Battle brewing on the border

by Leo Quigley
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The new Liberal government swept into power in Canada on Oct. 19, 2015 with a majority of obviously pleased Canadian voters. But, if they weren’t already, U.S. farmers wanting to sell their wheat north of the border are now spitting mad.

The change in government from Conservative to Liberal meant that any pending legislation was shelved, including the Modernization of Canada’s Grain Industry Act (Bill C48) that would have made major changes to the functioning of the Canadian Grain Commission, Canada’s grain grades and introduced legislation that would have given U.S. farmers top grade for wheat delivered to a Canadian grain elevator.

The legislation, together with other pending legislation, was stopped dead in its tracks after the election and has meant a delay in making the proposed changes – if, in fact, they are ever changed by the Liberals. This delay has also angered producers living along the Canada/U.S border that occasionally haul wheat to a Canadian elevator.

Part of the bill would have made it possible for U.S. grain to be graded the same way as Canadian grain as long as it was a variety registered in Canada.

While U.S. farmers can still sell their grain in Canada as long as it is purchased on spec by a primary elevator, the act does not enable Canadian grain grades to be used in the transaction.

It was these existing grading practices that prompted Roy Motter, chairman, U.S. Wheat Associates, and Brett Blankenship, president, National Association of Wheat Growers, to send a letter on May 20, 2015 to Canada’s then Minister of Agriculture saying, in part: “As you know, the United States is Canada’s largest wheat export market, but the Canada Grains Act and Varietal Registration System (VRS) limit U.S. industry access to the Canadian market. In contrast, U.S. policies allow Canadian producers to compete equally with U.S. producers when delivering into the U.S. marketing system.

“Our concerns about the unfair regulatory environment that U.S. wheat faces in Canada closely parallel the arguments Canada successfully made in its WTO complaint against U.S. country-of-origin labeling (COOL) requirements. Specifically, the WTO Appellate Body found that the COOL measure was ‘inconsistent with Article 2.1 of the TBT Agreement because it accords less favorable treatment to imported livestock than to like domestic livestock.’

“It is readily apparent to us that Canada’s treatment of imported wheat is less favorable than that of domestic wheat through its grading system. U.S. producers are at a direct disadvantage in the Canadian system because Canadian law requires that imported wheat be assigned the lowest official grade established, thereby requiring segregation. Furthermore, the VRS places undue burdens on registering U.S. grown varieties by including irrelevant agronomic factors that are never specified by an end-user and thus add no value to a transaction. These regulations only limit innovation and producer choice. It is our belief that these policies fail to comply with the bedrock GATT principle of non-discrimination.”

Adding to the pressure was a message from Elizabeth Westendorf, U.S. Wheat Associates policy specialist, saying: “While Canada is one of the United States’ largest trading partners, USW continues to have concerns about the closed nature of its bulk grain handling system which will not allow U.S. wheat to receive an official grade commensurate with its quality.

“Though Canada privatized the Canadian Wheat Board in 2012, it has not completely liberalized its wheat industry. Instead of letting U.S. wheat into its bulk grain handling system, Canada downgrades all foreign wheat to the lowest grade – feed wheat. U.S. wheat is of comparable quality to Canadian wheat, so this downgrading of all foreign wheat is a blatantly protectionist action. It denies U.S. farmers access to the market across the border, access that Canadian farmers have if they choose to bring their wheat to U.S. elevators during harvest. This lack of access means that when there is a price premium at Canadian elevators near the border, as we saw in the late summer and fall of 2015, U.S. farmers cannot take advantage of those higher prices.

“USW hopes that Canada’s new government will commit to reform its Grains Act and allow foreign grain to receive the same treatment as domestic grain.”

The Canadian Grain Commission, the government agency that is responsible for grain grading and ensuring quality standards are met for both domestic and export grain, is well aware of the growing discontent south of the border but, until the legislation is changed, must apply the existing rules.

Selling grain ‘on spec’

Remi Gosselin, spokesperson for the board, told World Grain U.S. farmers do have a second option when hauling grain north of the border and that is to offer the grain “on spec.”

“Canadian Grain Commission grade names cannot be used but it can still be purchased on specific specifications,” Gosselin said. “So, producers are fairly compensated for the quality of grain that they deliver.

“What we can confirm is that U.S. producers can deliver grain into Canada and be fairly compensated for their grain deliveries. The only thing that changes is that Canadian Grain Commission grain names cannot be utilized. But certainly, grain can be purchased on the basis of specifications.”

However, in a report to Congress in March of this year, the U.S. Department of Agriculture, Foreign Agricultural Service, said: “Policies that negatively impact the flow of goods between the United States and our trading partners raise significant concerns for the U.S. government. U.S. trade agreements contain rules that help to ensure reduced barriers to trade in goods and services. Canada and the United States are members of the World Trade Organization (WTO), and thus they are subject to the obligations in the WTO Agreement, including under the General Agreement on Tariff and Trade (GATT) and Agreement on Technical Barriers to Trade (TBT Agreement), which also facilitate the elimination of trade barriers. The United States closely monitors foreign government policies and, consulting with U.S. stakeholders, works to ensure our trading partners live up to their international trade commitments.

“… the Canada Grain Act, as implemented through regulations and CGC action, establishes grain grades and inspection requirements in such a way as to prevent or severely limit the grading of foreign grain. This encourages a price discount on U.S. grain. Given the inability to receive a premium grade, Canadian grain elevator operators are encouraged as a practical matter to segregate U.S. grain. As a result of this segregation, U.S. growers are unable to take advantage of the competitive pricing advantages of bulk storage, handling, and distribution facilities available to Canadian growers. This may result in less favorable conditions for sale of U.S. grain, as compared with domestically produced grain of the same type and quality, thus raising concerns with respect to Canada’s trade obligations.”

In an information piece sent to U.S. producers, the USW said it will continue to call for change in the Canadian policy.

“Some U.S. wheat is exported to Canada each year, often sold solely on the basis of specs rather than grade. Though this does allow U.S. growers some limited access to make sales to Canadian end-users, it differs greatly from having the ability to sell to country elevators and eliminates marketing and transportation efficiencies provided through the bulk handling system. While U.S. growers of high quality wheat can market their product directly to Canadian processors at a premium price, their inability to use the storage, handling and distribution facilities available to Canadian growers puts them at a significant competitive disadvantage. In the United States, Canadian wheat receives full, equal access to bulk facilities, providing substantial benefits to Canadian farmers.”

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