Quarterly Financial Report for the quarter ended June 30, 2021

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 and the Future of Work, the CGC’s accumulated surplus and CGA review, and revenue uncertainty have been identified as current risks. Strategies have been identified to mitigate these uncertainties.

3.1 COVID-19 and the Future of Work

In 2020-21, in response to the COVID-19 pandemic, CGC resources were focused primarily on the critical areas of inspection and licensing, supporting producers through the Harvest Sample Program, adapting the workplace to support remote work, and implementing new approaches to provide mandated services while ensuring the safety of employees.

However, as provinces announced plans to reopen and gradually lift public health restrictions, the CGC continued to undertake the necessary steps to transition towards a work environment that meets current operational needs and delivers on its strategic priorities and program commitments. To date, most grain export inspection and weighing services have now returned to regular pre-pandemic service levels, with additional safety measures in place. Similarly, most activities that were temporarily suspended, such as GRL research work and voluntary sample testing, have resumed while ensuring the health and safety of employees, grain sector colleagues, and the general public.

Moving forward, the CGC will continue to draw on the innovative practices adopted during the pandemic and integrate these into the CGC’s post-pandemic operating environment and vision for the future of work. The CGC 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. Effective June 2021, the CGC appointed a Future of Work/Reintegration Director to lead a project team tasked with creating a plan to ensure the CGC can continue to effectively achieve its mandate through an engaged, dynamic, empowered and healthy workforce, using advanced and innovative digital services and technology and supported by optimal infrastructure.

3.2 Surplus and Canada Grain Act

In 2018 the CGC established an Investment Framework focused on strategic investments in three key areas: strengthening safeguards for producers, investing in grain quality assurance, and enhancing grain quality science and innovation. To date, the CGC has allocated $4 million to fund ongoing enhancements to the Harvest Sample Program over five years. In addition, an investment was made in a voluntary testing program for small-lot pulse exports. Initial plans were for this program to be administered for a two-year period, but it has been extended to July 2022 to account for lost time associated with the temporary suspension due to the COVID-19 pandemic.

All other spending initiatives under the Investment Framework have been on hold since the Budget 2019 announcement of the AAFC-led Canada Grain Act (CGA) Review in order to ensure alignment between the two processes. After being paused for much of 2020-21 due to the COVID-19 pandemic, AAFC formally relaunched the CGA Review in January 2021 with public consultations closing on April 30, 2021. A “What We Heard” report will be published detailing consultation feedback.

In the coming months, the CGC will work with AAFC to analyse what was heard and determine how best to move forward with the modernization of the Canadian grain regulatory framework to ensure it meets the needs of the evolving grain sector. Any future initiatives under the Investment Framework will be informed by, and align with, the outcomes of this process.

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 continually faces export volume uncertainty regarding access to international markets due to market sensitivity to actual or perceived grain quality and food-safety issues. Restricted market access has the potential to result in lower-than-expected grain volumes and revenues. The CGC 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, since fees were amended and implemented in 2017-18, operating costs have remained relatively stable, but the CGC has consistently inspected and weighed higher-than-forecast grain volumes resulting in increased revenue and additional in-year surplus accumulation. Although the 2017-18 changes significantly reduced surplus accumulation, in-year surplus growth has continued. For fiscal year 2020-21, the CGC had an in-year surplus of $18.64 million. This is in addition to the approximately $15.51 million in surplus accumulated from fiscal years 2017-18 to 2019-20.

The last several years have seen a continued growth in grain export volumes, with record tonnages reported by CN and CP railways and port authorities in 2020-21. To date, overall exports are about 30% higher than the same time last year. Although local and global circumstances stemming from the COVID-19 pandemic since March 2020 have contributed to the increased grain movement, recent expansion in the grain handling sector along with improved farming techniques and grain variety development will continue to sustain these higher volumes and the potential for further surplus accumulation.

To address this situation and mitigate the risk of further surplus growth, the CGC has updated its model for forecasting annual grain volumes and revenue projections. Effective August 1, 2021, the four fees for official inspection and weighing that are generating the majority of the surplus will be reduced significantly and realigned with the adjusted grain volume forecast. The intention is to generate no material surpluses or deficits over the next five-year cycle.

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 482 FTEs. The CGC continued to effectively deliver its mandated functions such as grain export inspections and producer safeguards using adjusted approaches and remote work solutions. Most grain export inspection and weighing services have returned to pre-pandemic service levels. Regular inspector capacity is in place at the majority of waterfront locations to provide onsite incremental analysis. There continues to be a small number of waterfront locations where it is not possible to resume regular inspector capacity because these locations are unable to accommodate health and safety physical distancing requirements. However, the CGC continued to provide grading results, Certificate Finals, and other documentation with no changes. Similarly, many activities that were temporarily suspended, such as research work and voluntary sample testing, have resumed while ensuring the health and safety of our employees, grain sector colleagues, and the general public.

There were several changes to the Executive Management Committee structure during the 1st quarter of 2021-2022. Gino Castonguay was appointed to the position of Director of Industry Services, effective April 1, 2021. Derek Bunkowsky was appointed to the position of Chief Grain Inspector for Canada effective June 24, 2021. Patti Charach continues to act as the Director of Human Resources while Michelle Dedieu assumes the role of the Future of Work/Reintegration Director. Effective May 1, 2021, science oversight and accountability for all CGC Analytical Services was moved under the GRL Director General. All functions have been maintained and no jobs were lost as a result of this change. The CGC’s legal counsel changed due to retirement.

Approval by Senior Official

Approved by:

Statements of Budgetary Authorities (Unaudited)

Departmental Budgetary Expenditures by Standard Object (Unaudited)