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The consultation closed 2013-02-21.
Summary of Stakeholder Comments and CFIA Responses

Consultation Document
(phase 3)

Preamble

This paper is intended to act as a basis for discussion with stakeholders of a user fee proposal pursuant to the Canadian Food Inspection Agency Act. The goals of the consultation are:

  • to propose service standards and an accompanying user fee schedule; and
  • to obtain an enhanced understanding of the impact of proposed user fees and consider stakeholder perspectives, concerns and suggestions prior to finalizing user fee recommendations.

Destination Inspection Service User Fee Proposal

Executive Summary

Destination inspection is a quality-related inspection of fresh produce shipments. The results of the inspections support the process by which the fresh produce industry settles commercial disputes, primarily between sellers and purchasers (referred to collectively as ‘dealersFootnote 1').

The Destination Inspection Service (DIS) program provides two services (referred to collectively as ‘inspection services') to the fresh produce industry:

  1. inspection of domestic and imported fresh produce, and
  2. witnessing of the destruction/disposal of fresh produce and issuance of a Notice of Dumping or other Disposition.

Sellers in distant locations cannot determine the accuracy of a purchaser's assessment regarding the quality or condition of the produce once it reaches its destination. They therefore rely on third-party quality-related inspections to ensure such assessments are accurate. In the absence of a fair and unbiased assessment, sellers may be at a disadvantage in the event of a dispute.

The DIS program provides inspection services that are of direct benefit to dealers. As such, the proposed cost recovery rate for this program is 100%. This recovery rate is based on the voluntary nature of the inspection services provided, the existence of private sector service providers, and the purpose for which dealers seek out inspection services.  This rate of recovery is being phased-in over a three year period. This proposal is to fix fees for year three of the phase-in period, which will recover 100% of program costs.

The proposed service standard is to continue to initiate 80% of inspection requests within 8 working hoursFootnote 2 of receiving the request and 100% of inspection requests within 24 hours (excluding weekends and statutory holidays; overtime service available upon request); and to continue to respond to 100% of requests for the witnessing and reporting of destruction/disposal of fresh produce within 40 working hours (or 5 business days) of receiving a request.

The proposed fee structure continues to be based on hourly rates for inspection services. Each request for inspection services will be subject to a minimum fee of one hour at the hourly rate, in addition to a call-out fee (applicable per inspection). Inspection services provided outside of working hours will be charged in accordance with the overtime rates set out in the Canadian Food Inspection Agency Fees Notice. A fee will be applicable for the cancellation of inspection requests where the cancellation request is received after an inspector has been dispatched. Travel costs will continue to be recovered through the application of a flat rate call-out fee assessed per inspection.

Service Current User Fee (Implemented
April 1, 2012)
Proposed User Fee
Fresh Produce Inspection (Quality/Condition) $145.00/hr, assessed at $36.25 per 15 minutes, subject to a 1 hour minimum charge $190.00/hr, assessed at $47.50 per 15 minutes, subject to a 1 hour minimum charge
Witnessing of the destruction/disposal of fresh produce and issuance of a Notice of Dumping or other Disposition $145.00/hr, assessed at $36.25 per 15 minutes, subject to a 1 hour minimum charge $190.00/hr, assessed at $47.50 per 15 minutes, subject to a 1 hour minimum charge
Call-out fee per inspection $50.00 $50.00
Cancellation of inspection services request after an inspector has been dispatched $70.00 $70.00

1.0 Introduction

1. Destination inspection is a quality-related inspection of fresh-produce shipments. The results of the inspection services support the process by which the fresh produce industry settles commercial disputes between dealers. The dispute resolution bodies serving the fresh fruit and vegetable industry rely heavily on inspection reports as evidence when hearing disputes and rendering decisions.

2. Sellers in distant locations cannot determine the accuracy of a purchaser's assessment regarding the quality or condition of the shipment themselves and thus rely on third-party quality-related inspections to provide impartial assessments. In the absence of a fair and unbiased assessment, dealersFootnote 3, domestic or international, may be at a disadvantage in the event of a dispute. A government-issued inspection certificate is widely recognized by the dispute resolution bodies and as such, may be preferred by some dealers over a private sector inspection certificate.

3. Approximately one million loads of perishable fresh produce are received in Canada each year from foreign markets. The CFIA performs approximately 13,000-15,000 destination inspections annually on shipments of fresh produce from the United States, Mexico and elsewhere.

4. Disputes may be resolved through the Fruit and Vegetable Dispute Resolution Corporation (DRC). The DRC is a private, non-profit organization of produce and transportation companies from Canada, Mexico, and the United States. While the beneficiaries of the DRC are primarily companies whose place of business is in Canada, Mexico or the United States, produce companies from outside North America may access the DRC when dealing with DRC members in North America.Footnote 4

5. Studies and consultations undertaken by the fresh produce industry from 2002 to 2005 led to the recognition that changes to the DIS program were required to meet service delivery requirements. The studies and consultations indicated that increased front line resources, new service standards and increased user fees to support these changes should be considered.Footnote 5

6. To support these changes, a three-year cost-recovery strategy was developed.

Year 1 (FY2011-12): The approach for calculating user fees was changed to one based on an hourly rate. Fees were set to recover 50% of total program costs (excluding travel costs), with an hourly rate of $99.

Year 2 (FY2012-13): User fees were set to recover 75% of total program costs, including those associated with travel to inspection sites. The hourly rate increased to $145, and a call-out fee (charged per inspection) and a cancellation fee were fixed at $50 and $70, respectively.

Year 3 (FY2013-14): User fees will be adjusted to recover 100% of total program costs.

7. The DIS program has made significant improvements over the past several years to its produce inspection program. It now benefits from a line management structure with dedicated staff and priority-based dispatching for destination inspection. DIS inspectors are well equipped and trained with a continually updated manual, delivering consistent, uniform and time-sensitive inspections nationally, with clear lines of communication and accountability. Training staff in each area support the continuous improvement of the service using quality management principles. The result is high quality, accurate inspections, delivered on-time by trained government inspectors with service standards.

8. This document sets out a user fee proposal for the DIS program. It pertains to the final year of a three-year phase-in approach to fully cost recover the DIS program. In FY2013-14, fees, as published in the Canadian Food Inspection Agency Fees Notice, will be increased to 100% of full cost.

9. The following information is presented in support of this proposal: the legislative authority to charge user fees; the current service standards and user fees; the proposed service standards and user fees; and jurisdictional comparisons.

2.0 Legislative and Policy Framework

10. Sections 24 and 25 of the Canadian Food Inspection Agency Act provide the authority for the Minister of Agriculture and Agri-Food to fix the fees for a service or the use of a facility, or to fix fees in respect of products, rights and privileges provided by the CFIA, respectively.

11. The CFIA's policy regarding user fees, as set out in its Cost Recovery Policy and Framework, states:

“The Canadian Food Inspection Agency will charge a user fee for services that provide service recipients direct benefits beyond those received by the general public.”

12. In November 2004, Treasury Board introduced a Policy on Service Standards for External Fees. This policy represents the government's commitment to those who use its services. Service standards represent an important management tool for measuring, assessing, communicating and improving service performance.

13. In July 2008, Treasury Board updated its Guide to Costing. The guide is based on generally accepted management accounting principles and presents a logical seven-step approach to be used for all costing exercises, including the development of cost-recovery proposals.

3.0 Current Service Standards and User Fees

14. DIS provides two services (referred to collectively as ‘inspection services') to the fresh produce industry:

  1. inspection of domestic and imported fresh produce, and
  2. witnessing of the destruction/disposal of fresh produce and issuance of a Notice of Dumping or other Disposition.

15. The inspection of fresh produce shipments by DIS includes product sampling; assessment of the properties of the produce such as appearance, colour, odour and feel; categorization of defects; and the provision of official results.

16. Dealers may refuse to accept a shipment when it does not meet the terms of the sales agreement agreed to by the seller and the purchaser. In these cases, at the request of the dealer, DIS inspectors may inspect the product and provide an inspection certificate which details the condition of the product, or observe the destruction/disposal of the shipment and provide a Notice of Dumping or other Disposition to the dealer.

17. The current inspection fee is $145/hour of inspection service and is administered through the Canadian Food Inspection Agency Fees Notice. In addition to the hourly rate, a call-out fee of $50 per inspection (invoice) recovers national costs associated with travel to inspection sites. A cancellation fee of $70 is charged when inspection requests are cancelled after an inspector has been dispatched. This fee structure was implemented on April 1, 2012, to recover 75% of total program costs.

18. The service standard for the DIS program is to initiate 80% of the requests for a destination inspection within 8 working hours and to 100% within 24 hours of receiving a request (excluding weekends and statutory holidays; overtime service is available upon request); 100% of requests for witnessing and reporting of the destruction/disposal of fresh produce are to be responded to within 5 business days. The DIS is currently meeting and exceeding these service standards, nationally.

4.0 Proposed Service Standards and User Fees

19. DIS will continue to provide two key services to the fresh produce industry:

  1. inspection of domestic and imported fresh produce, and
  2. witnessing of the destruction/disposal of fresh produce and issuance of a Notice of Dumping or other Disposition.

4.1 Service standards, performance measurement and tracking

20. The CFIA will continue to meet service standards related to the timeliness of service delivery. The CFIA will remain committed to initiating 80% of inspection requests within 8 working hoursFootnote 6 of receiving a request and 100% of inspection requests within 24 hours (excluding weekends and statutory holidays; overtime service is available upon request).

21. The CFIA will remain committed to responding to 100% of requests for the witnessing and reporting of destruction/disposal of fresh produce within 40 working hours (or 5 business days) of receiving a request.

22. In order to assess the timeliness of service delivery, the DIS program will record and monitor the time at which inspection services requests are received and the time at which the related service is initiated. The performance of the DIS program in meeting this service standard will be reported annually in the CFIA's Departmental Performance Report.

4.2 Cost Analysis

23. CFIA follows the Treasury Board Guide to Costing in establishing cost for a service.

24. The cost analysis is based on costs incurred in FY 2011-12.

25. Full cost is defined as all resources consumed, including program support and internal services, to deliver the service. Specifically, this includes:

  1. Salaries and benefits,
  2. Operating and maintenance,
  3. Accommodation,
  4. Vehicle amortization,
  5. Program support, and
  6. Internal services.

26. Based on FY2011-12 costs and assuming constant demand for service, the projected full cost of the DIS program in FY2012-13 is $5.045M.

27. The hourly cost for inspection service is calculated using the full cost of the DIS program, less costs associated with travel, divided by the total number of inspection hours in FY 2011-12. Based on FY2011-12 financial information, the hourly cost for inspection service is $179.59.

28. Travel costs include vehicle costs (fuel, fleet maintenance and amortization) as well as labour costs incurred while inspectors are in transit. Based on FY 2011-12 financial information, the average travel cost is $73.29 per inspection.

29. Cancellation costs are calculated using one half hour of inspection time, which reflects the time lost in re-routing the inspector after a request is cancelled. Based on FY 2011-12 financial information, the cancellation cost is $89.79.

4.3 Public vs. Private Benefit

30. The DIS program provides inspection services that are of direct benefit to dealers. The CFIA has already consulted with industry on a proposal to fully cost recover the DIS program. The following factors contributed to this decision:

  1. amendments to the Fresh Fruit and Vegetable Regulations and Licensing and Arbitration Regulations have removed the requirement for licensed dealers to obtain inspection services from the CFIA;
  2. in the absence of dealers, the CFIA would not provide this service; and
  3. dealers request inspection services, at their discretion, to support the resolution of commercial disputes regarding the quality of the shipment as compared to the terms of the sales agreement.

4.4 User Fee

31. The CFIA is proposing to maintain the call-out fee and cancellation fee at rates established for 2012-13 ($50.00 and $70.00, for call-out and cancellation fees, respectively). This restricts the fee increase to the hourly fee for service, which will serve to simplify implementation. The proposed hourly fee for inspection service would therefore rise to $190.00.

32. The hourly fee applies during regular working hours. When inspection services begin and end during an inspector's regular working hours, the dealer will pay a fee of $190.00 for the first hour and an additional fee of $47.50 per quarter hour for inspection services ending beyond the first hour. The fee will be calculated forward to the nearest quarter hour, subject to a minimum fee of $190.00.

33. Fees for inspection services are based on two elements: sampling time and inspection time. Sampling time is calculated using real time and represents the time required for sample selection and delivery to the inspection station. Inspection time is invoiced based on standardized bench times (available upon request), which are calculated based on historical inspection data for key commodities and lot sizes. The methods used to derive the bench times are statistically valid, and the approach ensures a consistent, equitable and predictable determination of the time required to perform a given inspection.

34. Services requested to be provided outside of regular working hours will be subject to overtime rates as set out in the Canadian Food Inspection Agency Fees NoticeFootnote 7 in addition to the regular hourly fee of $190.00.

35. Proposed Fee Schedule:

Service Proposed User Fee FY2013-14 (based on FY2011-12 costs)
Fresh Produce Inspection (Quality/Condition) $190.00/hr, assessed at $47.50 per 15 minutes, subject to a 1 hour minimum charge
Witnessing of the destruction/disposal of fresh produce and issuance of a Notice of Dumping or other Disposition $190.00/hr, assessed at $47.50 per 15 minutes, subject to a 1 hour minimum charge
Call-out fee per inspection $50.00
Fee for the cancellation of inspection services request $70.00

36. Charges for cancelled service requests will apply where the cancellation request is received after an inspector has been dispatched, but before inspection services delivery begins. Once dispatched, an inspector will lose approximately half an hour of time. Once inspection service delivery begins, the minimum hourly charge will apply. Where an inspector has not yet been dispatched, there will be no charge for cancelled requests.

37. The Agency's revenue target for DIS for FY 2013-14 is $5,045,242 which will recover 100% of costs incurred in FY 2011-12. No increases to DIS operating costs are projected over the course of the next three fiscal years. Recognizing that inspection demand is variable, and based on many external factors, the DIS program will continue to identify and implement additional efficiencies and monitor inspection demand closely to ensure that inspection capacity is maintained at an appropriate and cost-effective level. On an annual basis, the DIS will present financial statements to the National Industry Advisory BoardFootnote 8.

38. The CFIA is committed to reviewing fees every five years or more frequently if necessary. The CFIA proposes to keep fees at the FY2013-14 level until the next review is completed.

4.5 Benchmarking

39. The CFIA considered four foreign jurisdictions for the benchmarking exercise: Australia, New Zealand, the United Kingdom, and the United States. The government regulatory bodies in Australia, New Zealand, and United Kingdom do not offer quality-related inspection services. A comparable service is, however, offered by the U.S. Department of Agriculture's Agricultural Marketing Service (AMS).

40. Given the presence of domestic private sector service providers of inspection services for quality and condition, a comparison was also made with the Ontario Produce Marketing Association (OPMA) and a number of small independent service providers operating in the Montreal area.

4.5.1 Australia, New Zealand, and the United Kingdom

41. The Australian, New Zealand, and United Kingdom government's role at the border is limited to quarantine and food safety inspection and verifying that the shipment does not conceal drugs, guns, illegal immigrants, etc. These jurisdictions do not offer quality-related inspection services in an official capacity by a regulating authority to the fresh fruit and vegetable industry as this issue is regarded as a commercial matter.

42. When fresh fruit and vegetable product is imported into these three jurisdictions, importers either inspect the product themselves or appoint an independent specialist to undertake this role on their behalf.

4.5.4 The United States

43. In the U.S., the Agricultural Marketing Service (AMS) administers programs that facilitate the efficient and fair marketing of U.S. agricultural commodities. Grading of fresh products is funded through user fees and, in the case of quality-related inspection services, is voluntary. The AMS employs 110 federal inspectors and has a network of state inspection staff that are accessible to provide destination inspection services.

44. The results of destination inspections provide growers, packers, shippers, brokers, truckers, receivers, importers and other financially interested parties with quality, condition, temperature, count, net weight or other desired information pertaining to a shipment.

45. The AMS response time, upon receipt of a letter or fax requesting an inspection, is within 5 working days, with a commitment to schedule an inspection appointment within 24 hours of receiving the request. Inspection certificates may be issued from 20 minutes to 5 working days upon completion of the inspection, depending on the location of the inspection.

46. The AMS fee schedule was last updated in 2008 and is based on the quantities of packages and the number of commodities to be inspected. For each commodity being inspected, the price can range from U.S.$69 (for quantities of less than 50 packages) to U.S.$151 (for quantities in excess of 51 packages).

47. The AMS imposes a waiting time fee in the event an inspection is delayed because the commodity is not available or readily accessible. The U.S. also charges a cancellation fee. If the inspector has been dispatched the client is charged the total travel time (round trip) at the hourly rate (U.S.$74/hour). If the request is cancelled before the inspector is dispatched, then there is no charge.

48. The AMS also applies charges for overtime and travel costs. The overtime rate is U.S.$38 in addition to the regular service charge for all inspections performed outside the regularly scheduled work week; the holiday hourly rate is U.S.$74 in addition to the regular service charge. The rate for billable mileage is U.S.$1.32/mile.

4.5.5 Domestic Private Sector Service Providers

Ontario Produce Marketing Association

49. The Ontario Produce Marketing Association (OPMA) is a non-profit organization whose primary objective is the promotion of fresh fruit and vegetable consumption within Ontario. They also offer members a range of specialized services, one of which is produce inspection to support dispute resolution. The OPMA employs one inspector for quality and condition inspection, who also provides training in quality inspection for clients.

50. The inspections are generally conducted within 24 hours of the applicant's request and include services that are comparable to those provided by the CFIA DIS program. A preliminary written indication of the result is provided upon completion of each inspection and a written report is provided within 5 days.

51. The OPMA fee schedule is based on the number of cartons being inspected. The fee ranges from $137 (1-100 cartons) to over $300 (1501-2000 cartons) and includes digital photographs, a service not currently offered by the CFIA DIS program. When a shipment contains over 2001 cartons, the OPMA charges an hourly rate of $100.

52. If the service requestor is not a member of the OPMA, an additional 25% is added to all inspection fees, so fees would range from $171 to $391. Hourly rates would increase to $125. Annual membership fees range from $200 to $400 per year.

53. Dump certificates are charged at a rate of $100/hour. Inspections performed on pre-arranged overtime are charged at 1.5 times the regular fee. The rate for mileage is $0.50 per kilometre plus meals.

Other Private Sector Service Providers

54. Recently, a number of small, independent private sector service providers have established operations in the Montreal area to offer quality and condition inspections for fresh produce to support dispute resolution processes. These companies generally consist of one to two staff and some also provide marine survey services.

55. Service standards are not explicitly stated, though inspection requests are typically addressed on day the request is received. Services are available 7 days per week, with additional fees being applied for urgent requests received after-hours.

56. Fees are generally determined by the size of a shipment and typically range between $125 and $400 per inspection. Travel fees are not explicitly stated, though additional fees may be applied in situations where travel outside of the Montreal area is required.

4.5.6 Comparison with CFIA Proposal

57. The CFIA DIS program proposes to maintain a service standard of initiating 80% of requested inspections within 8 regular working hours of receiving a request and 100% of requested destination inspections within 24 hours (excluding weekends and statutory holidays).

58. This service standard is comparable to that of the AMS, the OPMA and other private sector service providers. The AMS commits to scheduling inspections within 24 hours of receiving requests, if within the areas of the country served, and will respond within 2 working days (excluding travel time). The OPMA generally conducts inspections within 24 hours of the applicant's request. The other private sector service providers typically respond to inspection requests on the day of their receipt.

59. The AMS, the OPMA and the independent private sector service providers base their fees on quantities of packages and the number and types of commodities. OPMA fees range from $137 ($171, if a non-member) to over $300 (over $375, if a non-member), or may charge an hourly rate of $100/hr if the number of cartons exceeds 2001, in addition to an annual membership fee of $200-$400 per year. Fees charged by the U.S.-AMS range from USD$69 (<50 pkgs) to USD$151 (>51 pkgs) and include a waiting time fee. The other private sector service providers generally charge between $125-400 per inspection, with additional fees applied in the event of urgent after-hours requests, or those requiring extraordinary travel.

60. The DIS proposal includes a cancellation fee. The approach is similar to the U.S. approach in that there is no charge if the service request is cancelled prior to dispatching an inspector. The U.S. cancellation fee recovers the costs associated with travel whereas the DIS proposal recovers the inspector's lost time due to the cancellation.

61. The DIS uses an hourly inspection rate and a flat rate for travel costs, whereas other service providers base their fees on lot size and actual mileage. Despite these different approaches, DIS invoice pricing is comparable to that of other service providers in Canada.

62. Other differences exist between the DIS and other service providers that impact on fees and the provision of services. These include the number of employees, geographic availability and breadth of services offered, profit versus not-for-profit, private versus public sector, number of years in service, and the regularity of changes to fee schedules. The DIS is a national organization, dedicated exclusively to the delivery of inspections at destination. These services are provided across Canada by a network of highly trained inspection staff, with controls in place to ensure consistency. Conversely, other domestic service providers serve a relatively localized client-base, and in most cases, offer services unrelated to destination inspection.

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