How Canada’s grading system is ‘robbing’ farmers of value

Commentary, Mary-Jane Bennett

Tinkering with a system in clear need of an overhaul is like rearranging the deck chairs on the Titanic.

In March, the Winnipeg lab of Intertek, a global commodities testing firm, received an unusual request. Manitoba farmer Paul Orsak brought in wheat samples from his cash grain operation in Binscarth, just east of the Saskatchewan border. But Orsak didn’t just want the lab to provide him with a Canadian Grain Commission grading certificate. He also wanted Intertek to tell him how his wheat would be graded in the U.S.

The analysis produced two very different results: What Canada considers low-value “feed quality” wheat is considered high-valued “milling quality” in the U.S.—to Orsak, a $500,000 difference for that crop year. To any farm, that can mean the difference between turning a profit and operating at a loss.

Orsak chose, of course, to sell his wheat south of the border. But he wasn’t prepared to simply let the matter rest there. He complained to the head of the Canadian Grain Commission, Elwin Hermanson, arguing this was no one-off. Canada’s grading system is “robbing” Canada’s farmers of “significant value,” Orsak wrote.

In an interview last week, Orsak explained that grain companies are buying Canadian downgraded grain, then able to turn around and sell “the same grain in the U.S. domestic market,” and “pocketing a significant price difference.” Domestic millers are doing something similar: buying milling wheat at less than full value. Both grain companies and millers are complying with the law and can’t be faulted for taking advantage of the difference in treatment. Canada’s antiquated grain grading laws allow this practice, creating significant losses for Canada’s grain farmers.

What is the point of grading? Orsak asks. Buyers — the flours mills and crushing plants — seek specific qualities from the grain, including gluten strength, flour yield and protein. “I don’t care if it’s graded blue cheese,” he said in an interview last week. With no relationship to buyer requirements, grading is an unnecessary step.

Globally, fully 80 per cent of grain trading is done through contracts, where buyers and sellers agree to precise specifications. The archaic Canadian grading system stands virtually alone. Not only is Canada out of step from the international standard, but grading fees cost the average farmer an annual $9,000, without adding a penny to their bottom line.

None of this is new. Twenty years ago, the Canada-U.S. Joint Commission on Grains concluded that Canada’s system was in “urgent” need of change. Commission co-chair, Bill Miner said in a recent interview that while grain grading helped establish Canada’s reputation as a global agriculture leader in the first half of the century, by the 1980s world grain commerce had moved on. Grain contracts now outline the specifics sought by the end buyer. These “don’t necessarily marry with the grade,” which causes additional headaches. Miner, former Assistant Deputy Minister of Agriculture and Chair of the International Wheat Council, says grain grading is “too crude a system,” and is unsuited to 21st Century needs.

Consider gluten strength, for example. Gluten strength (gluten is a protein composite found in wheat) is a crucial measure of how well wheat flour will eventually work as a bread ingredient. Superior gluten strength means that bread dough rises faster and produces better quality loaves. Demanding customers desire high quality in their breads and dinner rolls. To government, last month’s belated change to include gluten strength was heralded as the “modernization” of Canada’s grading system. But buyers and sellers alike have long known how to contract for the protein strength in grains.

The crude, confusing system, at odds with the global wheat trade, could also lead to trade troubles for Canada. In May, the U.S. Wheat Associates and National Association of Wheat Growers jointly called for improvements to Canada’s treatment of U.S. wheat. In a firmly worded letter to Canada’s agriculture and international trade ministers, they noted that U.S. wheat arriving in Canada is automatically downgraded to the lowest grade, regardless of whether it is of high quality or an approved Canadian variety.

They called for an end to this discriminatory treatment, noting that Canadian-grown wheat is treated the same as U.S. wheat in the U.S. market. Canada, they concluded, must “ensure an equitable trading environment for wheat producers and consumers on both sides of our mutual border.”

It’s just one more reason Canada must take a hard look at its outdated grain grading system. Tinkering with a system in clear need of an overhaul is like rearranging the deck chairs on the Titanic. As Orsak might say: What’s the point?

This op ed was originally published by The National Post on Monday, August 24, 2015: http://business.financialpost.com/fp-comment/how-canadas-grading-system-is-robbing-farmers-of-value