ENVI Committee Report
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17. THE FUNDING DILEMMA
The PMRA's Budget and Cost Recovery Fees
17.1 The PMRA's expenditures for fiscal year 1998/1999 were $26.7 million. Of this total, approximately $7.8 million was generated through cost recovery fees. Roughly $7.5 million in fees was collected for fiscal year 1997/1998, out of an operating budget of $24.8 million. A total of $8.5 million in cost recovery fees is forecast for fiscal year 1999/2000, with a projected budget of $28.3 million.289 For comparison purposes, these figures are set out in Table 17.1.
Table 17.1: Pest Management Regulator Agency Total Expenditures, Including Revenues from Cost Recovery Fees
($millions)
| FISCAL YEAR | 1995/1996 | 1996/1997 | 1997/1998 | 1998/1999 | 1999/2000 (forecast) |
| Revenues from cost recovery fees | N/A | N/A | $7.5 | $7.8 | $8.5 |
| Total Expenditures | $21.5 | $24.8 | $24.8 | $26.7 | $28.3 |
17.2 Cost recovery fees were introduced by regulation in 1997.290 These fees are charged for the majority of registration applications, and are payable at the beginning of each step of the examination process: 10% is payable at the time of application, 25% is payable when the application has been accepted for preliminary review, and 65% is payable when the application has been accepted for evaluation. Specified fees are charged for each component of the examination process. As indicated in Table 17.2, fees range from $154 for a certain type of label review, to $98,248 for a review of the toxicological data accompanying an application to register a pesticide with a new active ingredient.
17.3 The fees are payable irrespective of whether or not the product is eventually registered. An application for registration involving a new active ingredient can cost in the neighbourhood of $228,000. Provision is made, however, for reduced application fees in eligible cases to facilitate access to the Canadian market for low volume, niche products. There are also fee exemptions for certain types of applications. For example, fees are not charged for the review of data respecting biopesticides, although there are modest fees for such things as label reviews ($154 to $262), certificate renewals ($154) and research permits ($150).
17.4 An annual maintenance fee of $2,690 per registered product is also charged for the right to manufacture or sell the product in Canada, but an application may be made for a reduced fee if product sales are lower than $89,667. Products with sales below $2,500 pay a minimum fee of $75 whereas those with sales between $2,500 and $89,667 pay 3% of the sales value for the previous fiscal year.291
Table 17.2: Selected Cost Recovery Fees
| Maximum fees payable for the most complex
registration applications ... (approximately) $228,000 Examples of fees charged for specific components of the evaluation process
Maximum Annual Registration Maintenance Fees ... $2,690 |
Source: Pest Management Regulatory Agency, Guidance Document on Pest Control Cost Recovery Fees, April 16, 1997.
Cost Recovery Fee Shortfalls and the PMRA's Priorities
17.5 For both fiscal years 1997/1998 and 1998/1999, there was a shortfall of $4 million in cost recovery fees, which the PMRA attributed to the payment of lower than anticipated annual maintenance fees. Because of this overall $8 million shortfall, the PMRA delayed its re-evaluation program for older pesticides.292 As discussed in the Chapter on re-evaluations (Chapter 10), many witnesses were concerned about this delay and urged that the program be adequately funded in its own right and not made contingent on funds generated or saved from other areas. The Committee takes this opportunity to reiterate its earlier recommendation from Chapter 10 to provide adequate funding to this program and ensure that all pre-1995 pesticides are re-evaluated by the year 2006. It is urgent that these older pesticides, some of which have been around for forty years or more, be re-evaluated on the basis of today's more stringent standards, notably the additional safety factor of 10 to take into account the particular vulnerability of children and other sensitive populations.
17.6 The delay in re-evaluating older pesticides was not the only concern raised by witnesses in relation to the PMRA's cost recovery program. Concern was also expressed that, because the registration of pesticides generates revenues through cost recovery fees, the PMRA was giving priority to registration evaluations over non-revenue generating activities within its mandate. The World Wildlife Fund stated:
| During the cost-recovery negotiations with industry the PMRA had to cut its overall budget. They promised to save money through efficiencies and they also promised to meet industry-driven timelines for registration. |
| They've had shortfalls for two years in a row. They are seriously cash-strapped. It's activities that do not pay their way, like re-evaluation and development of a pesticide database and adverse effect reporting requirements, that have been pushed to the back burner, re-profiled, so to speak, and will be only implemented if money is saved. This is truly unacceptable.293 |
17.7 This criticism would appear to be borne out in fact. Based on the financial data supplied to the Committee by the PMRA (see Table 17.3 ), only $0.8 million was spent on "Alternatives" for fiscal year 1998/1999. In contrast, $15.3 million was spent on "Registration" activities. Even if, as the PMRA notes, some of the $2.6 million spent on "Policy" included some activity related to "Alternatives," there is little question that alternatives and other non-revenue generating activities have not been funded to the extent necessary to reflect the PMRA's foremost mandate of protecting human health and the environment. Indeed, the Committee is very concerned that the PMRA has not yet implemented an adverse effects reporting system and a formal risk reduction policy, although the PMRA informs us that some work has begun in both cases.294
17.8 The Committee notes that both of these initiatives, as well as the re-evaluation of older pesticides, were included in the federal government's 1994 Purple Book commitments arising from the 1990 Blue Book recommendations of the Pesticide Registration Review Team. We agree with the World Wildlife Fund that it is totally unacceptable that these important initiatives have taken a back seat for so long and further to our concerns, we have made specific recommendations respecting these initiatives in previous chapters (see Chapter 9 for the recommendation on adverse effects reporting and Chapter 11 for the recommendation on the development of a pesticide reduction policy).
Table 17.3: PEST MANAGEMENT REGULATORY AGENCY -- EXPENDITURES ($000's)
1997-98 to 1999-2000
Note 1: The Policy line also includes some activity on Alternatives, specifically OECD and NAFTA Alternatives policy development such as risk reduction, joint reviews of reduced risk chemicals and biopesticides and regulatory capacity building in areas such as applicator training, buffer zones for sensitive environments and formulants.
* Reflects part of the recent injection (federal budget 1999) of new funds from the Food Safety and Nutrition Initiative which will enable the Agency to implement an enhanced re-evaluation program.
Source: Table supplied to the Committee by the Pest Management Regulatory Agency.
Cost Recovery Fees: A Possible Disincentive to the Registration of Safer Pesticides
17.9 The PMRA's cost recovery program has also come under criticism because the fees might act as a disincentive to registration in some cases. One member of the Committee was particularly concerned about the plight of smaller companies which blend the chemicals to make up a pesticide but which cannot afford the flat registration fees that the larger companies who develop the product can readily absorb. The Committee also heard from witnesses like the Canadian Horticultural Council that some newer and presumably safer products available in other countries, in particular the US, might not be available in Canada. Given this country's relatively small market size, we were told that it may not be profitable for manufacturers to seek registration in this country, particularly if different or additional data are required in support of the registration application.295
17.10 The Committee has received too little evidence on the cost recovery fees to be able to conclude that the fees are hindering registrations in Canada. The related problems of different data requirements and small Canadian market size may be exacerbating the situation. A 1998 report prepared for Health Canada by Nephin Consulting Partners suggests that field-test location and market entry have a bearing on this issue:
| From our interviews, it seems common practice to register a product in the United States first, and to have it available in the USA before an application is submitted in Canada. This is not because it is cheaper to register in the United States, but rather that the field tests typically are done there and thus the product is ready for a US application sooner. A further reason for sequential applications, with the USA first, appears to be mainly that companies want to ensure that the larger market in the United States is in fact open to the product before proceeding at all. Their risk calculation [whether to enter a new market with the product] appears more important than the Canadian application fee. However, some companies have suggested that application fees in the $200,000 range are substantive enough to cause them to re-run their cost benefit analyses.296 |
17.11 The Committee notes that registration fee reductions are available in Canada for new product applications in eligible cases, which can reduce the fees payable to 10% of projected sales.297 The PMRA also has a "User Requested Minor Use Registration" (URMUR) program in place that allows Canadian users or user groups to sponsor a pesticide for registration in Canada under certain conditions when the anticipated sales volume for the product is not sufficient to persuade its manufacturer to register and sell the product in this country. Fee reductions are also available for URMURs in applicable cases.298
17.12 In terms of comparisons, the Regulatory Impact Analysis Statement published with the 1997 regulations that established the PMRA's cost recovery fees indicates that the US had registration fees in place for a short period of time in 1988 but, due to a court challenge, the fees were suspended until after September 1997. This suspension was extended to beyond 2001 under the US Food Quality Protection Act of 1996. The United Kingdom, on the other hand, combines an annual sales levy with an up-front registration fee. Of the UK Pesticides Safety Directorate's budget of $24.2 million (Can.) for 1995-1996, a total of $13.26 million (or 55%) was recovered from industry, with $11.19 (46.8%) coming from the sales levy at 1.46% of sales, and $2.06 million (8.6%) coming from the registration fees.299
17.13 The Nephin Consulting Partners also examined the cost recovery fees charged in the following countries: Australia, Canada, the United Kingdom and the United States. They noted that the US charged only a pesticide tolerance fee to establish tolerances (the equivalent to Canada's maximum residue limit) on raw agricultural commodities and in food commodities, but that the 1999 US Government Budget proposed to re-instate the pesticide registration fees to recover the costs of the Environmental Protection Agency to review registration applications. Subject to the existing exception in the US, the Nephin Consulting Partners concluded that the application fees in Canada demonstrated the widest spread, representing the highest of the four countries for a major new application but the lowest for minor administrative changes. Canada, however, was the only country that allowed a reduction on application fees based on projected low sales volumes.300 Table 17.4 identifies the fees payable in each country for the registration of a product containing a new active ingredient.
Table 17.4: Fee Comparisons -- Application Fees
| Registration of a New Active Ingredient |
Canada1 |
Australia |
United |
United States |
| product with a new active ingredient, food use |
$228,832 | $20,000 | $149,000 | $95,000 (tolerance level only) |
| new product use, non-food | $58,191 | $12,000 | $97,000 | $0 |
| user requested minor use registration (minimum fee) |
$22,883 | N/A | $1,142 | N/A |
| exempted products2 | $262 |
- The fee indicated for Canada represents the maximum payable; fee reductions are possible based on the projected sales over the first three years. The minimum fee for a new product based on a new active ingredient could be as low as 10% of the amount shown in the table. The fee shown for a user requested minor use registration reflects the minimum 10%.
- Several types of products are exempt from most application fees in Canada.
- The tolerance processing fee shown for the USA would be the minimum amount payable and could be higher depending on the number of food crops involved.
Source: Nephin Consulting Partners, Pest Management Regulatory Agency Benchmarking Study, Final Report, July 15, 1998.
17.14 Based on these data, it would seem that initial registrations
are generally more costly in Canada than in the other countries. The Nephin Consulting
Partners pointed out, however, that the post-registration fees in each country (i.e.
annual maintenance fees or sales levy, etc., depending on the scheme adopted) were
generally lower in Canada than in the other countries (see Table 17.5). When these fees
were added to the initial registration fees and calculated over a 15-year hypothetical
period, the Nephin Consulting Partners concluded that the total fees paid in Canada were
somewhat below those payable in the US, the UK and Australia for products with moderate to
high sales levels (sales of $500,000 and over per year), but they were substantially
higher than those payable in the other countries for products with low sales levels (sales
of $75,000 per year).301
Table 17.5: Maximum Annual Fees Payable by Product or Company
- In the U.S. there is a cost of $9,800 to register a product in all 50 states plus a sales levy in California which does not have a cap.
Source: Nephin Consulting Partners, Pest Management Regulatory Agency Benchmarking Study, Final Report, July 15, 1998.
The Need to Review the Cost Recovery Program
17.15 The Committee has not had the opportunity to study the issue of cost recovery more closely. Consequently, we are not in a position to conclude that the PMRAs cost recovery fees should be retained, eliminated or altered. Some Committee members support the government's cost recovery policy and favour retaining the user fees. Other members oppose the policy and call for the elimination of the fees. Still others favour eliminating the fees but only if the PMRA's budget allocation is increased commensurately to make up for the revenue shortfall.
17.16 The federal government stated in the Purple Book that an important consideration in designing the PMRA's cost recovery regime would be to avoid deterring the registration of pest control products, particularly minor use products and alternatives to traditional chemical products, or otherwise putting pest control product users at a competitive disadvantage.302 The Committee also notes that when the Treasury Board introduced the government's new cost recovery policy in 1997, departments were required to conduct periodic reviews to ensure user-charge policy requirements were being met. Such periodic reviews were also used to address whether fees should be increased or decreased where cost structures had changed, where the mix of public and private benefits had changed, or where service levels had been altered. The Treasury Board was, in turn, required to initiate a review of the government's cost recovery policy within three years of its introduction.303
17.17 While the Treasury Board does not appear to have completed its review, the study by the Nephin Consulting Partners was commissioned by Health Canada as part of its obligation under the Treasury Board policy to conduct periodic reviews. Although cost recovery fees were examined in this study, the study did not specifically focus on the impact that the fees might have on the registration of safer and more efficacious products. The discussion in the report was more general in scope.
17.18 In the opinion of the Committee, it is critical that the impact of the cost recovery fees on the registration of safer and more efficacious products be assessed forthwith. If these fees are, in fact, hindering the registration of new and safer pesticides, this would prevent or delay the implementation of one of the fundamental provisions that we propose be codified in the new legislation, namely the substitution principle (discussed in Chapter 11). If cost recovery fees are discouraging the registration of such products, corrective action must be taken as soon as possible.
| The Committee recommends that: |
| (a) the Minister of Health and the Pest Management Regulatory Agency immediately initiate a study to determine whether cost recovery fees constitute a disincentive to the registration in Canada of safer and more efficacious pesticides; and |
| (b) the Minister of Health table this study in Parliament within six months of the tabling of this report in the House of Commons. |
Payment to the Receiver General of Canada
17.19 Because of the concern expressed that the PMRA is giving preference to its revenue-generating activities over the non-revenue-generating ones, the Committee believes that it would be desirable if the applicable fees were paid to the Receiver General of Canada and not directly to the PMRA. If this were done, the PMRA might be under less pressure to generate revenues through the registration of pesticides in order to bolster its operating budget and thus might give a higher priority to the non-revenue-generating activities within its mandate, notably programs directed at developing alternatives to pesticides. Cost recovery fees charged at the federal level paid to the Receiver General is close to 50% of the cases. In the Committee's opinion, it would be beneficial if this approach were also followed with respect to the fees collected by the PMRA.
| The Committee recommends that the government take the necessary steps to ensure that the cost recovery fees charged by the Pest Management Regulatory Agency be paid to the Receiver General of Canada and not to the Agency. |
The Need for Increased Funding
17.20 Quite apart from the cost recovery issue, it is evident to the Committee that the government's funding of the PMRA is wholly inadequate. When the government agreed to create the Agency in 1994 it indicated in the Purple Book that an additional $20 million, for a total budget of $34 million, would be needed for fiscal year 1997/1998 and beyond to carry out the major activities under the PMRA's mandate. The PMRA informed the Committee that in preparation for the implementation of cost recovery in 1997, it projected an ongoing annual cost of $28.2 million to deliver the program outlined in the government's Purple Book. This figure, however, was reduced to $27 million as a result of discussions with stakeholders. The last budget for the PMRA was projected at $28.3 for fiscal year 1999/2000.304 This amount, it should be stressed, is almost $6 million less than what the government felt the PMRA needed five years ago.
17.21 As the World Wildlife Fund pointed out, the PMRA is cash-strapped and has had to put many important programs on the back burner. The Commissioner of the Environment and Sustainable Development expressed similar concerns in his 1999 report. He remarked that, within existing budgets, departments were struggling to meet legislated responsibilities, policy commitments and international treaty obligations and, in many cases, were failing do so. He noted the backlog of existing pesticides requiring re-evaluation. He also noted that the number of substances of potential concern continues to grow, particularly in the areas of endocrine disruption and the cumulative effects of exposure to mixtures of toxic substances which might trigger demands for new research and might, ultimately, require that some substances be reassessed. Given this ever-increasing burden, the Commissioner asked, "who would pick up slack?" He stated that the government's reduced funding of the Canadian Network of Toxicology Centres, established to carry out research on behalf of federal departments, threatened the Network's critical mass as well as its ability to attract leveraged funding. He also pointed out that budget reductions had necessitated an emphasis on research partnerships with the private sector and other outside sources. As a result, departmental projects had become more aligned with the priorities of those providing the funds and since the latter's priorities might differ from those established by the department, there was concern about the ability of departments to undertake research for the public good. He concluded:
| We were alarmed by the level of concern among senior scientists in all departments and associated scientific organizations about the government's declining ability to respond to new demands and emerging issues.305 |
17.22 The Committee shares the Commissioner's alarm, and we join the many witnesses who stated that the current state of affairs is unacceptable. Barbara McElgunn of the Learning Disabilities Association of Canada and also a member of the Pest Management Advisory Council, felt that the PMRA should receive the increased budget of $34 million to which the government had committed in the 1994 Purple Book.306 In the Committee's opinion, an overall budget of $34 million would be a definite step forward. We question, however, whether even this increased sum would be sufficient to do the job. The Committee made a large number of recommendations in this report that go beyond what was contemplated for the PMRA in the Purple Book. We have emphasized the need for more research in a number of key areas. We have called for the creation of various databases. We have stressed the need to focus on alternatives to pesticides. We have also urged the establishment of a comprehensive program to sensitize and educate the public about the risks of pesticides. All of these recommendations will require additional resources.
17.23 The Committee is mindful that requests for increased funding often fall on deaf ears. We wish to stress, however, that the costs of reducing the risks associated with pesticide use in order to protect human health and the environment cover just one side of the ledger. On the other side of the ledger are the costs, typically uncomputed and largely elusive, of doing too little or nothing or of doing it too late. These include the health care costs of treating Canadians suffering from acute or chronic pesticide related diseases or pesticide related disabilities. These include the costs to municipalities of getting rid of pesticides that are contaminating drinking water. These include the cost to the fisheries of foregone revenues occasioned by massive fish kills caused by pesticide contamination. The list goes on.
17.24 In the opinion of the Committee, it is short-sighted and ill-advised to focus strictly or principally on the more immediate economic costs of taking action to prevent or reduce pesticide contamination. Equal weight and consideration must also be given to the mid- and long-term costs of not taking precautionary action. If, as stated in the last Throne Speech, the federal government is serious about protecting "the health of Canadians by strengthening Canada's food safety program, by taking further action on environmental health issues, including the potential health risks presented by pesticides, and by modernizing overall health protection of a changing world,"307 it must provide the PMRA with the funds needed to do a first class job.
| The Committee recommends that the government provide the Pest Management Regulatory Agency with the necessary additional financial resources to effectively carry out its entire program. |
289 Correspondence to the Committee, Pest Management Regulatory Agency, February 14, 2000.
290 The PMRA's current cost recovery fee regime was introduced in April 1997 under the Regulations Prescribing the Fees to be Paid for a Pest Control Product Application Examination Service Provided by or on Behalf of Her Majesty in Right of Canada, for a Right or Privilege to Manufacture or Sell a Pest Control Product in Canada and For Establishing a Maximum Residue Limit in Relation to a Pest Control Product.
291 The information on cost recovery fees was drawn primarily from: Pest Management Regulatory Agency, Guidance Document on Pest Control Product Cost Recovery Fees, April 16, 1997.
292 Correspondence to the Committee, Pest Management Regulatory Agency, January 24, 2000.
293 Evidence, Meeting No. 129, June 10, 1999.
294 Correspondence to the Committee, Pest Management Regulatory Agency, February 14, 2000.
295 Evidence, Meeting No. 9, November 25, 1999.
296 Nephin Consulting Partners, Pest Management Regulatory Agency Benchmarking Study, Final Report, July 15, 1998, p. 7.7.
297 Pest Management Regulatory Agency, Guidance Document on Pest Control Product Cost Recovery Fees, April 1997.
298 Pest Management Regulatory Agency, Regulatory Directive, User Requested Minor Use Registration, DIR99-05, April 28, 1999.
299 Regulatory Impact Analysis Statement, Canada Gazette, Part 11, April 8, 1997 (SOR/97-173).
300 Nephin Consulting Partners, Pest Management Regulatory Agency Benchmarking Study, Final Report, July 15, 1998.
301 Nephin Consulting Partners, Pest Management Regulatory Agency Benchmarking Study, Final Report, July 15, 1998.
302 Government of Canada, Government Proposal for the Pest Management Regulatory System, October 1994.
303 Treasury Board of Canada Secretariat, Cost Recovery and Charging Policy, April 1997.
304 Correspondence to the Committee, Pest Management Regulatory Agency, February 14, 2000.
305 Report of the Commissioner of the Environment and Sustainable Development, Chapter 3, 1999.
306 Evidence, Meeting No. 4, November 16, 1999.
307 House of Commons, Hansard, No. 1, October 12, 1999.