Quarterly Financial Report for the quarter ended September 30, 2023

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 2023-24 Departmental Plan, the top corporate risks that could affect achieving planned results under the CGC’s Core Responsibility are:

• the capacity to respond to opportunities and evolving sector needs due to resource constraints; and
• The ability to attract and/or retain a skilled workforce.

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 responsibility: planned results and resources, and key risks” sections of CGC’s 2023-24 Departmental Plan.

A significant risk to the CGC’s financial plan for fiscal year 2023-24 is revenue uncertainty due to grain volumes which are not fully known prior to the commencement of the fiscal year. The CGC is reviewing its grain volume model as part of the organization’s comprehensive fee review to help mitigate future grain volume risk.

Expected 2023-24 financial risks associated with the CGA Review and the CGC’s accumulated surplus are minimal. However, the CGA Review and decisions on the CGC’s accumulated surplus could 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. Grain volumes are not fully known prior to commencement of the fiscal year which can result in significant variances between CGC projected and actual revenues. The CGC could accumulate surpluses (shown as unused authority carried forward in Public Accounts) in years with higher-than-average grain volumes and may be required to draw down on its accumulated surplus funds in years with lower-than-average volumes.

Climate change and extreme weather events, such as droughts and floods, can significantly impact grain production and consequently increase the CGC’s revenue risk. 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 and caused reduced grain volumes at export position in the latter half of 2021-22. The reduced volume of grain inspected and weighed by the CGC in fiscal year 2021-22 resulted in a need to use $7.356 million of surplus funds.

Grain production returned to expected levels in 2022, allowing for exports to increase in the last half of the fiscal year. However, throughout 2022-23, the volume of grain inspected and weighed by the CGC was lower than the forecast due to the carryover effects of the 2021 drought on export volumes. This, coupled with the lower fees that came into effect on August 1, 2021, contributed to a need for use of $14.431 million in surplus funds.

Grain production in 2023 is expected to be drought affected, however, it is anticipated that production will not be as low as the 2021 drought year. The CGC’s 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 2023-24 revenues.

3.2 Surplus and Canada Grain Act Review

From 2013 to 2018, unprecedented increases in Canadian grain production and relatively stable operating costs led to an accumulated revolving fund surplus of approximately $130.7 million as of March 31, 2018. As reported in the 2022-23 Public Accounts of Canada, the CGC’s total surplus balance is $130.3 million as of March 31, 2023.

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 committed $90 million of the accumulated surplus for strategic investments, while retaining $40 million for a contingency operating reserve to mitigate risks associated with declines in revenues. When the Investment Framework was announced in 2018, 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 CGA Review to ensure alignment between the two processes.

From 2018 to 2021, 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 net relatively small surpluses which are typical in a revolving fund environment. The CGC addressed this situation and mitigated the risk of further surplus growth through updates to its annual grain volumes and revenue projections model and the August 1, 2021, fee adjustments as described in 1.3 CGC Financial Structure.

After being paused for much of 2020-21 due to the COVID-19 pandemic, Agriculture and Agri-Food Canada (AAFC) formally relaunched the CGA 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 provided technical and policy support to AAFC through evidence-based analysis and advice for a modernized regulatory framework. Potential impacts of the CGA Review on the CGC’s funding model and accumulated surplus are unknown at this time. Going forward, the CGC will consider investment initiatives within the broader context of the CGC’s strategic plan, modernization initiatives, and the CGA Review outcomes and any impacts of grain volumes on fee revenue.

The CGC continues to position itself as a global leader in grain science and has developed options for investments that will ensure organizational capacity to provide innovative and science-based programs and services. To ensure the Grain Research Lab functions efficiently until a new location is identified, the CGC has developed a five-year investment plan to make required improvements to maintain and improve research capacity.

To date, the CGC has allocated Investment Framework funding to the following projects:

• enhancements to the Harvest Sample Program;
• pulse testing program to strengthen research and innovation;
• grain research laboratory renewal, upgrades, and maintenance of infrastructure to deliver science programming essential to CGC’s mandate; and
• the MyCGC e-services platform, a suite of integrated program delivery systems to provide seamless digital service to CGC clients.

4.0 Significant Changes to Operations, Personnel, and Programs

In June 2022, the CGC updated its strategic plan for fiscal year 2023-24 and beyond. 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 the following 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 grain producers; and
4. Attract and retain employees in a competitive market.

For updated information on the CGC’s strategic plan, see the “Plans at a glance” and the “Core responsibility: planned results and resources, and key risks” sections of CGC’s 2023-24 Departmental Plan.

In December 2022 the Treasury Board of Canada Secretariat (TBS) issued a directive to a common hybrid work model for the Federal Public Service. The CGC fully implemented this directive by March 31, 2023. The CGC continues to invest in physical space, and equip staff with secure, state-of-the-art digital tools and mobile work solutions to support this model.

On July 26, 2023, the Honourable Lawrence MacAuley was appointed as Minister of AAFC and Minister responsible for the CGC. The CGC looks forward to working with Minister MacAuley and thanks the Honourable Marie-Claude Bibeau for her years of leadership.

Approval by Senior Official

Approved by:

Statements of Budgetary Authorities (Unaudited)

Departmental Budgetary Expenditures by Standard Object (Unaudited)