Quarterly Financial Report for the quarter ended December 31, 2020

1.0 Introduction

This quarterly financial report should be read in conjunction with the Main Estimates and Supplementary Estimates. It has been prepared by Canadian Grain Commission (CGC) management as required by section 65.1 of the Financial Administration Act and is in the form and manner prescribed by the Treasury Board. This quarterly report has not been subject to an external audit or review.

2.0 Highlights of Fiscal Year to Date

This section highlights any significant items that affected the year-to-date results and/or contributed to the net change in resources available for the year and actual expenditures. It should be read in conjunction with the Statement of Budgetary Authorities and the Departmental Budgetary Expenditures by Standard Object, which can be found at the end of this report.

3.0 Risks and Uncertainties

Certain financial, economic and environmental conditions may impact the CGC and its financial results. COVID-19, the CGC’s accumulated surplus, and revenue uncertainty have been identified as current risks. Strategies have been identified to mitigate these uncertainties.

3.1 COVID-19

Due to the onset of the COVID-19 pandemic in March 2020, the CGC invoked its Business Continuity Plan. Departmental resources were focused on the critical areas of inspection and licensing, as well as aiding in producer protection through the HSP. New approaches were implemented to provide critical mandated services while ensuring the safety of CGC employees. All CGC employees were initially required to work remotely except for those engaged in critical program delivery whose duties could not be performed remotely. The deployment of expanded and enhanced video conferencing and digital collaborative tools throughout the organization allowed CGC employees to continue to work effectively away from CGC offices during the COVID-19 pandemic. CGC employees quickly adapted to the new realities and the organization has continued to deliver on its strategic priorities and fulfill program commitments.

In August 2020, the CGC initiated a phased business recovery approach for the return of services that were suspended or modified due to the pandemic. This included the resumption of incremental analysis of export cargoes at terminal locations, which had been limited, and delivery of the HSP. Additionally, in September 2020, the grain weighing personnel resumed on-site device examinations and auditing at terminals and the GRL resumed a number of previously suspended laboratory activities. Adjustments have been made to program delivery processes to ensure physical distancing and mitigate risk of virus transmission in accordance with public health direction, which varies provincially and at the federal level. The CGC’s remote work strategy, will continue to support employees to effectively complete their assigned tasks in the remote workplace, laboratory, or licensed terminal elevators through strategies designed to ensure the health and safety of all employees and to support the continuation of remote work.

The business recovery process presents real opportunities to improve and streamline business processes in all CGC operations, including stakeholder engagement program delivery. This includes initiatives to move to more virtual engagement and program delivery (e.g. online audits), and electronic documentation. As a result of the COVID-19 pandemic, typical stakeholder communication mechanisms such as in-person consultations, trade shows, scientific conferences and new crop missions are not currently possible. The CGC is developing new approaches to effectively communicate with stakeholders and a continuing priority will be to enhance the CGC’s virtual presence with increased use of video, interactive tools, and social media. The CGC will continue to draw on innovative practices adopted during the pandemic and integrate them as part of the future of CGC work. The CGC’s goal is to establish a safe, modern and flexible work environment that promotes innovation and productivity.

3.2 Surplus and Canada Grain Act

To address the accumulation of surplus funds, the CGC announced a Surplus Investment Framework on August 1, 2018. The investment framework retained $40 million for a contingency operating reserve to guard against possibility of future declines in grain volumes, while allowing for strategic investment of $90 million in three key areas:

• Strengthening safeguards for producers
• Investing in grain quality assurance
• Enhancing grain quality science and innovation

As part of the investment framework, the CGC made enhancements to the HSP beginning in the 2018-19 crop year. The HSP now provides deoxynivalenol (DON, also known as vomitoxin) and Falling Number^Footnote2 results for wheat samples, and DON results for corn samples. Producers can use this quality information to help make marketing and delivery decisions in order to maximize returns. The CGC has allocated $4 million to fund these enhancements to the HSP over five years.

In 2019-20, in addition to the HSP enhancements, the CGC invested in end-use functionality research on the impacts of the application of food-grade white mineral oil as a dust suppressant on grain. Based on this research, the CGC made the decision to permit the broad-based application of food-grade white mineral oil to grains. Additionally, an investment was made in a voluntary testing program for small-lot pulse exports. Initial plans are for the program to be administered for a two-year period.

When the investment framework was announced, the CGC committed to consulting the sector on further surplus investment initiatives. At that time, the CGC envisioned rolling out investments over a two-year time frame. However, this timeline was subsequently delayed as a result of Budget 2019’s announcement of the Canada Grain Act review to ensure alignment between the two processes. In 2019-20, the CGC completed extensive analysis and work in support of the AAFC-led review. These efforts focused on priority areas of interest, such as official inspection and grain weighing, elevator and grain dealer licensing and farmer payment protection. Formal launch of the stakeholder consultation was paused as a result of the COVID-19 pandemic. Moving forward, the CGC plans to further develop initiatives under the Investment Framework as opportunities arise and will ensure investments align within the broader context of the CGA review.

3.3 Revenue Uncertainty

The CGC receives funding through voted appropriations and fees related to programs and licences it provides to the grain sector. Fee revenue is largely based on grain volumes, which fluctuate from year to year. In addition, grain volumes are not fully known prior to commencement of the fiscal year. This can result in significant variances between CGC projected revenues and actual revenues. Because actual grain volumes vary from year to year, in years with higher-than-average grain volumes, revenues may exceed costs and the CGC could accumulate surpluses (shown as unused authority carried forward in Public Accounts). In years with lower-than-average grain volumes, revenues could be less than costs and the CGC would be required to draw on its surpluses.

The CGC’s revenue risk is reduced when above average grain volumes result in revolving fund surplus. However the Canadian grain sector continues to face uncertainty regarding access to international markets due to heightened market sensitivity to actual or perceived grain quality and food-safety issues. Restricted access has potential to result in lower than expected grain volumes and revenues. The annual budget is reviewed throughout the year to accommodate shifting needs and priorities, including risk mitigation strategies that enable the CGC to accommodate up to a 20 percent variance in forecasted grain volumes.

As noted in Section 1.3, in 2017-18, the CGC implemented a new model for forecasting annual grain volumes and revenue projections. However, continued grain export volume growth, and record grain volumes in 2020-21 have further increased the surplus accumulation. In addition, local and global circumstances stemming from the pandemic since March 2020 have resulted in significantly increased grain movement. Current 2020-21 crop year to date overall exports are about 30% higher than the same time last year, and there are no signs of abatement in the trend. Recent changes in the grain handling industry, made by both railways and the grain companies, will sustain these higher volumes. The projected revenue for 2020-21 is higher due to increased grain volumes handled for the first two quarters. To mitigate the risk of further surplus growth, the CGC will undertake a targeted fee review and will update the grain volumes model for fee calculations to reflect recent changes in the grain handling industry.

4.0 Significant Changes to Operations, Personnel, and Programs

Over the last 10 years, the grain sector has experienced a period of significant transformation. In order to add value and deliver clear results to this dynamic sector, since fiscal 2012-13 the CGC has streamlined operations and become a financially sustainable organization.

Planned operational spending has stabilized at approximately $66 million. Planned human resource requirements are approximately 450 FTEs. As part of its Business Continuity Plan, the CGC implemented temporary changes to its program delivery at its waterfront or regional offices to reduce the amount of staff onsite but still allow CGC to still deliver its mandate. Activities directly associated with official inspection and weighing of grain for export, and submitted samples were modified. However the CGC continued to provide grading results, Certificates Final, and other documentation with no changes.

Douglas Chorney, was appointed to the position of Chief Commissioner effective December 18, 2020. Patty Rosher was appointed to the position of Assistant Chief Commissioner, effective February 15, 2021. There was no change to the Executive Management Committee structure during the 3rd quarter of 2020-21.

In response to the COVID-19 pandemic, the CGC invoked its Business Continuity Plan in March 2020. Departmental resources focused primarily on the critical areas of inspection and licensing, as well as aiding in producer protection through the HSP. New approaches were implemented to provide critical mandated services while ensuring the safety of CGC employees. In August 2020, the CGC initiated its Business Recovery Plan, which is a phased business recovery approach for return of services that were suspended or modified due to the pandemic. As part of its recovery planning, the CGC is drawing on innovative practices adopted during the pandemic to move towards a more mobile and dynamic workplace. The business recovery process presents real opportunities to improve and streamline business processes of all CGC operations, including stakeholder engagement and program delivery. The CGC plans to build on the innovations that have been implemented over the past few months and integrate these as part of the future of CGC work.

Approval by Senior Official

Approved by:

Statements of Budgetary Authorities (Unaudited)

Departmental Budgetary Expenditures by Standard Object (Unaudited)