FINA Committee Meeting

STANDING COMMITTEE ON FINANCE

COMITÉ PERMANENT DES FINANCES

EVIDENCE

[Recorded by Electronic Apparatus]

Tuesday, May 30, 2000

• 1107

[English]

The Acting Chair (Mr. Paul Szabo (Mississauga South, Lib.)): Good morning, ladies and gentlemen. We are resuming debate on the finance committee's study on cost recovery.

This morning we have witnesses from Agriculture and Agri-Food Canada, the Office of the Auditor General of Canada, Bayer Canada Inc., the Canadian Federation of Independent Business, the Canadian Animal Health Institute, and the Crop Protection Institute.

Welcome to all. As the clerk outlined to you previously, you'll have five to seven minutes for a presentation from each group, following which the members would like, I'm sure, to pose some questions to you.

We're going to start off with Agriculture and Agri-Food Canada. I'd like to welcome Andrew Graham, assistant deputy minister, corporate services branch; Jean Chartier, vice-president, public and regulatory affairs, Canadian Food Inspection Agency; and Reg Gosselin, director, corporate services division, Canadian Grain Commission. Welcome, and please proceed with your presentation.

Mr. Andrew Graham (Assistant Deputy Minister, Corporate Services Branch, Department of Agriculture and Agri-Food): Thank you very much, Mr. Chairman.

I'll provide some brief background information on Agriculture and Agri-Food's cost recovery activities, our current cost recovery challenges, and our responses to those challenges. I'll be followed by Mr. Chartier and Mr. Gosselin.

Mr. Chairman, Agriculture and Agri-Food Canada's estimated user fee revenue for 2000-01 fiscal year is approximately $25 million. I would point out that this figure does exclude revenue generated by the Canadian Pari-Mutuel Agency, which is a revolving fund.

User fee revenue volume for departmental activities—and I'll be clear at the outset and say that excludes the Food Inspection Agency and the Grain Commission, and my colleagues will speak separately to these areas—has remained in recent years at the level I described and is projected to remain relatively stable for the foreseeable future. Also, you will recall that the minister recently announced that fees will not be increased in our area and in the other agencies for which he is responsible until after the year 2002.

The proportion of expenditures that departmental branches finance through user fees varies according to program requirements. I think that's a particular situation with the department. We in fact have user fees in a number of areas, but they are quite different. For example, PFRA, the Prairie Farm Rehabilitation Administration branch, recovers almost all of its direct costs of providing pastures for grazing and breeding services for cattle. On the other hand, as the Auditor General noted in his report, there are really minimal or no user charges in many of the programs in the department's research branch and in the market and industry services branch.

• 1110

Notwithstanding that, the major programs that have financing contributions through cost recovery are, as I've already mentioned, the PFRA community pastures, which have grazing and breeding fees of about $9 million; the administrative fees associated with the net income stabilization account, NISA, which are approximately $8 million; and the market and industry services branch's one cost recovery, which is the FIMCLA fee of approximately $1.3 million.

Charging fees for specific services is well established in the department, and most of the fees I've described do have a fairly long history in the department. Notwithstanding this fact, we recognize the need to manage the user fee activities in a much more holistic way than we have in the past.

Over the years the department has consulted with its clients prior to implementing or increasing existing user fee charges. In some cases this is a very long and lengthy process. It certainly has always been our intention to approach the user fee issue in a fair and equitable fashion, and certainly with a due regard for the impact that a particular fee has.

The November 1999 report of the Auditor General contains observations and recommendations associated with our department and with the portfolio. The chapter reports that progress has been made in the design and management of user fees in three of the organizations from Mr. Vanclief's portfolio, which are represented here today, and notes a number of sound practices. However, the report also indicates that none of the three organizations have yet met all of the requirements of the 1997 Treasury Board policy on user fees.

The chapter noted that we were one of the first departments to undertake a cumulative impact study on fees. I have with me today Mr. Brian Paddock from our policy branch, who could speak to any details should that be of any interest to the members. The chapter also acknowledged that this study significantly advanced the knowledge about impact of user fees. We're going to build on the strength of the study's methodologies when examining the impacts of future fees as we examine the existing fee structure.

The audit found that significant improvement is required in reporting user fee charges and results to the public, industry, and Parliament. The report highlights the following four specific areas for improvement: the costing of the services, assessing the impact of fees, establishing formal appeal processes, and integrating user fees into strategic planning.

Mr. Chairman, the department is also very cognizant of the concerns raised by the Business Coalition on Cost Recovery on May 9 when it met before you. The coalition raised some very realistic challenges that we think must be addressed at the central agency, departmental, and portfolio levels.

We wish to assure the committee that the current freeze on mandatory fees through 2002, certainly at the department level, will in fact give us time to develop the full framework, some elements of which are not complete in the department. Other elements are.

We certainly intend to take into account the issues raised by the Auditor General as well as those raised by the Business Coalition when developing mechanisms to strengthen the management of our user charge activities. We are continuing to work closely with Treasury Board as we develop the new policies, which we hope will have a much stronger future orientation.

The management framework will enable us to better articulate the principles that will guide the future application of user fees. These principles will respect the spirit of the Treasury Board policy. The principles will also foster consistent implementation of the Treasury Board policy and more uniform practices throughout the department. The framework is in the early stages of development in our department and requires some serious consideration and consultation before being implemented.

The department is currently consulting other departments with cost recovery activities to glean the best practices so that we avoid both duplication and reinvention of wheels and we can incorporate them into our management framework.

The AAFC framework for the management of user fee activities, which is now in draft form, will clearly articulate the requirements to ensure that cost recovery principles are respected. Obviously those principles will include consultation, impact assessment, performance standards and measures, dispute resolution mechanism, costing of services, and reporting. We anticipate the finalization of the framework this year.

• 1115

In conclusion, Mr. Chairman, we accept the challenges that have been identified, and corrective action is underway. The key principles for managing user charge activities will be incorporated into our framework. We view cost recovery as a useful government policy and acknowledge that the resources, infrastructure, and guidance have to be established and improved to ensure that the clients and Canadians in general can fully benefit from it.

Thank you.

The Acting Chair (Mr. Paul Szabo): Mr. Chartier.

[Translation]

Mr. Jean Chartier (Vice-President, Public and Regulatory Affairs, Canadian Food Inspection Agency, Department of Agriculture and Agri-Food): Good morning to the members and the business representatives here today.

I am pleased to be here on behalf of the Canadian Food Inspection Agency (CFIA) to discuss the Agency's approach to cost recovery.

First and foremost the CFIA is concerned with food safety and consumer protection. We are also committed to protecting Canada's plant resources and maintaining the health of animals.

In support of these objectives, the CFIA provides a wide variety of regulated and non-regulated services to the agrifood industry—services that directly contribute to the industry's ability to operate effectively on the national and international scene, and ultimately, services that contribute to the quality of life of Canadians.

[English]

The CFIA's cost recovery approach complements these objectives. We're committed to maintaining a fair and equitable system of user fees that improves the overall effectiveness and efficiency of the government programs in support of our food safety, consumer protection, plant protection, and animal health program objectives.

The agency and its predecessors have a long history of cost recovery. Indeed, for many decades, fees have been charged for some inspection and certification programs. As members may recall, back in November 1996, parliamentarians were told that no new user fees or increases to existing fees would be introduced before the year 2000.

Since its creation, the CFIA has worked to improve its user fee system by refining its cost recovery policies by establishing a single accounts receivable service centre to reduce administrative costs and improve client services and also by establishing an appropriate dispute resolution mechanism that deals with industry complaints, among other things. We acknowledge that the system is not perfect, but we share the Auditor General's belief that cost recovery can and does enhance effectiveness while promoting the efficient use of resources.

Better use of resources means avoiding, reducing, and eliminating costs where appropriate, and this is an integral part of the CFIA cost recovery approach. The CFIA has focused its attention on cost avoidance, cost reduction, and cost elimination. We've achieved $30 million in cost reduction and cost avoidance initiatives during the period in which we implemented our cost recovery policy.

The CFIA's livestock grading program is a good example of cost avoidance that resulted in net savings to the government and the industry. In this case, because the grading of beef is a function related to quality rather than food safety, the CFIA was able to hand over grading activities to a private, not-for-profit organization at a reduced cost to industry.

The Canadian Seed Institute is another good example of our work to avoid, reduce, and eliminate costs. The CSI, a not-for-profit organization, was established to deliver an accreditation and monitoring program for the Canadian seed industry. Recognition of the CSI enabled the CFIA to officially accept CSI applications, inspection reports, and recommendations for the registration of seed establishment across Canada. Again, the industry benefits from reduced costs.

The CFIA hasn't achieved these successes alone. We recognize the important role of industry and have taken every opportunity to work with our stakeholders. We believe it is essential that our clients have the opportunity to engage us in constructive dialogue and air their views.

Mr. Chairman, in the first two years of operation alone, the CFIA held more than 500 separate consultations with producers, processors, importers, national industry associations, and foreign governments. We take industry concerns into account and are committed to continuing consultations with all our stakeholders.

• 1120

I would now like to talk a bit about what's ahead for the CFIA.

As you know, on March 15, 2000, the minister acted in response to the tough times farmers in Canada are facing by further extending the freeze on mandated cost recovery fees until at least the end of 2002.

We recognize that improvements need to be made to our cost recovery system, and we're confident that improvements can be made. We have mapped out our direction, which includes a commitment to acting on all of the recommendations of the OAG'S report, developing an agency cost recovery vision and policy, compiling a master list of all outstanding cost recovery issues, and fixing or adjusting existing user fees where benefits for all concerned are readily apparent—all within the purview of the freeze.

We are well on our way. We have already begun to address client concerns on matters such as improved program costing methodologies and fee simplification.

In addition, the CFIA will be actively participating as the government reviews its user fee policy and we will continue to design and implement a cost recovery system that fully complies with Treasury Board requirements.

[Translation]

In closing, Mr. Chairman and distinguished committee members, the CFIA is committed to working towards improving its user fee system, in keeping with the recommendations of the Auditor General. We appreciate the recommendations we received and are looking forward to working with stakeholders towards a cost recovery system that serves industry as well as the people of Canada.

Thank you, Mr. Chairman.

[English]

The Chair (Mr. Maurizio Bevilacqua (Vaughan—King—Aurora, Lib.)): Thank you very much, Monsieur Chartier.

We'll now hear from Mr. Reg Gosselin, director of corporate services division, Canadian Grain Commission.

Welcome.

[Translation]

Mr. Reg Gosselin (Director, Corporate Services, Canadian Grain Commission, Department of Agriculture and Agri-Food): The Canadian Grain Commission was established by Parliament in 1912 to establish and maintain grain quality standards, to regulate grain handling, and to maintain the rights of grain producers.

To meet these objectives, we deliver regulatory, research and quality assurance programs that take the form of mandatory and optional services.

[English]

The CGC has been recovering the majority of its costs since its inception in 1912. For many years, our cost recovery target was 90% on a five-year average. With the exception of the last two years, we have been able to meet this target. Most of our revenues come from fees that we charge for inspection and weighing services on grain as it's loaded into vessels going to export. These fees not only pay for our direct services, but they also fund supporting quality assurance services.

Fee revenue for our mandatory services account for about 90% of our total fee revenue. With some minor exceptions, our fees for mandatory services have not increased since 1991, and as Minister Vanclief announced on March 2, our fees for mandatory services are frozen to the end of the fiscal year 2003-04.

Thus our cost recovery performance to the end of 2004 will be considerably lower than our 90% historical average. To ensure the financial viability of the CGC until that time, the government has increased our appropriation by $63 million, or about $16 million per year. This has allowed the CGC to maintain its service levels without increasing fees.

And by the way, producers told us very clearly that they wanted us to maintain our services.

The freeze on fees will constrain our ability to adjust our mandatory fees to reflect our costs, but by 2003, we're required to develop a plan for future cost recovery and the means to achieve our goals. We expect at that point we'll be able to restructure our fees to closely reflect actual costs of services.

The CGC is committed to implementing the recommendations of the Auditor General's report. Our cost recovery approach has always emphasized the following.

We try to match the needs of the client to the service. For example, in recent years we were able to reduce one of our major fees by over 60%.

We do annual fee reviews. In 1997 we did a comprehensive review, which was cited in the Auditor General's report.

We try to reduce our costs to the extent that we can. For example, we're operating with 16% fewer staff now than we were in 1991, but we've opened service centres throughout the Prairies and have expanded our services in the port of Vancouver to address industry and producer needs.

• 1125

Finally, we do periodic major reviews. In 1998 we published a report, which was cited again in the Auditor General's report, that addressed all of the services the commission provides. We did this in close collaboration with our clients and stakeholders. We gave them complete financial and operational detail on each and every service, and we asked them to tell us what we should be doing differently or what we should stop doing. Generally they confirmed that the services we provide are of value to them.

The Treasury Board's cost recovery policy requires agencies to have an appeal mechanism for fee payers. The absence of a formalized appeal process at the CGC was noted in the AG's report. I should say the commission has had an informal dispute resolution process in place for many years, but we have not done a good job of communicating that process. We intend to do a much better job in the future.

[Translation]

I will conclude by saying that the CGC is committed to working with its grain producers and industry clients to implement the government's cost recovery policy and to provide the best service possible for the fees it collects.

[English]

The Chair: Thank you very much, Mr. Gosselin.

We'll now hear from the Auditor General of Canada, Mr. Denis Desautels. Welcome.

Mr. L. Denis Desautels (Auditor General of Canada): Thank you very much, Mr. Chairman, and I'd like to thank your committee for this opportunity to discuss the subject of user charges.

My presentation this morning is based on chapter 11 of our September 1999 report, entitled “Agriculture Portfolio—User Charges”. I have with me today Neil Maxwell, the principal in our office who was responsible for this work.

As Mr. Graham indicated in his presentation a few moments ago, our audit looked at three federal agriculture organizations—Agriculture and Agri-Food Canada, the Canadian Grain Commission, and the Canadian Food Inspection Agency—to determine whether they have done a good job of implementing the policy. We reviewed all aspects of the way these organizations manage user charges, including the quality of information they report to Parliament on their user charges.

Successful implementation of user charges requires good management practices in a number of areas, and these include program costing, service standards, impact analysis, a consultation process, planning and understanding how user charges can achieve program objectives, reviewing performance, learning from experience, and finally clarity and completeness of public and parliamentary reports. I would stress that these practices are not only necessary for the implementation of user charges but part of good management.

[Translation]

We noted, Mr. Chairman, that the organizations have made progress in the past five years in improving certain management practices. For example, consultation on user charges has improved. In some cases, consultation has produced a "win-win" result for both government and industry. For example, federal beef-grading is now done by a private non-profit corporation at a fraction of the former cost.

Further, Agriculture and Agri-Food Canada was the first department to undertake a cumulative impact study of federal fees, and it significantly advanced knowledge of agriculture fee impacts.

We also illustrate a number of good practices at the three organizations that other departments would do well to consider in managing their own user charges.

[English]

In our chapter we also identified areas that require additional effort.

First, each organization needs to improve its costing capability in order to improve its management of user charges and enhance public confidence. While the Treasury Board Secretariat and my office have emphasized the importance of good costing systems, we found a reasonable costing system in only one program area.

Second, service standards are not widely used.

Third, the organizations need to improve their assessment of the potential impact of fees. Impact assessments we reviewed were imprecise and contained little information that would help the reader understand the fees' expected impacts.

Fourth, formal appeal processes were either not well known or not in place.

Fifth, the organizations need to improve the quality of information on user charges that is made available to parliamentarians and to the public. Among other things, organizations need to indicate the rationale for charging a fee and demonstrate that services are efficient. They need to report the service standards achieved, the revenue raised, the ways in which user fees have helped the organization meet its objectives, and the means of obtaining more detailed information on individual fees.

• 1130

Finally, our audit found that these organizations have often viewed user charges primarily as a means of generating revenue. There are opportunities for the organizations to achieve the broader user-charge benefits set out in the Treasury Board policy. For example, user charges can be a tool to help increase compliance with government regulations and make services more responsive to users' needs.

I'm happy to report that on March 30 of this year the Standing Committee on Agriculture and Agri-Food received the commitment of the three organizations that they would act on the recommendations contained in our chapter. I believe this is a step in the right direction.

[Translation]

In November 1996, the government announced that there would be no new user fees and no increases to existing fees at the Canadian Food Inspection Agency before the year 2000.

During our audit, we found that user charges were not being updated as programs changed and that officials felt constrained from correcting known inconsistencies among fees. As a result, some groups could be paying either more than their fair share or less.

The moratorium also stalled potential improvements in the management of user fees. In some cases, officials had all but abandoned the cycle of reviewing and improving their management practices.

In March of this year, the Minister of Agriculture and Agri-Food announced that the Department and the Canadian Food Inspection Agency will freeze changes to mandatory fees until the end of 2002, and the Canadian Grain Commission will freeze changes to mandatory fees until the end of 2003.

[English]

We believe the period of this freeze is an opportunity for these organizations to develop better management tools for user charges and to improve the information on user charges available to Parliament and others.

Mr. Chairman, as you know, Treasury Board's planned review of the government's policy is now underway. We have communicated to Treasury Board Secretariat officials that we would be happy to work with them to share the knowledge gained through this audit.

I'd like to conclude by summarizing several key points on the subject of user charges raised in the chapter on matters of special importance in my report of last year.

I know that many observers have criticized the way user charges have been implemented and that our audit work over the years supports many of those criticisms. I also noted that our work provides evidence that user charges can provide benefits beyond the revenues generated. User charges can serve as an incentive for users to work with managers and focus services on what is truly of value. The pressure that user charges create to improve service standards, costing systems, and efficiency of operations should be welcomed.

I concluded by saying that user charges can play a valuable role in the management of government services.

Mr. Chairman, that's the end of my statement. My colleague and I would be pleased to answer the committee's questions.

The Chair: Thank you very much, Mr. Desautels.

We'll now hear from the Canadian Animal Health Institute, Jean Szkotnicki, president.

Welcome.

Ms. Jean Szkotnicki (President, Canadian Animal Health Institute): Good morning, and thank you, Mr. Chairman.

My name, as you said, is Jean Szkotnicki. Many of you may recall that I appeared before this committee at the beginning of these hearings as co-chair of the Business Coalition on Cost Recovery. At that time we talked about the coalition's broad concerns about cost recovery policy and its implementation.

Today I join you as president of the Canadian Animal Health Institute to discuss the cost recovery program of the agency responsible for approving veterinary drugs—the Bureau of Veterinary Drugs or VBD, within Health Canada. My members have also had a similar experience, as will be outlined, with the review process for veterinary biologics, administered by the Canadian Food Inspection Agency.

First, for some background, the Canadian Animal Health Institute, CAHI, represents companies that develop and manufacture pharmaceuticals, biologicals, feed additives, and animal pesticides used in agriculture and veterinary medicine. We deal with a number of different regulatory agencies as we bring new, emerging technologies to the marketplace, two of which are Health Canada and the Canadian Food Inspection Agency. Our members generate $350 million in annual sales and provide value-added jobs for thousands of Canadians. Our industry is also an important contributor to Canada's livestock and poultry industries, which employ more than 200,000 people and generate in excess of $30 billion a year.

• 1135

Like many other witnesses, CAHI does not oppose the principle of cost recovery. In fact when cost recovery was first introduced for the BVD in 1996, we supported it on the promise that fees would be reasonable and that we would receive an acceptable level of performance or service. Sadly, the reality of cost recovery has fallen far short of this promise.

Compared to other countries, the fees charged by the BVD are excessive. Approving a new animal drug in the United Kingdom, for example, costs on average—and these are food and companion animal estimates—about $30,000. In Australia it costs just over $20,000. In Canada the fee for the same service is more than $54,000. The Canadian cost recovery program for veterinary drugs is the most costly in the world relative to market size. And in the United States, our largest agricultural competitor, with an agricultural market ten times greater than Canada's, there is no charge to review new veterinary drugs or biologics.

This inequity hurts Canada's livestock industry in two ways. First, because new products are expensive to register here, the process untimely, and the market relatively small—about 2.5% of the global market—a lot of companies choose to submit secondarily to Canada after submitting to more responsive agencies. This deprives Canadian farmers of technologies that their competitors have access to.

Second, the higher cost of registering new products in Canada means products for minor markets such as sheep, goats, and ratites—ratites, for those of you who don't know, are ostriches and emus—are not submitted to the review process, and supplementary claims are not sought.

While cost is a concern, the poor service performance of the BVD is by far a more serious problem. Not only have service improvements promised by the BVD not been met; their service has actually gotten worse since cost recovery was introduced. In 1995, when industry paid no fees, new veterinary drug submissions were processed on average in 427 days. In 1996, when cost recovery was introduced, we were promised this standard would improve to the administrative timeframe of 180 days. But by 1999 the average had actually ballooned to 926 days—five times the promised standard and more than twice as long as the standard before service fees.

Yet even though the BVD has failed to live up to its commitment to improve service, the industry is still required to pay user fees. Considering this complete lack of service and accountability, the fees charged by the BVD are nothing more than taxes in disguise.

This poor performance hurts the entire agricultural sector. Getting a new animal drug approved takes at least two years more in Canada than in other countries. This means Canadian farmers must compete against farmers using more targeted and often safer animal medications.

The situation has some veterinary drug companies actively reconsidering their participation in this market. I've attached to my submission a letter from Vetimex, a Dutch company active in over sixty countries, which details the lack of responsiveness by the BVD and their company's decision to re-evaluate its participation in the Canadian market.

In my written submission I have also provided four case studies on the economic and other effects of delaying product approvals in Canada. I want to highlight two of these examples. One is a Health Canada example and the other is a CFIA example.

A leading-edge product for food animals was submitted to the BVD. The product took six years to get through the approval process. As a result of the lengthy delay between the promised review time and the actual review time, the company lost 85% of its expected revenues from this product's sales. In addition to these direct losses, Canadian food producers also lost, because for over five years a key management tool was unreasonably withheld from them.

• 1140

Another example involved a leading-edge vaccine for food animals, which was developed by a small Canadian company. It was submitted to Canadian and U.S. regulators at the same time. The vaccine was approved in the U.S. within three months—and remember, this was submitted by a Canadian company. In Canada the approval process took over 24 months, even though the maximum response time for these submissions is supposed to be four months. During this twenty-month delay, sales of the vaccine in the U.S. market were $4 million U.S. The delay in registration in Canada cost the Canadian company 52% of the revenues it forecast from vaccine sales in this country. This meant less money for job creation and R and D in Canada.

In addition to these direct costs, the delay also imposed additional costs to the livestock sector. Because the vaccine is designed to be injected subcutaneously, or under the skin, as opposed to in the muscle, a major benefit was that this product reduced the amount of meat loss resulting from trimming the carcass around the injection site. The delay in approving this vaccine cost the cattle industry over $28 million annually, it's estimated, because of more trimming than would otherwise have taken place.

Many of the concerns and examples I have raised today are not new. We have made our concerns known to the regulatory agencies, the responsible departments, and the Treasury Board, but unfortunately no one seems to be able or willing to address these fundamental concerns.

For example, even though Health Canada is currently reviewing its cost recovery programs, the BVD has unilaterally decided not to participate in the review. We have protested their decision and taken our concerns to Deputy Minister Dodge and Health Minister Allan Rock, but so far nothing has happened. I have attached to my presentation correspondence to this effect.

The CFIA recently made a commitment to have Canada's biologics or vaccine program for animals once again meet agreed-upon performance standards. Time will tell whether this commitment is met.

We know there must be a better and fairer way to manage cost recovery. The Business Coalition on Cost Recovery has offered several recommendations we believe would improve the situation at the BVD and other regulatory agencies we deal with, such as the PMRA and the CFIA. We would like to offer four other recommendations as well.

First, there is no independent dispute resolution system for companies disagreeing with the BVD, even though it is a requirement of the current cost recovery policy. We would like to see the requirement for a third-party dispute mechanism enshrined in legislation, with the provision that fees may not be charged until the mechanism is in place.

Second, service fees should be specifically linked to performance. In the U.S. the Prescription Drug User Fee Act of 1992, which covers human prescription drugs, specifically says fees cannot be collected when performance targets are not met. Faced with this reality, we understand, they now always meet their performance targets and even supersede them.

Third, it must be clearly understood that cost recovery is about bringing a service approach to government, not just generating revenue. Too often the introduction of cost recovery is accompanied by a reduction in government funding. This tells departments cost recovery is nothing more than an alternative source of income. Again, in the U.S. the Prescription Drug User Fee Act specifically states that appropriations to the FDA cannot be cut in those areas where user fees are administered. In other words, user-fee revenue is specifically meant to complement, not replace, government appropriations.

Finally, and most important, there must be a level of accountability or oversight on the program. This committee has learned about the lack of accountability and heard many recommendations for how it can be improved, including a recommendation that cost recovery programs file annual reports with their relevant parliamentary committee. We support this proposal and add one more. In the United States the Prescription Drug User Fee Act had a five-year review requirement or sunset clause built into the act. The act was renewed in September 1997, and as part of the review, more funds were allocated to the FDA for drug approvals. We believe that all cost recovery programs should be required to undergo a review every five years to ensure accountability, relevance and efficiency.

• 1145

Thank you for your time today. I would be pleased to answer any questions. I have with me my colleague, Dr. Don Wilson, director of technical and regulatory affairs with Bayer animal health. We will both be pleased to answer questions later on.

The Chair: Thank you, Ms. Szkotnicki.

Mr. Wilson, will you not be making any statement?

Mr. Don Wilson (Director, Technical Services, Regulatory Affairs, Bayer Canada Inc.): No. I think I'll wait. My submission has gone in to the clerk, so it will be part of the record.

The Chair: Okay, great.

I'll just move that this be read into the record as well.

Statement by Don Wilson:

Presentation to Finance Committee May 30, 2000.

Mr. Chairman, members of the Finance Committee.

On behalf of Bayer Incorporated - Agriculture Division I wish to thank you for inviting our appearance before you in response to our Vice-President, Bill Buckner's letters to Mr. Cullen and Mr. Galloway, who represent constituencies with major Bayer sites.

Unfortunately Bill is out of the country today, and he asked me to appear on his behalf.

Our intent has been to provide our thoughts and constructive feedback on our experiences with Cost Recovery as it relates to the groups that we do business with - PMRA - Pest Management Regulatory Agency, and BVD - Bureau of Veterinary Drugs, both in Health Canada; and VBS - Veterinary Biologics Section of CFIA - Canadian Food Inspection Agency of Agriculture Canada.

My focus is principally with the Animal Health side of our business.

I personally have over 22 years experience working with the BVD and over 20 years with VBS.

We are a member organization of both the Crop Protection Institute and the Canadian Animal Health Institute, who in turn are both members of the Business Coalition on Cost Recovery, which appeared before you earlier, and both groups are appearing here today.

We thank your committee for beginning to study this issue.

When Cost Recovery was first presented to our industry the raison d'être was that the added investment in the regulatory process would allow adequate staffing of these agencies in order to achieve targets of performance comparable to other countries.

As you may already be aware, this has not happened at the BVD or VBS—in fact the opposite—longer waiting periods.

In many other Cost Recovery environments the timeframes are predictable and also the fees are lower than in Canada.

I understand that the TPP of Health Canada have also delivered more predictable timelines.

You have heard and will hear more on the economic costs that this poor performance and apparent lack of accountability brings to our industry.

Canada has lost ground in its Veterinary Drug and Vaccine registration process in the past 10 years and this appears to have further escalated in the past 5 years under Cost Recovery despite assurances by these departments that there would be improvements.

The Veterinary profession, who we serve, has also been poorly served by this development, as has the competitiveness of our livestock production industry, not to mention the delayed access of the pet care segment to innovative therapies.

We are supportive of the BCCR requests:

1) Third party assessment of program costs.

2) A Business Impact Test before new fees are set.

3) Assess the effects of these fees and take steps to reduce undue impact.

4) Set performance targets and redress mechanisms for poor performance.

5) Ensure that CR programs are run efficiently by minimizing fees through harmonization and mutual recognition agreements.

6) Establish appropriate dispute resolution mechanisms.

In conclusion, there is recognition that Cost Recovery has relevance and support—it is the implementation and performance that has fallen short.

Thank you for your committee's interest and support.

I welcome your questions.

The Chair: Mr. Whyte, Would you like to start? Go ahead.

Mr. Garth Whyte (Senior Vice-President, National Affairs, Canadian Federation of Independent Business): Thank you, Mr. Chairman.

My name is Garth Whyte. I'm with the Canadian Federation of Independent Business. With me is my colleague, Rob Meijer, who's our agriculture policy analyst. On behalf of the CFIB, the Canadian Federation of Independent Business, we want to thank the finance committee for once again inviting us to appear before it today to discuss the impacts of the government's cost recovery policy on the agricultural sector.

When CFIB appeared before this committee earlier this month, along with Jean and the cost recovery coalition, we stated that government fees and penalties have become a major impediment to small business productivity, with more than one out of four of our survey respondents identifying this issue as a priority to improve their firm's productivity.

We stated that small business owners view many of these federal fees as an unfair tax grab that does not reflect the value of the services provided. We said that the government's cost recovery program is broken and it's time to fix it. If left unchecked, government fees will continue to disproportionately hurt small business, which in turn impedes job creation and hinders Canada's overall productivity.

Ultimately Canadian consumers are also hurt, because higher fees and poorer service lead to fewer products on the market and higher product prices. Everyone loses in the end. Well, this is certainly the case when you consider the burden of fees and the government's cost recovery policy on the agricultural sector. In fact, when we listed the principles that Treasury Board and private sector groups, including the CFIB, put together to develop the cost recovery policy—and we're one of the founders of the cost recovery policy, to develop a fair and efficient cost recovery policy—you will recall that we cited several times the Auditor General's report, which focused on agriculture fees. Since the Auditor General is here today, I will not reiterate the concerns identified in his report. But I have read a different report than I heard across the table.

However, when CFIB, along with co-chairs of the Business Coalition on Cost Recovery, debated Treasury Board officials, it became clear that the principles of equity, efficiency, accountability and standards, partnership, cumulative impact, and mediation were not being followed. This is especially the case with the agriculture sector. Now, I know members are aware that CFIB has over 98,000 members, but you're probably not aware that we have well over 8,000 agribusiness members across Canada ranging from primary producers to agri-service retail providers. And we meet with them daily.

Today we're releasing our report, “Controlling the Costs of Government: Agri-business Survey on Government Regulation, Paperwork, Inspections, and User Fees”, which is based on a survey to our agribusiness members between October 1999 and January 2000. The report offers a unique opportunity to review the concerns of farmers and agribusiness owners, not only with federal fees but with fees at the provincial and municipal levels as well, because there's one fee payer but there are multiple fees coming at them.

The author of this report, Mr. Robert Meijer, CFIB's agriculture expert, is with me today. Before Rob gives you a summary of the report, I want to make one further comment.

Our research of our members during the 1998 farm income downturn showed that three-quarters of the agribusinesses across Canada believed rising input costs were the primary cause for their problems. The costs associated with government regulations, paperwork, and fees are viewed as a component of the rising input costs facing the agriculture sector. Despite this, governments at all levels continue to mandate new rules and requirements and continue to increase fees or create new ones. The cumulative effect has hurt agribusiness in terms of lost productivity, growth, and overall competitiveness.

As governments have continued to search for ways of dealing with the farm income problem, CFIB has maintained that reducing the costs of user fees would provide financial relief to the farm income community. Easing the burden of fees is one area that governments have direct control over, yet to date providing relief has largely been overlooked.

I will now ask Rob to provide an overview of our report on the impacts of government fees and paper burden on the agriculture sector.

• 1150

Mr. Rob Meijer (Agribusiness Policy Analyst, Canadian Federation of Independent Business): Thank you, Garth.

On behalf of CFIB's agribusiness members across the country, I am pleased to present the Standing Committee on Finance with the results of CFIB's survey on the impact of government fees, regulation, and paper burden.

Since 1995, government fees have been increasingly used to pay for various services, often mandatory, where governments are the sole provider. This has been confirmed by the Auditor General's recent report, where ag fees in certain areas increased nearly 300%. Whether it is the cost or the actual number of the charges, two-thirds of agribusinesses across Canada said fees imposed by all levels of government had been on the rise since 1997. Only 13.7% of our membership noticed a reduction.

With respect to smaller operations, 67.3%—two-thirds—of agribusinesses with four or fewer employees indicated government user fees had escalated. For the two-thirds of our agribusiness members who reported the increase in government fees during the past three years, both the federal and provincial governments were found to be equally responsible.

In order to gauge the impact of such fee increases, CFIB agribusiness members were then asked to indicate to what degree their agribusinesses had been affected by each level of government's cost recovery measures. For six out of ten agribusinesses across Canada, provincial user fees and licences have had the most negative impact on their operations, but this was closely followed by one-half who believed federal fees were a problem.

In our members' views, governments have failed to recognize the negative effects their charges have had on small and medium-size operations. For example, flat or capped rates penalize smaller operations because these fees represent, in percentage terms, a much higher share of their sales or revenue. In this regard, smaller operations do not always have the ability to pass on or spread out the increased expense of governments, much like big businesses, leaving many smaller operations at a serious competitive disadvantage.

CFIB's survey also assessed the value for money in terms of customer service and satisfaction. We found that nearly two-thirds of agribusiness owners across this country viewed federal fees as poor. This was followed by provincial fees, as rated to be no better. Notably, 57.8% of smaller operations across the country rated fees as poor most often.

It is obvious from the results that agribusinesses were most critical of federal and provincial user fees. The federation has heard many complaints from operators that all levels of government have not provided adequate levels of customer service. Even worse, in some cases fees have increased, while at the same time customer service has actually declined, in our members' perception.

Another area that ties into this issue quite closely is regulation red tape and paper burden. Recent CFIB research on government regulatory demands and red tape has found that the full range of agribusinesses, from primary producers to agri-service retail providers, had been negatively impacted. Reporting on the negative effects, seven out of ten of our agribusiness members across this country said their provincial government was the worse offender, but this was closely followed by two-thirds who cited the federal government as responsible for over-regulation.

Evidence of this impact can be described best by one of our agribusiness members, who recently stated that they are especially—crop processor and exporters—subject to a drawback tariff on imported polypropylene bags. This amounts to a cost of $35,000 per year in fees, and apparently another $10,000 in red tape to apply for a refund.

In relation to paperwork and forms, 70% of the respondents said federal government had a negative effect on their operations, placing a huge burden on the shoulders of business owners. Increasingly, government demands strip away productive time that could have better been used to spend on other business activities. For the past two years, agribusinesses have witnessed a dramatic increase in government regulation, red tape and paperwork. Among all levels of government, two-thirds of respondents said their demands had escalated since 1998.

For just over half of our agribusiness members, an average of three or more hours per week is required to satisfy government. In the course of one year, this amounts to a minimum of 156 hours of business productivity—nearly a month of a regular salaried employee's time. When asked who had the responsibility or the task of completing government paper work requirements, eight out of ten agribusiness owners said they or their spouses personally took on the responsibility.

Whether it be an owner sacrificing their time, a paid employee, or hired outside professional help, agribusinesses are expected to forfeit their time and resources to comply with government. Overall, this burden has been found to weigh more heavily on smaller operations, as they do not have the spare resources, time, employees, or readily available information to satisfy government's demands.

• 1155

I will now briefly touch on the audits and inspections and the impact. Just under one-half of operators reported provincial audits and inspections were harmful to their businesses, closely followed by federal monitoring.

In conclusion, user fees levied by various levels of government, agencies, and departments are adding to the already onerous tax burden, and are considered a significant component of input costs to our agribusiness members. That is compounded by the fact that the agricultural community continues to struggle with the economic and weather-related difficulties. Governments can no longer overlook regulatory reform as a viable solution to producers' ongoing problems.

CFIB strongly believes a harmonized approach should be considered to put forth a unified effort to substantially improve the fee, regulatory, and paperwork environment facing Canadian agribusiness. The federal government must take the lead and begin to achieve some results on this front. If governments are serious about helping the family farm and smaller agribusinesses, we believe they can start right now by reducing the burden of user fees, over-regulation, and paperwork, rather than turning to quick-fix, short-term income support programs.

Having heard our agribusiness members' views at this time, I would now like to briefly provide an overview of our eight-point plan, which in our view would work to reduce the burden of government regulation, paperwork, and user fees, including audits and inspections.

The first is accountability. We believe government and its agencies must be fully accountable for the fees, paperwork, and regulations they impose.

Second is transparency. Government must communicate with agribusiness to ensure regulations, paperwork requirements, and fees facing agribusiness owners are known.

Third, on the consultation process, government and its agencies must take a ground-up approach, by listening to their clients and stakeholders during the policy development stage.

Fourth is impact assessments. The onus should be on government to show why a specific regulation or fee is necessary, and report its potential impact.

Fifth is sensitivity to small business. Charges should be simple, fair, prorated to the size of the operation, and most of all, flexible.

Sixth is value for money. There must be an identifiable and justified relationship between the set charge, the cost of the service, and the value of the service provided.

Seventh, and almost most important of all, is to recognize regulations and fees as input costs. Governments must recognize that user fees and regulatory requirements impose additional costs on Canadian agribusinesses. Governments should reduce their reliance on ad hoc income support programs by alleviating the burden of regulation facing agribusiness.

Finally is coordination. Governments should work together to eliminate any duplication and overlap between all levels of government.

I thank you for your time today. I'll be pleased to answer any questions.

The Chair: Thank you very much, Mr. Meijer and Mr. White.

We will now hear from the Crop Protection Institute, Charles Milne and Terry Hanson. Welcome.

Mr. Charles D. Milne (Vice-President, Government Affairs, Crop Protection Institute): Thank you very much Mr. Chairman.

The Crop Protection Institute very much appreciates this opportunity to again give testimony to the finance committee on the topic of cost recovery. In the interest of time, I will paraphrase from the document I submitted to the committee earlier. My colleague Terry Hanson, from the Crop Protection Institute's board of directors, will provide a perspective from a member's point of view after my comments.

The Crop Protection Institute is a non-profit trade association representing the manufacturers, developers, and distributors of plant life science solutions for agriculture, forestry, and pest management in Canada. We are the voice of the industry and a source of information on crop protection products. The Canadian industry sales are $1.4 billion.

Our industry is a supplier of crop protection technology to Canadian farmers. Access to emerging new technologies is critical to enhancing Canadian agricultural production. The key to accessing new technologies is a responsive and efficient regulatory system.

As many committee members will know, the Crop Protection Institute has frequently addressed the government regarding the implementation and evolution of cost recovery. In our documentation, we have a list of the committees and times we have spoken on this topic. I'm encouraged that this committee has established that a problem exists with cost recovery and has decided to focus upon how to rectify the cost recovery system.

• 1200

We have been driven by a commitment to improve the implementation of cost recovery within the federal government. We have joined with the Business Coalition on Cost Recovery, many of whose members are here today. The institute supports the underlying principles of many of the coalition's studies on cost recovery.

I would like to share with you some of the observations that the institute has made about the implementation of cost recovery and some of those shortcomings.

We believe there has been insufficient consideration by government to the philosophical public-private benefit issue. By that I mean should mandatory services be cost-recovered? Should there be payment for objectivity? For instance, if people are paying for participation on a trade mission or for a passport, that's a discretionary decision, and a private benefit accrues to those who pay. The objective review of a drug or a pesticide assures and protects society, regardless of whether or not the applicant receives the registration. There appears to be a lack of clarity about whether the client is the payer or society.

Another observation is that there is an inconsistent interpretation and enforcement of cost recovery guidelines. Departments and agencies were left to make their own interpretations of how cost recovery would be implemented, resulting in a variety of differing operating styles in cost recovery programs across government.

Another point is that the skills sets and mindsets for the implementation and management of cost recovery were largely absent within departments and agencies. Traditionally governments' roles have been in areas that are in the social good, which are typically unsuited for commercialization, or where a level of unbiased objectivity is mandatory. Those who deliver services within government frequently have highly specialized skills such as in science or law and often have not had experience or training in business. Cost recovery brings with it a significant change in the workplace culture. I would suggest that making toxicologists into accountants may be a slow and less than successful process.

In addition, we feel that in our particular case, where we are regulated by the Pest Management Regulatory Agency, there was poor timing and competing new initiatives at the PMRA at the time of cost recovery. Cost recovery was imposed on the PMRA at the same time the agency was inventing itself from portions of four different federal departments. Effectively, the creation of the PMRA was a merger, experiencing all the interpersonal and ilocational adjustments inherent with change and the beginning of something new. The imposition of cost recovery at the PMRA during its inception, when there was no historical data for any of the agency's processes, created the challenge of attempting to recover costs that were effectively unknown.

An additional point was there was an unrealized client-user expectation for cost-recovery-driven performance improvements and government responsiveness. Performance measures and the delivery of more businesslike approaches by government have tended to be slow in materializing and have been expressed in terms or in contexts not relevant or familiar to most client users.

Few provisions for recourse exist for settling disputes over fees or service performance. It has resulted in submission rejections, along with retroactive changes in application criteria, being utilized to manage workload in order to meet performance targets while collecting fees at the same time for rejected or incomplete submissions.

Finally, business impact tests were discredited, incomplete, or undone. Inconsistencies prevailed over the approach, implementation, and necessity to actually undertake business impact tests. This underscores the lack of understanding within many government areas about how business works and the limited ability of government to identify clients and users.

Many people on the committee may be aware of a report recently from another standing committee, that being the environment and sustainable development committee, which focused on pesticides earlier this month. The Crop Protection Institute rejects the committee's call to phase out pesticides and is extremely troubled that the environment committee's recommendations are predicated, to a great extent, upon the view that ignores and/or discredits the PMRA's scientific reviews.

• 1205

Industry feels that we're receiving mixed messages. Industry is concerned and confused because the same government that has imposed cost recovery upon the registration process of our industry is also calling for the eventual elimination of our industry, effectively curtailing the cost recovery revenue source.

Our industry is being required by government to pay for the regulatory services of a government agency, which, according to the environment committee, are now suggested to be inadequate or questionable.

In addition, the committee calls for a disbanding of what is called the Economic Stakeholder Advisory Committee, EMAC, which was put in place specifically as a forum for those who have an economic interest impacted by cost recovery to liaise with the regulatory agency about cost recovery and efficiencies to be realized by that agency's operations.

Finally, the environment committee observes that cost recovery has had a disruptive and attention-diverting effect upon the PMRA and therefore has recommended that cost recovery funds be directed to the Receiver General for Canada, thus putting cost recovery in the same category as taxes.

However, at the inception of cost recovery, government was emphatic that cost recovery was not so much a tax as it was to contribute to the efficiency gains within the cost-recovered agency. Which is it, a tool to drive efficiencies or a tax?

I'd like to submit a guiding vision that may help us through this a little bit for cost recovery—and some of you have heard this from me before. Think of the possibility if Canada had the most respected and the most efficient regulators in the world. Developers of leading-edge technologies would find such a regulatory environment inviting.

While the market size of other countries will forever overshadow those in Canada, the capacity to lead the world by providing fast and globally respected technology registrations could distinguish Canada as a global discovery centre. To do such could foster significant R and D investment while also providing Canadian growers with a competitive advantage of being the first to utilize state-of-the-art technologies.

There are several points to fixing this situation. First of all, government needs to recognize and support the high scientific acumen of the Canadian regulatory system. This would provide an improved morale and foster an atmosphere of trust, which could establish a foundation for embracing change and its challenges and to progress appropriately.

Cost recovery requires an empowered central overseer with the strict enforcement powers to ensure a consistent and fair implementation and ongoing management of cost recovery.

Annual business plans should be put into place for cost-recovered organizations that include provisions for continuous improvement targets and relevant performance measurement.

There should be an annual standardized accountability report by an independent auditor for each cost-recovered organization within government.

Then let's look at mandatory annual personal development programs for the improvement of general business skills of staff within cost-recovered government agencies with a focus on customer service.

Also, revise employment selection criteria for cost-recovered government organizations to include an increased focus on business skills.

In conclusion, the Crop Protection Institute appreciates this opportunity to share our views with the committee. I would now ask my colleague Terry Hanson to provide a member company's perspective.

Thank you.

The Chair: Thank you, Mr. Milne.

Mr. Hanson.

Mr. Terry Hanson (Business Director, Agricultural Products, BASF Canada Inc.): Good afternoon.

Thank you for the opportunity to appear today. I'll just take a couple of moments to add to what Charlie had to say in his comments and focus basically on what we view as one of the major difficulties with cost recovery and what has happened with cost recovery today. From our standpoint, the basic issue is one of an unpredictable regulatory system.

• 1210

We all know about this. We've talked about it. What I want to do is just point out two areas where I think this is having a major impact and maybe a couple of areas where it wouldn't normally be expected.

The first one I'd like to talk about is the fact that Canada is recognized globally as a leader in agriculture. It's a tremendous position we're in today and it's one that has taken a great deal of work by many people in many different areas. We've seen some very positive things from the government with regard to maintaining our position in agriculture. Specifically from a producer standpoint, we see a number of things that are very favourable for expanding our leadership role, including things such as R and D tax credits, which are very favourable, a favourable currency for doing R and D work in Canada, and a highly skilled workforce.

Unfortunately, today we have a very unpredictable regulatory system. Consequently, many of the dollars that could be spent in Canada today for developing new technologies that would benefit the Canadian farmer and enable the Canadian farmer to be even more competitive in a global environment...many of those R and D dollars are not being spent here because of the regulatory system we have today.

The second area is one that I think is critically important to Canada, and that's the impact of this regulatory system upon farmers and their ability to compete in a global environment. Twenty or thirty years ago we didn't have the global environment and the globalization we see today, and our farmers did not have to compete against many other jurisdictions, which have different rules and different regulatory systems that impact their business.

I think today it's important that we...not try to eliminate cost recovery; that's not our position. Our position simply is that we would like to see it improved, that we would like to see it be accountable, and that as a result we can have a predictable system that we can all understand, live with, and take advantage of.

Thank you.

The Chair: Thank you very much, Mr. Hanson.

We'll now proceed to the question and answer session. Mr. Epp, it will be a ten-minute round.

Mr. Ken Epp (Elk Island, Canadian Alliance): Thank you all for being here today. I find your presentations interesting and, respectfully, contradictory. We hear from both sides of the story here, and I'd like to see if we can reconcile this. From the government agencies we get the impression that things are going okay. From the Auditor General and from the people in the industry, things need a lot of improvement.

I'd like to begin actually with a question to the Auditor General. When you tabled your report in September of last year, almost a year ago—well, two-thirds of a year ago—what kind of timeline did you expect the agencies to follow in implementing the recommendations?

Mr. Denis Desautels: Mr. Chairman, we would normally expect, as with all of our reports, a fairly quick reaction to our recommendations. In fact, we seem to have obtained, as we table our report, a general agreement on our recommendations, and based on that I would think that within a year or so we should be able to see evidence that concrete measures have been taken to address these issues.

Mr. Ken Epp: So are we still maybe a little premature because they haven't had enough time?

Mr. Denis Desautels: I don't think at this stage there's anything preventing organizations from working on improving or addressing the issues we've identified. We all know that the Treasury Board Secretariat is undertaking a review right now of the whole cost recovery policy, but I don't think that should prevent departments from addressing issues they are already aware of. Otherwise that could be seen as an excuse for delaying. I think most of the issues we've identified in our report could be addressed rather quickly.

• 1215

Mr. Ken Epp: Well, that's my impression.

Then I would ask the people from the agencies that are represented here—maybe you each want to take a turn at this. Treasury Board brought these guidelines in in 1997. This is now 2000. That's three years ago. Are those Treasury Board guidelines so unreachable that they can't be implemented in three years? I find that an unacceptable timeline.

Answer, please. I didn't direct it to a specific one.

Mr. Andrew Graham: I think we all may want to comment on that.

First of all, I think certainly I tried to convey that we weren't entirely satisfied with the status quo. We aren't satisfied with the status quo and we're trying to find some solutions. The Treasury Board policy that came in I think certainly generated at a department level the announcement by the minister of the initial freeze, or moratorium at that point, he called it, I believe, on fees. In other words, we didn't want to move any forward because we knew the impact we were having. So I think it is pretty realistic to say that we know that fees have in fact created some burden for the farm community. We wanted to take a look at each one of those.

I think there is some evidence. I'd certainly point to the recent decision of the Grain Commission to in fact change the fee structure and put more money in. That's clear evidence that we took very seriously, the need to do a darn good impact analysis before we simply move ahead on existing formulas.

But you're right in terms of asking whether we have implemented all of the policy with respect to appeal mechanisms, etc. There have been a couple of areas that have presented some real difficulties to us. I would argue very strongly—and I think I could present evidence and I think my colleagues could—that we've consulted, certainly from the departmental point of view, widely with respect to user fees and their impact. I can point to many instances. Probably one of the most interesting from the department's perspective is the way in which we consult PFRA on the community pastures. That's an ongoing process in which all of the figures, all of the numbers, are on the table for all of the users. The results in fact are very transparent. Have we implemented that? I think absolutely we have.

I guess we were still probably the only department to have done cumulative impact studies and shared that information quite widely and tried to do program redesign on that basis. In terms of what is an appropriate appeal mechanism, it still remains a problem for us. I'll give you a couple of examples. On the PFRA community pastures, all of the people who pay the fees are engaged in setting the fees. So we haven't come to grips with what would then be an appropriate appeal mechanism. The same thing applies for FIMCLA, which is a very small program, by the way. It's $1.3 million in recovery. There's a huge consultation process.

So, yes, I would argue that we've implemented some elements of it very well and we're still working on others, but we're still committed to try to solve it.

There's an underlying issue as well that we haven't resolved, and I would point to the Treasury Board policy and to the issues. Treasury Board policy directs departments. You heard significant comment here about cross-departmental impacts. We're trying to work with others. I don't believe in creating mechanisms in stovepipes that we might be able to do across the board so that you might have appeal mechanisms. You might have some members of organizations represented here dealing with appeal mechanisms all over the place. There are issues there that we have to look at, and we're still struggling with “across departments” because we're left to cooperate on these. We would like to find mechanisms that in fact reduce.... You don't want to create an appeal burden on this thing.

So we still haven't come to grips with some of the issues. Perhaps some of my colleagues want to comment.

Mr. Jean Chartier: Maybe I could just add a couple of points. I'd like to point to the overall environment in which all of this has unfolded over the last several years. The first Treasury Board policy dates back to 1989. Over the years, we had started in most organizations to implement cost recovery activities. But we have to remember that the whole government went into some structural adjustments of its own. Certainly program reviews in themselves have also created a lot of challenges for the different departments to adjust to the new reality of globalization and the new economy.

• 1220

On top of that, if I can speak for the Canadian Food Inspection Agency, its sheer creation back in 1997—created, again, from four different departments—created some other challenges on top of that. If we add the notion that we had to come to grips with the moratorium that was set in place, all of those different events have together made it a little more complicated to fully implement the intent and the thrust of the policy that was revised back in 1997.

Having said that, I'd just like to add that we are very far from having sat on our hands. There are quite a few things we have been able to do in spite of those constraints. We've spoken a lot about some of those administrative impediments that make it difficult to work easily with stakeholders and with the industry. As far as we're concerned, we have invested a lot of energy in consultation, in alternate dispute resolution, in creating—as I mentioned in my opening remarks—new ways of doing business that would basically help make it easier for the industry sectors.

At the same time, we also had to adjust to new inspection methodologies based on science. Again, we have to remember that our mandate is to ensure health and safety first. Certainly commercialization is very important for the agency, but that cannot be done to the detriment of health and safety interests.

All this is to say that we recognize there's a lot more to do. We have strongly committed to and responded to the auditor's report. We've made it clear that there are some areas like standards-setting and communication on results in which we need to make better strides, and we are going to do that without hesitation. I think the upcoming years, in spite of the other freeze we have, will allow us to really become better at what we're doing. We're going to invest energy in doing that.

The Chair: Mr. Gosselin, do you have any comments?

Mr. Reg Gosselin: In the commission's case, I guess, it was a timing problem. At the time the cost recovery policy came out, the commission was facing a very significant financial shortfall and undertook at that point a very thorough review process with its clients to look at each individual service, to confirm that the service was needed, and to also make sure of what adjustments people wanted if the services were required.

From that perspective, we've done the consultation and so on. The difficulty for the commission at this point is that adjustments—and some adjustments of fees are needed—can't be effected under a freeze environment. That's one difficulty. With respect to some of the other issues such as, for example, appeal processes and so on, and the establishment of costs, we're moving ahead very quickly. We expect that the formal appeal process will be done in the next few weeks.

On the costing side, we're making some progress there as well. For example, we have a costing process for optional fees which is well established, so we're making pretty good progress—to the extent that we can.

The Chair: Mr. Nystrom.

Mr. Lorne Nystrom (Regina—Qu'Appelle, NDP): Thank you, Mr. Chair.

It's kind of hard to ask questions of so many groups, so I think what I'll do is ask three questions and just see who wants to respond to them.

The first one is about my concern for the ordinary farmer out there in terms of the cost recovery program. I think it was $127 million in 1997-98. In terms of the ordinary farmer, say, in a Wynyard or a Raymore, in Saskatchewan, is it more difficult for the smaller farmer or for the larger farmer? Is there a larger impact on the ordinary family farm, one might say, from all the different fees and charges and so on? These are applied universally in many cases, so is there a greater impact on the small person who's really struggling? Because a lot of farmers now are really struggling, particularly in the grain and oilseed sector. Is there a difference there?

Number two, does anybody know what the total amount—maybe Garth would know—of provincial cost recovery fees would be if we totalled up all the provinces? Maybe Rob might know that as well. The Library of Parliament says that on the federal side it was $127 million in 1998-99. What is the total cost of the provincial fees that are assessed in the agriculture and agrifood industry?

The last thing, I guess, is this: in terms of the size of our agriculture and agrifood economy, how do we compare with some of our major competitors in Europe and the United States? Are we doing extremely well or are we doing poorly? How are we doing from the competition point of view?

• 1225

Those are my questions, Mr. Chair. I don't know who wants to try to respond to those three, but my main concern is how this affects the ordinary farmer. Often the big guy can survive more easily for himself or herself out there because of the economy of scale. I know that even the bigger people are being squeezed a bit now on the grain side because of grain prices and trade wars, but my main concern is just for the ordinary-size farmer in small-town Saskatchewan.

The Chair: Mr. Whyte.

Mr. Garth Whyte: I'll give it a shot to start and then I'll open it up.

First, I guess it is more difficult. They're hit three or four ways. One, they're hit with direct fees, and two, they're hit with indirect costs, which they can't pass through. If fees are increased on chemicals or whatever, those fees can be passed on, but the farmer can't pass them on. That's why, in our report, especially during the farm income crisis where 75% said the import costs were a big deal—and tax burden—the fees hit two issues: they hit as a tax and they hit as indirect costs or import costs, and the farmers just can't pass that on.

The third is availability of products. As Jean pointed out, the new products for the hog farmer.... It would have been wonderful to be able to be more efficient at a time when things were really tough, but that was held up.

The fourth area is the paper burden, just the burden of filling out the paper. We don't seem to include that because we're just looking at fees, but just to fill out the forms.... I mean, you saw that with some of the farm income programs. It was really difficult and onerous to fill them out.

So that's the first issue.

The second is on the total amount for the provinces. We're trying to get a list of all the fees. Again, we've said this to the committee before: why don't you get a list? You can't get a list. Why don't you get a list of all the fees here? You can't get a list. The Auditor General said we couldn't get a list, it was very difficult, and it's old, it's dated. Just in the Food Inspection Agency they have over 1,600 fees, so it's very difficult to assess.

And even with the presentation, Mr. Graham.... I certainly agree with a lot of the comments, by the way. This is just as an example for looking at the overall policy. What hits agriculture is not just within the purview of the agriculture department; it's not just within each one of these agencies—and the PMRA is not even here. To try to measure the PMRA.... The PMRA basically said, in the last letter they sent back to us, that the agency has received no such complaints in the last three years. Well, there are three of us here who submitted complaints, but we got a letter from the head of the Pest Management Regulatory Agency that said there have been no complaints and they're doing a great job.

So it's very frustrating to, one, get a list of the fees and see if we can.... And then no one's looking at the overall provincial side, and there's the municipal shoe to drop as well. There has been a huge impact.

How do we compare with other competitors? I'll defer again to my colleagues, but again, it's a one-off. Again, when you look at the PMRA review, they can say that sometimes they're in the middle of the pack and sometimes they're leading the pack—in the wrong direction.

I guess with this long answer I'm not solely fulfilling.... But at least those are some of the observations.

Rob, did you want to say something?

Mr. Rob Meijer: Can I jump in with one point?

With respect to the smaller agribusiness out there, we can't lose our focus on the fact that roughly 9 out of every 10 agribusiness producers across this country have 5 or fewer employees.

So if I just take a slice of that and look at the paper burden.... I indicated how much time they're focusing on having to meet government demands. If I am a typical family farm and have myself and my spouse, for example, and maybe one hired hand, and I have to take myself out of the operation for three hours per week or a month out of every year to satisfy government requirements, to satisfy the red tape and paper burden of regulation, that's a third of my business as far as my employee base goes. It limits my productivity and my time to satisfy my customer.

There's also another element that we have to draw into this discussion. More and more, we're seeing across this country that the producer, the family farm, is having to turn to off-farm sources of income. Should they increasingly have to turn to that off-farm source of income to pay for user fees, to pay for the paper burden, the regulation, and all the setbacks?

There's where some of this inefficiency kicks in. I may have to get my spouse to go out and get a job to bring money back into the operation, so there's a viability issue here too. We have to become more competitive on the costing side.

Mr. Garth Whyte: Just very quickly, we have estimated—sorry, everyone—that in regard to the grant programs you want to give for the farm income crisis, if you dealt with the fee regulation burden at the provincial and federal levels, you're getting pretty close to offsetting the amount of money that has been given on a yearly basis.

And we're challenging people to prove us wrong. If you add up all the time, all the fees, and even if it's just $100 million or $140 million a year, the aggregate in just agriculture alone.... Add them up and look at that—a different approach. We're spending a lot of time trying to give the grant side, but if we could deal with the fee side, we might be able to offset some of this stuff.

Mr. Lorne Nystrom: Jean.

• 1230

Ms. Jean Szkotnicki: I'm going to take the liberty of expanding your question to small business. One of the case studies we presented is a small Saskatchewan operation with Canadian venture capital that is trying to commercialize Canadian R and D. They brought the vaccine to the U.S. regulatory system at the same time they brought it to the Canadian regulatory system. It was approved very quickly in the U.S., but we had a wait of 24 months here in Canada. It was a loss of 52% of their projected sales. You'll find that business is no longer a Canadian business.

I think a result of this, and it follows what Terry was saying, is that our regulatory system is becoming more and more non-competitive. It's not necessarily the fees we're talking about, although there are no fees for vet drugs or biologics. It's really the regulatory delays and the unpredictable nature of the regulatory system. That is making us non-competitive in this country, and that subsequently hurts agriculture.

The example I use again is that trim loss because of injection sites is estimated to be about $10 a head in cattle. This vaccine was a subcutaneous vaccine. You wouldn't have had the trim loss. So it did hurt Canadian cattlemen, who export about 50% of our production. Meanwhile, the U.S. cattlemen had access to that. So this is a trade issue for them, and it hurts them dramatically.

The Chair: Are there any further comments? Okay. We'll go to Mr. Gallaway.

Mr. Roger Gallaway (Sarnia—Lambton, Lib.): Thank you.

I would like to start by posing a question to our witnesses from the agriculture portfolio. I want to give an example that was given to me. Recognize that I'm not from the east coast and that I don't represent a farming community. I'm told that about 12 years ago in Prince Edward Island the cost for the inspection of an acre of potatoes was $5. Today that farmer is charged $1,200 dollars for that inspection by Agriculture Canada. I'm wondering if you can confirm that increases of that magnitude are possible. I'm not asking you to confirm that the $1,200 an acre is correct.

Mr. Jean Chartier: I think the answer is that's possible.

Mr. Roger Gallaway: All right. Is that charge directly tied to your cost of doing that inspection?

Mr. Jean Chartier: The answer is yes. This is part of the fee that has been set and the rules that have been established through the years in terms of the amount that would be recouped from the private versus the public aspect.

Mr. Roger Gallaway: I want to cast the net a little wider, then, and say that when Treasury Board Secretariat witnesses appeared here a few weeks ago, they swore up and down that every department has a dispute resolution mechanism built within it. Yet if one reads the Auditor General's Report, chapter 11, and based on what I've heard from you this morning, that's not true.

In implementing the 1996 or 1997 policy of cost recovery, what direction was given to you by TBS? I would also ask you what right or authority you have within a department to pick and choose which parts of the policy you will implement. In other words, you have chosen to collect money from users, but you have not decided to implement the whole policy.

Mr. Jean Chartier: I'm going to address all of your questions. I'll start with the alternative dispute resolution mechanism. We have that in place, and this is rather recent. We've done that over the last year. So far we've dealt with more than 15 cases, and more than half of them have been dealt with successfully with a resolution that was agreeable to both parties. Certainly on that front the agency has made important strides.

In terms of under what authority or rights, we are basically managing 45 different sets of regulations within the Canadian Food Inspection Agency. If you look into all the different fee situations that are emerging from this, it's a huge number. Can it be systematized or improved in the future? Yes, and we've committed to that. But we have to remember that we are responsible not only for crops, seeds, and fertilizer but also for animals, plants, and food in terms of inspection. This is a very wide array of responsibilities.

• 1235

How do we pick and choose which ones we're recovering costs for? This was all done at the time when the—

Mr. Roger Gallaway: Excuse me, Mr. Chartier, I don't mean to interrupt, but the question was not how do you pick and choose which you charge for. The question was how do you pick and choose which parts of the policy you wish to put into force. You have admitted that you started collecting fees at some point in 1996, but you've also admitted that you didn't put a dispute resolution mechanism in place until the last year. How do you reconcile this as a department?

Mr. Jean Chartier: This is part of what I enunciated before when I alluded to the fact that we had to go through a number of constraints over those three years. The very creation of the agency itself obliged us to merge a number of programs and to make a number of structural adjustments to programs, inspection methodologies, and all of this. Obviously our intent to develop a thing such as the ADR, the alternative dispute resolution mechanism, was delayed a little bit. You have to recognize that it's certainly in place, and it's working well at this stage.

Mr. Andrew Graham: Mr. Chairman, I would not say in any way that we did not make genuine efforts to implement the various policies of the Treasury Board. I wasn't here when the Treasury Board officials said that there were dispute mechanisms in place. I don't know what they would mean by answering—

Mr. Roger Gallaway: I'll provide you with their testimony. It's very clearly there.

Mr. Andrew Graham: I'll be looking at it. But more importantly, what did they mean by that?

I'll give you a couple of examples. I said right up front that based on the views of and the advice from the Auditor General, we are re-examining our dispute mechanisms to see if they're adequate. But I also pointed out, both in an answer and in what I said, that we believed that within our program we had made efforts to have those in place.

Here's the rub of why I intervened. In a couple of cases, the PFRA being an example and FIMCLA another, we in fact genuinely believed we had dispute mechanisms that were adequate to the test. I would point out to you that the policy of 1997 in no way defines what a dispute mechanism is. As such, it is very much in the eye of the beholder. When the Auditor General did the review, the advice was no, it isn't. It needs to be rethought. That's what we're doing right now.

I think this is important, because I would not characterize the response of our department as refusing to carry out the policy of Treasury Board, but rather the policy of Treasury Board is rather generally written. We felt we were in fact trying it out. Certainly that is an issue we're revisiting right now.

The Chair: Mr. Gosselin.

Mr. Reg Gosselin: I'll just add my two cents here. In the case of the Grain Commission, a bulk of the fees we collect are from a very small set of clients, and it has been like that for a long time. We collect fees primarily from companies such as the Saskatchewan Wheat Pool and the Alberta Wheat Pool. They represent 95% of our fees. If they don't like our fees, they don't pay them. It has been like that for years.

While we may not have a formal dispute resolution mechanism—and I echo what Andrew is saying, that we agree to disagree that we don't have a formal process—we've been dealing with complaints of that kind from clients for years, and we deal with it everyday. What I'm saying is that we don't have a formal process so that we can say to people, here is the process and here are the steps, but clearly it has been in place for a long time.

The Chair: Mr. Whyte.

Mr. Garth Whyte: I'd like to comment on the three points. First, on the alternative dispute mechanism, I think we all agree that many don't know what it is or where it is. Many are afraid to go to the person who is implementing the fee to appeal it. That's maybe not the case with the departments, but with agencies that are almost like a monopoly, such as PFRA, people are afraid to go to them. I've had people from big businesses come to me and ask us to do something. They're afraid because they are the only game in town. That's especially after the environment committee recommendation that you should ignore completely any business impact analysis because that's irrelevant. I'm paraphrasing, but that's it basically.

• 1240

The second point is on fees. You're right, they don't have to pay the fees. In the seed industry, in potato seed in P.E.I., we've heard from...I guess it would be the boss of all the agencies—not the boss boss, because I don't want to say who it was. They informed us that for the first time, P.E.I. imported potato seeds. They're not producing enough for their own seeds because of the inspections.

They imported from Saskatchewan. Unfortunately Mr. Nystrom is away. He would be happy to hear this. But I don't see how that's good for the country, and if Saskatchewan runs out of potato seeds, are we going to be importing our potato seeds from Boston? That's a pretty unbelievable observation that was given to me by one of your colleagues.

Thirdly, Rob, you just met with the minister in P.E.I.

Mr. Rob Meijer: Mr. Murphy. It's a new portfolio in the agriculture portfolio. I had the opportunity to meet with him this past Friday, and his indication to me was that due to the fees, they've basically shifted out of producing seed potatoes and moved into processing to get away from the high costs they've had to absorb. So it's distorted the market, and it's caused the producers a signal to shift their business practices based on the fees themselves.

What we're hearing, and what he informed me in the meeting, is that there are a lot of signals from local producers in P.E.I. that they would like to establish their own inspection system. Apparently a report has been prepared from the potato industry in P.E.I., and he'll be sending me a copy of that, but—

Mr. Garth Whyte: Why do they want their own system?

Mr. Rob Meijer: Obviously they want their own system because there might be some issues with the competence or the cost. It's just not working in their interest.

Mr. Roger Gallaway: If you don't mind, Mr. Desautels, there's a question for you that flows from this.

We've heard now comments regarding how pressed the department has been, at the same time acknowledging how quickly the world of those they regulate is changing in commerce. We've heard also that it took them at least two years to come to grips or to put in place some sort of dispute resolution mechanism, which Treasury Board stated before this committee was the cornerstone of the policy, and yet they could not tell us how or where this existed. it seems to be a rather vague notion here.

I'm wondering, Mr. Desautels—and you have made reference in chapter 11 of your report to the dispute resolution mechanisms—if this is indeed an acceptable time limit within government, when a department says they've taken at least two years to implement a part of the policy, whereas they implemented the fee collection originally. We sit here with a number of people representing businesses, and we, in this place, have a habit of changing tax laws and expecting them to comply with them immediately, yet we don't demand the same of our departments.

I wonder if you could comment on that in general.

Mr. Denis Desautels: Thank you, Mr. Chairman.

I can make two or three quick comments in response to Mr. Gallaway's question.

First of all, in terms of the dispute resolution mechanism, we do comment on that in our chapter, and we do recognize that the Canadian Food Inspection Agency, for instance, has put in such a mechanism. But we also say that according to the people we talk to, the producers, they weren't well aware it existed. So while it is there, it doesn't seem that everybody knows it's there and making proper use of it.

Back to your other question, which I think is very similar to what you asked the witnesses, we do state at the bottom of page 11-11 that the...and that part of the text refers to the Food Inspection Agency. We say that:

The Department's Food Production and Inspection Branch had very little time to implement its fee structure, as the funding voted by Parliament had assumed that user charges would be in place and would generate the planned revenue.

I quote again:

The fiscal pressure continued after the Agency's creation, since it was expected to make the delivery of inspection services less costly to the federal government. Revenue from user charges was needed immediately, and identifying areas to reduce or avoid costs had secondary priority.

So the emphasis was put on fee collection initially, and I think the department had to do as good a job as it could to eventually implement the rest of the policy. But it wasn't put to them in terms of starting to collect fees only when they had all of the elements in place. I think the revenue was assumed very quickly through the budget procedure.

• 1245

Mr. Roger Gallaway: Mr. Desautels, you and I have corresponded on this topic very briefly previously. I'm looking for the letter and I can't find it, but in any event, you did say—and I'm paraphrasing it—that a number of the issues that are...? I'm sorry. Now I have it. You said that a number of issues discussed in chapter 11 may be applicable across government. I wonder if you would care to enunciate a little more on that.

Mr. Denis Desautels: Well, I could, Mr. Chairman. We haven't carried out in other departments the same kind of work we've carried out here in the agricultural portfolio, but we know enough about other departments that the principles would apply there quite easily.

For instance, in Health Canada, there's cost recovery going on there for the approval of certain drugs, and I think the issues there are very similar to what we're hearing today.

If you go to Transport Canada, there are fees for ice services to maintain the seaway open for as long as possible. Again, there's been a lot of pressure in terms of industry requesting certain levels of service that were more commensurate with the fee they thought they should pay.

So as we look across government, we see a number of other situations where that same discussion could take place.

My personal view from watching a lot of this is that while there seems to be some complaining and friction, on the whole I feel this is healthy, because it is creating a healthy tension between the provider and the user. In the end, I hope this will lead to better service at lower cost. So I think it's a good thing that this is happening.

Mr. Roger Gallaway: I had a poll I wanted to take. Treasury Board officials commented here that they were starting their review of the policy. I just want to ask if anyone here has been consulted by them.

Witnesses: No.

Mr. Roger Gallaway: Okay. Thank you.

The Chair: Thank you, Mr. Gallaway.

We have three members who want to ask questions, and we have 10 minutes for that. So, Szabo, Cullen, and Pillitteri, keep that in mind.

Mr. Paul Szabo: I'll just ask a very quick question of the Auditor General.

One of the last points you made was to suggest that user fees could be used to achieve other possible benefits and that maybe we're missing that opportunity. You gave the example of the Canadian Food Inspection Agency charging the same for food inspections whether or not there are problems.

It made me think about what would happen if when you had a deficiency and more work was required, the meter would start to ratchet up the fee. Presumably we're talking about sufficient dollars that would make it...it would be material.

You know, it's just human nature. If you put me in a situation where, if I have any problems during the third-party inspection, my meter is going up, does it not put more pressure on the business relationship? Not to be cynical, but it does put an inspector in an awkward situation to maybe be pressured or be subject to some inducements to give a clean bill of health because otherwise it's going to cost a lot of money.

Alternatively, doesn't it put an inspector in a position where they may also be able to suggest that if certain things don't happen...? What I'm saying is that it tends to put some pressure on that relationship that doesn't exist if the fee is the fee. I would suggest to you that, just by human nature, if there is a fee for an inspection, that's the fee, and it covers even if I have to report to you.

If you have a situation where the inspection is a failure, presumably a better course of action would be that the relationship simply stop at that point, and any additional work would be a whole new situation so that initial inspection is not subject to any kind of collusion or other untoward activity.

• 1250

Mr. Denis Desautels: Mr. Chairman, I'll ask Mr. Maxwell to answer the question in a moment.

The question of undue pressure on inspectors is an important one, but I don't believe the fee issue is the most important factor in that relationship. Inspectors have to make very tough decisions all the time, and I think they have to be given sufficient protection and independence to do their job properly. The fee issue could have a bit of an effect on that particular relationship, but I think it would be quite minor.

I'll ask Mr. Maxwell to complete my answer.

Mr. Neil Maxwell (Principal, Audit Operations, Office of the Auditor General of Canada): Thank you, Mr. Chair.

There certainly is no one right way to structure a set of fees. We talked about the example that at the present time in the Food Inspection Agency, the fees are basically flat fees. It's a fee per inspection, regardless of whether it takes one inspection or two or three reinspections to arrive at the result.

We were using it mainly as an illustration to say that we didn't see enough attention being given to how the role of user charges should fit within the broader departmental planning and the broader work within the department to make sure its lines of business are delivered well. That was one of the concerns we had, with the exception of the Canadian Grain Commission. We had some positive things to say about the overall program review they conducted in 1998, in which they attempted to do that.

In the case of the other two organizations, we didn't see the type of holistic approach to how user charges should be implemented that Mr. Graham referred to in his opening statement. Basically what we were saying is that we want less of a piecemeal approach to implementing user fees program by program and more something driven by an overall departmental strategy.

Ms. Jean Szkotnicki: Could I just add to the comments of the Auditor General's Office?

What I'd like to say is that we believed user fees were going to result in benefits to industry, to producer groups, etc. When we walked into the cost recovery negotiations we supported that process, we supported the principles of Treasury Board. We dealt with three organizations: the Food Inspection Agency, Health Canada, and the PMRA. Now, five years later, we haven't seen improvements in our dealings with any of those agencies.

While we agreed with the principles and we saw the chance for improvement, we haven't seen it. Five years later, in our situation with vet drugs and vet bios, it's a worst-case scenario.

Mr. Paul Szabo: Maybe we'll leave it at that. That's fine.

The Chair: Mr. Cullen.

Mr. Roy Cullen (Etobicoke North, Lib.): Thank you, Mr. Chairman, and thank you, presenters. I'll be brief.

Mr. Graham, you would be very much involved in the budget-building process at Agriculture and Agri-Food Canada?

Mr. Andrew Graham: Yes, sir.

Mr. Roy Cullen: I'll direct the question to you, and perhaps Mr. Desautels or Mr. Maxwell could comment. If you don't have time to comment today, maybe you could give the committee something in writing.

The problem I'm wrestling with is understanding the impact of program review or budget-cutting measures, which I'll acknowledge were fairly severe all across the government, and the impact on cost recovery. I'll develop a very simplistic model and then maybe you can correct me if I'm wrong.

The program review started in 1994 and budgets were cut. At some point, the pressures from users were mounting and the performance standards were slipping. Mr. Desautels said the initial focus was on recovering fees, but at some point in time there seems to have been an understanding with users that with user fees, there were going to be enhanced performance standards to get the government up to the level of competitor countries or jurisdictions. At least there was some notion of that.

At some point in time, to the extent that one can actually say these are proprietary services, these are public goods, these are costs associated with proprietary services and these are costs associated with more generic services.... Let's say those numbers are hatched. The costs that are associated with the proprietary user fees are established to recover those costs.

I'm making it very simple, and I'm sure it's not as simple as that. At some point in time, if you were facing budget cuts across the department, what would you do with respect to those costs that are fully cost-recovered?

It would seem to me that there would be a notion that those costs are recovered so we don't need to move resources out of there. If we're going to cut resources, we need to cut them on the more generic side of the department, which has some consequences, admittedly. It means services to the public could be more substantially affected.

• 1255

I'm more curious about the process of how you as a department went through realigning resources from those areas where they were in public goods and those areas where they were proprietary goods and services, which were fully cost-recovered, ostensibly.

Mr. Andrew Graham: I can't give a short answer to that. I can say that first of all, the only program in our department that is fully cost-recovered is the Canadian Pari-Mutuel Agency. It's built into its regulatory framework that it cost-recovers itself totally.

I think this is important, Mr. Chairman, in the sense that for all of our other programs, the user fees are, relatively speaking, minor contributors to the overall cost of the program. That's one of the issues where you've put forward the scenario that we looked at purely private goods and attempted to do a 100% cost recovery on purely private goods. We simply didn't do that, from a departmental point of view.

The other fee structures we have are contributory. In some respects it's very high. The community pastures are a very high percentage, principally because the user of the service can go and buy or rent another pasture. So it's very close to the market and we happen to own the land. In others, in NISA, it's a contributory administration fee.

My first answer is that every fee has its own set of characteristics and its own contributory process.

With respect to the budgetary process of the department, the question is whether we would introduce more user fees to balance off shortfalls in expected public good. The greatest problem is the public-private good, where it's debatable because there's a policy component and a decision has to be made that it's still a private good.

I was involved with respect to the overall portfolio budgetary process. That was very much an issue at hand before the government when it looked at the question of the Canadian Grain Commission. The budget, by putting $63 million in place over four years, in essence said there is the boundary here that we didn't want to cross in the fee structure.

I'm not answering you in.... Well, I am reflecting the very fact that every fee has a public policy behind it and they're all different.

Mr. Roy Cullen: I can understand that there's a lot of grey in there. I'm just trying to figure out in my own mind how this....

First of all, would you agree that there was some compact, if you like, that emerged with stakeholder groups that in return for these user fees there was going to be some increased performance to get you to a level that was acceptable internationally? Was there any kind of compact?

Mr. Andrew Graham: I have no recollection of such a compact. The issues of improved service standards and finding different ways of doing business certainly have always been part of the whole question of user fees, but I'm not aware of any compact, as you call it.

Ms. Jean Szkotnicki: We did have mutually agreed-upon performance standards between the vet biologics component of CFIA and the Canadian Animal Health Institute. That was part of the consultative agreement prior to introduction of the fees for that service.

The Chair: Mr. Graham agrees with that.

Mr. Desautels, do you want to comment?

Mr. Denis Desautels: Well, Mr. Chairman, of course we're not privy to the budget process and budget trade discussions in departments. One of the questions Mr. Cullen asked was this. When those decisions are made, how do we identify what's more in the public good versus the private good? What should cost recovery apply to? That's how I understood the question.

I would only make two points on that particular question. I think it would be quite useful for the committee to provide direction to the Treasury Board as they're revising the policy. On that particular issue of what is a public versus a private good, there's a need for a certain amount of clarification of that. Direction from members of Parliament would be very helpful.

• 1300

At the same time, there's also the need for some direction on how to avoid the potential for conflict of interest. I think that as there is a greater dependency on fee recovery, a client-provider relationship could be established, and in some areas that may not be entirely healthy. So I think there's a need to worry about that aspect as well.

The Chair: Thank you.

Mr. Pillitteri, a final question.

Mr. Gary Pillitteri (Niagara Falls, Lib.): Thank you very much, Mr. Chairman. This question I think is directed more to Mr. Milne.

A while ago, Mr. Nystrom asked about how the small farmer in Saskatchewan is going to be paying for this. But under crop protection, when someone.... In the United States it takes anywhere between a year and a half and two years before they get approval to have it in the marketplace, whereas here in Canada, under the PMRA, it could take as long as five years. In horticulture in Ontario especially, which is almost micro compared to that of the United States, a lot of the products that are submitted for testing cost so much and actually takes so long that a lot of it doesn't get approval in Canada. Certainly we have been very much at a disadvantage for years and years.

There are products that they are using in the United States. Agriculture Canada, in a sense, lets the products.... They are being used in other parts of the world because they meet the conditions, and yet our own PMRA would take anywhere from five years or more.... Certainly most of the time, since ours is a small market, these products are not even put forward for approval because they say it would take so much money and we could never recover our own expenses.

I just wonder at what kind of disadvantage it puts us, the small farmers, specifically in the horticulture industry in Ontario. Yet the same products that are used in other parts of the world come freely into Canada, and those same products that we're trying to get into Canada.... They say, look, it's PMRA, and yet Agriculture Canada Inspection Agency lets them into Canada.

Maybe somebody would like to take a stab at this.

The Chair: Mr. Milne.

Mr. Charles Milne: Mr. Pillitteri, that certainly is something that has driven our organization for a long time. The economic reality of small markets is something we live with daily in Canada.

The insult to injury is exactly that, where you say, okay, we're not allowed to use the product in Canada; however, Canadians are allowed to consume produce from elsewhere in the world where the product has been used. There seems to be a double standard, and that's terribly frustrating. I know there's lots of scientific double-speak about why that's the way it is, but when the rubber hits the road, it's very difficult to explain to a farmer why he has to compete in a global world with one arm tied behind his back.

Maybe Mr. Hanson wants to add to that, because I suspect his company has been involved with some of those decisions.

Mr. Terry Hanson: We have been involved in a number of those decisions, and it's not an easy decision to take. In fact, we have tried diligently to get as many of those minor uses put on labels as we could, where appropriate.

It is a very difficult situation, because as you add more crops to a label, the time delay you refer to becomes more and more of an issue. Frankly, from a business standpoint, often we're forced to make decisions. Because of the extra costs associated with what is a relatively minor market, we have to make the decision to say the end just doesn't justify what we need to do.

Having said that, I don't think it's so much a cost issue; it's more an unpredictability of the regulatory system that forces you to make those hard decisions. If we knew what we could do, what we had to do, and it was predictable, I think in many cases the cost is something we'd be prepared to live with just to be able to get it into the market and to be able to benefit the Canadian growth.

The Chair: Thank you.

Thank you, Mr. Pillitteri.

Any further comments? I have just a very quick question.

Mr. Graham, on page 4 of this brief presented by the CFIB, we have generally what could be referred to as eight principles related to government regulation, paperwork, user fees, and audit inspections—the proposed eight-point plan. What do you think of these eight points?

And the same question to you, Mr. Desautels.

Do you have it? I could read your eight points.

• 1305

Mr. Andrew Graham: No, I have them, sir. Mr. Chairman, I have them in front of me. I haven't read them in detail. They cover I think many of the same things we're trying to achieve. It's really going to be a question of how we can achieve it.

The Chair: So basically the bottom line is that these principles may be in fact already covered in your guidelines, but it's the implementation that's really the issue.

Mr. Andrew Graham: I'd like to look at them, but certainly in terms of the kinds of things we try to take into account, those things are there. It's a question of whether or not we're doing it either effectively or adequately.

The Chair: Mr. Desautels. According to your experience of how government works or sometimes doesn't work, what do you think of this?

Mr. Denis Desautels: Mr. Chairman, I think there's general agreement on the broad principles that are laid out here in terms of accountability and transparency. My understanding is everybody is pretty well in agreement with that part of the recommendations.

In our own report we did say that organizations needed to make major improvements in that area. So I think there is a fundamental agreement, but there's a fair way to go in terms of implementing or achieving the accountability and transparency objectives that are set out here.

The Chair: Mr. Epp.

Mr. Ken Epp: I want to ask one more really quick question.

Mr. Desautels, in your report, in the last page, you said “I also noted that our work provides evidence that user charges can provide benefits beyond the revenues generated”. For the life of me, I can't think of how relieving any organization that's asked to pay for dues or charges for something of their money is to their benefit. What do you mean by that statement?

Mr. Denis Desautels: Simply, I think that having in place a user charge or cost recovery system does bring about a certain discipline, both on the users of services and on the providers of services. I think when there is absolutely no charge you can have endless demand on certain services that are not necessarily all necessary. And, similarly, when you have fees being paid by someone, that someone is likely to require or ask for certain levels of service and also will not pay just any fee. So they will require both good service and the service at a reasonable cost.

So the point we're making here is that a cost recovery system can have some benefits in that it brings in I think good discipline both on users and providers.

Mr. Ken Epp: As long as it doesn't provide endless frustration and drive our businesses right out of the country.

Mr. Denis Desautels: Obviously I think we agree—that's the other part of our message—that the impact has to be measured very well and constantly to make sure it doesn't have any negative impacts of that nature.

The Chair: Mr. Whyte.

Mr. Garth Whyte: We all agree with the principles. When we were here with Treasury Board, we agreed with the principles. What was disconcerting was that Treasury Board said they were doing a review and they argued they were only looking at the principles; they weren't going to look at the implementation. So now when you have people coming forward and they're all saying they're waiting for the Treasury Board review, and we were here when the Treasury Board said, “We're not looking at implementation, we're just looking at the policy”, we're all shaking our heads.

The other point of course is that the only way you want to look at the policy is to look at the cumulative impact of that policy, not just in agriculture, not just across all the agencies that aren't even here, but across government—and not even within the federal government. So I think those principles need to be looked at.

The Chair: This committee will have something to say about that.

Mr. Garth Whyte: I hope so.

Ms. Jean Szkotnicki: I was just going to echo what Garth had said. There's a disconnect between the theory and what's actually being implemented, and certainly we need to get that right and change that situation.

The Chair: On behalf of the committee, I want to thank you.

By the way, this committee views these things as opportunities to really have an impact. What's really important is to get the sense of agreeing on principles. That's a very important first step. But of course we want to get the implementation right, and that's what we'll be looking at very carefully.

Thank you.

The meeting is adjourned.