfer elevators be subject to the same regulations as primary elevators.

This situation is further compounded by the fact that Canadian special crops production has more than quadrupled since crop year 1991-1992 as producers diversified into alternative crops to improve their income. The increased production has resulted in an expansion of the special crops handling, marketing and processing industry.

Proposal

Based on a review of shrinkage regulations for all licensees, the Canadian Grain Commission intends to proceed with regulating maximum shrinkage allowances for all types of grain, including tough and damp, at both process and transfer elevators to zero.

The Canadian Grain Commission’s proposal and request for input is based on the following rationale:

• There are ongoing queries, requests and recommendations from producers and producer groups for a review of shrinkage allowances/deductions at transfer elevators and process elevators.
• Shrinkage has been regulated to zero at both licensed primary and licensed terminal elevators. The Canadian Grain Commission is seeking consistency of policy and regulatory application across licensees in order to develop a level playing field amongst industry players.
• Maximum shrinkage allowances are prescribed in the Canada Grain Regulations. Any change to maximum shrinkage allowances is subject to the regulatory amendment process. This requires thorough consultation with affected stakeholders.
• It is necessary to maintain a regulatory system relevant to an evolving grain handling industry.

[1] CGA Definition: ‘Grain dealer means a person who, for reward, on his own behalf or on the behalf of another person, deals in or handles western grain.’ Anyone trading in grain, whether on their own account or as an agent, is required to be licensed, but the Commission does not require dealers acting as agents of licensees to be licensed. Pure grain dealers do not operate elevators, or if they do operate an elevator, they also require an elevator licence.