Quarterly Financial Report for the quarter ended June 30, 2022

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

Risk management is an essential part of strategic planning and decision making at the CGC. The CGC has an established process to identify, monitor, mitigate and manage corporate level risk. As identified in the 2022-23 Departmental plan, the top corporate risks that could affect achieving planned results under the CGC’s Core Responsibility are:

• ensuring Canadian grain is dependable and safe while balancing rapidly evolving grain sector needs and managing the impacts of the COVID-19 pandemic;
• the CGC’s aging grain research laboratory infrastructure and facilities; and
• the capacity to respond to opportunities while delivering upon the core mandate.

To mitigate program risk and ensure long-term success in delivering the departmental results, the CGC will work to deliver on its strategic plan which is described in detail in the “Plans at a glance” and the “Core responsibilities: planned results and resources, and key risks” section of CGC’s 2022-23 Departmental Plan.

A significant risk to the CGC’s financial plan for fiscal year 2022-23 is revenue uncertainty due to grain volumes which are not fully known prior to the commencement of the fiscal year. While 2022-23 financial risks associated with the Canada Grain Act review and the CGC’s accumulated surplus are minimal, uncertainties are included as they have potential to impact the CGC’s financial plan in future fiscal years.

3.1 Revenue Uncertainty

CGC 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.

Climate change and extreme weather events such as droughts and floods can significantly impact grain production, and consequently increase the CGC’s revenue risk. In addition, 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.

Excessively hot and dry growing conditions across most of the western Canadian grain production area in 2021 resulted in significantly decreased yields. This in turn resulted in reduced grain volumes at export position. This impacted the volume of grain inspected and weighed by the CGC in fiscal year 2021-22, contributing to a revenue shortfall of $13.99 million, necessitating a draw down on the accumulated surplus from previous years. The impact of 2021 drought conditions on reduced export grain volumes continued in the first quarter of 2022-23. Revenue earned during the first quarter of 2022-23 is $10.21 million less than revenue earned during the same period last year due to reduced grain volumes inspected and weighing and lower fees that came into effect on August 1, 2021.

The CGC forecasted increased total revenues for 2022-23 compared to 2021-22 in anticipation of a return to normal weather conditions in 2022. 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. The CGC will continue to monitor and assess impacts and uncertainties associated with grain volumes and the potential impact on 2022-23 revenues. The CGC is targeting a comprehensive service fee and grain volume model review for adjustments effective April 1, 2025.

3.2 Surplus and Canada Grain Act

From 2013 to 2018, unprecedented increases in Canadian grain production and relatively stable operating costs led to an accumulated revolving fund surplus of approximately $130 million as of March 31, 2018. 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.

The Investment Framework retains $40 million of the accumulated surplus for a contingency operating reserve to mitigate risks associated with declines in revenues, while committing $90 million for strategic investments. When the Investment Framework was announced in 2018, 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 timeframe. However, this timeline was subsequently delayed because of Budget 2019’s announcement of the Canada Grain Act review to ensure alignment between the two processes.

Since 2018, Canadian grain export volumes continued to grow, and some of the factors leading to recent increases were not anticipated by the current grain forecasting model. Combined with relatively stable operating costs, this led to further surplus growth in 2018 to 2021, the majority of which occurred in 2020-21 due to extraordinary grain export volumes. Prior to 2020-21, the CGC realized relatively small surpluses which are reasonable in a revolving fund environment. To address this situation and mitigate the risk of further surplus growth, the CGC updated its model for forecasting annual grain volumes and revenue projections. Effective August 1, 2021, the fees for official inspection and weighing that generate most of the surplus were reduced by 29 percent and realigned with an adjusted grain volume forecast of 48.10 million metric tonnes.

To date, the CGC has allocated $4.0 million to fund enhancements to the Harvest Sample Program that began in 2018-19 crop year. Additionally, investments have been made in a pulse testing program, to strengthen research and innovation, for renewal of laboratory infrastructure, to develop a workplace for a post COVID-19 working environment, and to develop the MyCGC E-services platform, a suite of integrated program delivery systems to provide seamless digital service to CGC clients.

After being paused for much of 2020-21 due to the COVID-19 pandemic, Agriculture and Agri-Food Canada (AAFC) formally relaunched the Canada Grain Act review in January 2021 with public consultations closing on April 30, 2021. A resulting “What We Heard” report was published in August 2021 detailing consultation feedback.

The CGC continues to work with AAFC to analyse the various options presented through the consultation 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. It is too early to assess and determine potential impacts of the Canada Grain Act review on the CGC’s funding model and accumulated surplus. Going forward, the CGC will consider investment initiatives within the broader context of the Canada Grain Act Review outcomes and any ongoing drought impacts on grain volumes and fee revenue.

4.0 Significant Changes to Operations, Personnel, and Programs

In September 2021, the CGC established its strategic plan for the 2022-23 through 2024-25 planning horizon. While most CGC resources will continue to be dedicated to day-to-day delivery of programs and services, the remainder will be dedicated to modernizing the CGC through four areas of focus:

1. Modernize the CGC’s regulatory framework, programs, and services.
2. Position the CGC as a global leader in grain science.
3. Strengthen the CGC’s stakeholder relationships, with a focus on Canadian producer.
4. Establish the CGC as an employer of choice.

For additional information on the CGC’s 2022-23 strategic plan, see the “Plans at a glance” and the “Core responsibilities: planned results and resources, and key risks” section of CGC’s 2022-23 Departmental Plan.

To continue to make progress on its strategic plan, the CGC will work in close collaboration with grain sector stakeholders, agriculture portfolio partners, and counterparts abroad.

During the first quarter of 2022-23, there were no significant changes in relation to operations, personnel, and programs.

Approval by Senior Official

Approved by:

Statements of Budgetary Authorities (Unaudited)

Departmental Budgetary Expenditures by Standard Object (Unaudited)