AGRI Committee Meeting

STANDING COMMITTEE ON AGRICULTURE AND AGRI-FOOD

COMITÉ PERMANENT DE L'AGRICULTURE ET DE L'AGROALIMENTAIRE

EVIDENCE

[Recorded by Electronic Apparatus]

Tuesday, November 16, 1999

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[English]

The Chair (Mr. John Harvard (Charleswood St. James—Assiniboia)): Members, we're going to bring this meeting to order. We'll continue our study as per our motion that was passed more than a week ago.

Today we're going to look at what you might call farm finances, particularly the debt side of things. We want to get a better handle on the farmers' situation out on the prairies.

We have the good fortune of having people from the Royal Bank today, as well as the Farm Credit Corporation. It was my hope to have someone from the credit union movement, and apparently it was not possible for today, mainly because of some Agricore meeting that's taking place in the province of Saskatchewan. I find that disappointing.

We are more than happy to have representatives from the Royal Bank and from FCC. I'm sure they'll be able to give us a fairly good profile of the situation as it exists at the present time.

I think we're going to start with Mr. Ryan from the Farm Credit Corporation. Is that all right with you, Mr. Ryan?

Mr. John Ryan (President and Chief Executive Officer, Farm Credit Corporation): Certainly, Mr. Chairman.

The Chair: Then we'll go to Mr. Murphy from the Royal Bank.

Mr. John Ryan: Thank you, Mr. Chairman.

The Chair: Thank you for coming again, Mr. Ryan. Go ahead, please.

Mr. John Ryan: Okay. I understand I have about 10 minutes for introductory remarks and there will be questions afterward.

Good morning to you, Mr. Chairman and honourable members.

[Translation]

Good morning, everyone.

[English]

Before I actually do my opening remarks, I'd like to formally introduce Mr. Marshall Stachniak, who is vice-president of farm financing on a national basis, and Mr. Jacques Lagacé, our national director of government relations situated here in Ottawa.

Let me first of all thank you for having the opportunity to come before you today to review your initiatives that support stable growth in the agriculture industry. My understanding is you've asked us here today to share our observations and views on the current agricultural environment, including the downturn affecting prairie grain farmers. I understand you have been following the situation very closely and are concerned about the impact on farmers, as we are. Marshall and I will be discussing the steps Farm Credit Corporation has taken to help our customers through this very difficult period.

• 0910

When we talk about the state of the agriculture economy, we're speaking about an industry that spans diverse geographical regions and very different sectors. Some are thriving and others are experiencing difficulties.

Agriculture, as you know, has traditionally been a cyclical industry. However, it is undergoing rapid transformation, and this will no doubt impact future agricultural cycles. Factors such as the value added, more diversification, and competition in a more global marketplace will likely affect the patterns of agricultural cycles in the future.

In the past decade, agriculture has experienced a period of strong growth. Our realized net farm income rose from some $2.8 billion in 1994 to $3.4 billion in 1997, and our portfolio grew at the same time from approximately $3.5 billion to $4.7 billion. So if you look at loan demands as an indicator of industry health, we have experienced some growth in the agricultural economy and FCC's portfolio has grown along with it. You'll see our growth in greater detail in appendix A in the handout that we provided to you.

However, we are presently forecasting a somewhat slower portfolio growth in this particular fiscal compared to last year due to the downturn in some of our major commodities.

At Farm Credit, our current lending is off by about 7% when compared to last year. We had something like 7,300 loans for the first seven months last year as compared to 6,800 loans for the first seven months this year. The two sectors that are showing the greatest slowdown in the new lending are our cash crops, particularly in Saskatchewan and Manitoba, and the hog sector. Arrears and realizable net farm income forecasts are also indicating there are difficulties on the short-term horizon.

FCC operates in almost every agricultural sector, although it remains strongly focused on traditional agriculture, such as the cash crops, the dairy, and the beef operations. More than a third of our portfolio is in cash crops, which includes everything from fruit and vegetables to wheat. Grain is the cash crop most affected by the current downturn, and arrears in this area are increasing in reaction to the low commodity prices and, in some cases, bad weather.

Traditionally, arrears levels are used to assess the impact of agricultural prices on a producer's cashflows. Although there's always a lag time between what's happening in the marketplace and loans that are actually showing arrears, they do remain the best indicator at our disposal to assess the state of the industry.

We've not seen a significant rise in the arrears for FCC accounts at the national level in the past year, and we believe that reflects the fact that we are doing well in certain sectors of the industry and we possess a diversified portfolio. However, we do recognize that many farm families in sectors hard hit by the downturn, specifically in the cereal grains and the hogs, are struggling to meet their payments.

Indeed, the arrears levels are increasing in two sectors. In the hog sector, as you see in chart C of the document we handed out, our accounts in arrears have increased from some 227 last October to 264. In the cash crops, which includes the cereal grains, they've increased by more than 400, from some 1,900 to 2,300.

Now, as you well know, the hog industry experienced a dramatic drop in commodity prices last fall and early winter, and although the prices have strengthened, there remains some volatility, and some producers are experiencing a difficulty today.

Our arrears in this particular industry have increased to something like $2.9 million, up about $900,000 from the same period last year. The downturn in the hog industry has affected producers across the country. Wet conditions and low commodity prices have predictably affected the grain producers in both Saskatchewan and Manitoba.

As at the end of October this year, our overall arrears in Saskatchewan and Manitoba have increased to some $13.6 million. That's an increase from the same period last year, when arrears were approximately $8.5 million.

If you look at it in terms of customers or farm families having problems meeting their payments, the number of farm families in arrears has increased from 1,184 to some 1,500, which is about a 28% increase year over year. In terms of number of farm families having problems meeting their payments, in terms of dollars, it's an increase of about 60%. This increase is the main factor that's driving our increase in arrears on a national basis.

• 0915

I think if we want to go one step further, we can see that the grain arrears account for about $10.6 million of the $13.6 million in the two provinces. Given that that's about 80% of our arrears, it's easy to conclude where the major problems are. On a more positive note, many prairie producers have experienced above average yields this harvest, which to some extent may help offset lower prices.

To sum it up from an arrears perspective, when we look at our national portfolio, our arrears have gone from some $32 million last year at the end of October to some $38 million this year. We've increased the customers' arrears from about $3,000 to $3,200. Because arrears are really a lagging indicator, it's reasonable to assume that we'll continue to see some increase in arrears, at least in the short term.

You might ask, based on those remarks, what are we doing as the Farm Credit Corporation to help our primary producers who are experiencing problems. We've had four decades now, or 40 years, of working with farm families throughout all economic cycles. We act quickly to help our customers in difficulties. In terms of both the hog sector and the grain sector, when we understand they're having particular problems because of the low commodity prices, or when the flood conditions actually compound their particular problems, we are in contact with them.

In short, we do want our producers to succeed, and I think we could sum it up in one word. What we're trying to do, if at all possible, is show the utmost in flexibility when it comes to dealing with our customers.

Since last fall our credit advisers have actively contacted our customers to offer to sit down with them and work out alternate financing arrangements. We've also met with a number of the agricultural groups and said to them very clearly that we'd like them to encourage their members to come and talk to us when they're having problems or expecting to have problems so that we can in turn help overcome those particular problems.

Our staff have had many media interviews to reach our customers through that particular venue. We've worked hard to communicate to affected primary producers that we are extending a helping hand to them through this difficult period.

For example, our staff in Saskatchewan and Manitoba have contacted most of our customers who are expected to have increased cashflow problems to discuss flexible financing options and to come up with a plan to suit their particular operations. In other words, let's work on a one-on-one basis. This has resulted both in the postponement of principal payments to the end of the term and in the restructuring of loans.

We recognize that over the next several months it will be a challenging time for many of our customers, especially those in Saskatchewan and Manitoba, and we are committed to working with them to develop the best solutions on an individual basis. That will include the continuation of postponement of principal payments to the end of the term as well as the restructuring of loans.

We've received many comments from our customers who are encouraged by our understanding and our practical advice for working through this period.

I trust this very short overview, Mr. Chairman and honourable members, has given you a better understanding of what we see today in the agricultural marketplace and how we are responding to the individual customers' issues and concerns. We will continue to work with our customers throughout this cycle, helping them wherever feasible, and we will continue to support the Canadian agricultural industry through its various cycles.

Thank you very much. Marshall and I would now be quite happy to respond to any of your questions, unless you want to move, first of all, to the Royal Bank.

The Chair: Yes, we'll move to the Royal Bank first.

Thank you very much, Mr. Ryan. I think that's helpful. I'm sure members will have plenty of questions, but we'll invite Mr. Murphy and his colleague to speak.

Thank you for coming, Mr. Murphy. You can go ahead and introduce your sidekick.

Mr. John Murphy (Vice-President, Agriculture, Royal Bank of Canada): Thank you very much, Mr. Chairman, ladies and gentlemen. Thank you very much for the invitation to share our views of the agricultural economy with you this morning.

To give a little background from my own personal perspective, I was the ninth agricultural specialist hired by the Royal Bank in 1971, so I too have witnessed a number of cycles in agriculture. I started the early part of my career in Ontario, so I have a little bit of a comprehension for eastern Canadian issues. Moreover, I was born and raised on a farm in Lindsay, Ontario.

I also had the delight to be a western Canadian for the last 20 years. I spent nine years in Saskatchewan, and being in Saskatchewan from 1980 to 1989, I think I lived through a hundred years of agricultural economic history.

The Chair: You look better for it. It's that sunshine and good weather.

Mr. John Murphy: And for the last ten years I've headed up the bank's agricultural division out of Winnipeg, Manitoba, and recently, as of last week, I've become a citizen of Guelph, Ontario.

But I would like Carlos Leitao of our economics department to give, from his professional economics perspective, how he sees the agriculture industry in Canada, and I'll share with you some of our recent experiences with our customers after Carlos has spoken.

• 0920

Mr. Carlos Leitao (Senior Economist, Royal Bank Financial Group, Royal Bank of Canada): Thank you, John.

Good morning. As John said, I'm an economist with the bank. I look at the provincial economic conditions, especially for the western provinces, and so of course I pay close attention to agriculture and commodities prices in general.

Certainly what we've seen in the last 18 months or so, but particularly in the last 6 months, has been, if you will, a failure of grain prices to recover while other commodity prices have indeed gone up. Crude oil, metals, etc., have recovered from the Asian crisis, from the slowdown in world growth. Agricultural prices, and particularly grain prices, have not recovered and in fact have remained very weak, and in our view they will still remain weak for at least another 6 to 12 months.

So the question is why is this? Why are we seeing such low grain prices, particularly wheat prices, at this time? I think what we have here is primarily something that we thought had gone away but in fact hasn't, and that is export subsidies by the two major players, the United States and Europe. We thought that after the Uruguay Round of talks, which was such a laborious process, at least we had solved that or at least minimized the impact of it. And it worked while prices were very strong in the early 1990s. Once prices started to decline, then all those nice agreements ended up by not working, and now we are back in a situation where we are facing weak prices exacerbated by a resurgence of export subsidies by the European Union and loan deficiency payments by the United States. So that certainly is making a bad situation worse.

At the start, we have also to realize that, as has been said before, agriculture is very cyclical in the grains prices and we are living through the consequences of very strong years in terms of prices in the early 1990s, when wheat prices were very high. After that, production expanded around the world. Normally you would expect, with supplies increasing, that prices would start to ease, and that's what happened. We would have expected then that production would start to decline around the world given the low prices, and then prices would go back up again in the next cycle. It hasn't happened. We have had very strong crops in Canada, and in Europe and the United States as well, so overall output is still very high, inventories are plentiful, and prices are weak. On top of that, you throw in the export subsidies, and it makes for a very difficult situation for at least 6 to 12 months, we think. We don't see any big recoveries in terms of grain prices for quite some time yet.

I will stay at that.

Mr. John Murphy: We learned a lot through the last down cycle in the 1980s in terms of the need to dismiss the view of net worth as a factor in making a loan decision. Instead we focused very heavily on liquidity and debt serviceability. And to be able to make that assessment, we have as an underwriting criterion that farmers who borrow more than $100,000 have to provide us with accrual financial statements in which we can make the kind of economic assessments on an account-by-account basis necessary to help coach our clients through the ups and downs of the industry.

The other issue is that with the acquisition of Dominion Securities we now have a team that works with our clients to assist them in understanding the use of and the value of futures and options as risk management tools. There's no doubt in my mind that there are individual farm families in economic crisis, but if you define a crisis as the future state of the Canadian farms community's ability to produce food, I'm not convinced that they're anywhere near a crisis in that context.

As an example of the statistical review, I sat at a meeting two weeks ago in the United States around the table with my counterpart from the Bank of America, the farm credit system in the United States, John Deere Finance, and Pioneer Hi-Bred Finance, and we all asked ourselves the same question. Our portfolios are all relatively in the same shape, which is very good. We're all of the same vintage, and we remember that in 1982 we would have said the same thing: it's not all that bad. However, this is a group of lenders in North America who represent $77 billion in loans, and we came to the conclusion that the circumstances we face today are entirely different from those in the 1980s, and that we had a high level of comfort in the sustainability of our customers and our ability to continue to support our customers.

• 0925

To get back to the Canadian scenario, the Royal Bank lends money to 57,000 farmers. We have outstanding loans as of the end of September of $4.5 billion to that group of farmers. Of that, there is $55 million in what we call impaired loans, that is, loans past due for more than 90 days, and they are to 760 customers. You compare that to 1998, when we had $45 million in impaired loans to 671 customers, and in 1997 we had $45 million to 592.

So the trend is upward, but in terms of the amounts relative to the overall portfolio in banking terms, it's almost a utopian environment to have a portfolio of loans of that magnitude and have impaired loans that small. The increase from 1998-99 can be attributed to two or three fairly large integrated farm accounts.

I think of particular interest is what happened in Saskatchewan and Manitoba. In Manitoba we had $1.7 million in impaired loans in 1997. Today we have $1.9 million in impaired loans to 58 customers. In Saskatchewan it's been more of a grain economy and so more problematic over time. We had $26 million in impaired loans in Saskatchewan in 1997 and have $27 million in 1998 to 350 customers. So you can see that of our 760 farmers in arrears with us, almost half are in Saskatchewan, and that can be attributed to, as Carlos mentioned, the prices in the grain economy.

Another specific example of where we stand is that in Mr. Borotsik's area, where they were devastated by floods this spring, we went to each one of our customers in that area and offered to postpone all principal payments for the next two years if they should choose to do so. We have eight who took us up on that offer. There's this sort of thing we can do for farmers.

Every year in my 26-year career as an agriculture banker, some region of Canada has been devastated by flood, drought, or some other catastrophe, or a subsector of agriculture has been in trouble. So each year we have to address how we deal with farmers who are struggling in difficulty. Deferring loan payments, rewriting the debt over a longer term—we have a number of economic tools in our kit.

Our objective is for our customers to succeed. We have Angus Reid survey our clients as to their satisfaction, and we've found that 12% aren't particularly satisfied with us, but 65% are either extremely or very satisfied with us. So we are rather proud of our report card.

With the underwriting criterion we mentioned, there are farmers who wouldn't qualify for a loan with Royal Bank, and I suspect that many of them may be where some of the challenges are these days. There's some speculation that many of them have run up credit card debts at a very high cost of credit, and also the amount of money extended by farm input companies is becoming very large. So I think there is a group of farmers who wouldn't qualify for our underwriting standards who are in much greater financial difficulty than shown by the portfolio I laid out here for you today.

That's the top line the way we see it. I think there are farmers in challenging times, but there are farmers living in the current challenging times who are doing very nicely. So it's what the economists call a bimodal distribution that we're seeing in agriculture, and it's becoming more acute all the time, in my view.

The Chair: Thanks Mr. Murphy.

Just before we go to questions, would you, Mr. Murphy, given your knowledge of the current financial situation out there, have an opinion on the efficacy of AIDA?

Mr. John Murphy: I think AIDA is the right tool for the time, but I think it doesn't come close to the value of NISA. NISA was very well positioned in the agricultural community during good times, and for the kinds of farmers I'm talking about, who have maintained liquidity, NISA has encouraged them to even be more liquid to prepare for the down cycle in agriculture.

• 0930

I'm a strong advocate of NISA. We've spent hundreds of thousands of dollars advertising and promoting NISA to our customers, that they should subscribe to it. It's much easier for them to have NISA accounts than for us to be dealing with the problem alone.

In my view, if NISA worked perfectly, you wouldn't need AIDA. But AIDA is an opportunity to maybe provide a stop-gap.

The Chair: Then how do you explain the withering criticism of AIDA?

Mr. John Murphy: The challenge is that Canada has about 70,000 farmers who gross over $100,000 per year and produce about 80% of all the food produced in Canada. Historically, in good years, profit margins haven't changed in agriculture. They're about 15% to 20%. So someone who had $100,000 in sales 30 years ago had a $15,000 profit. That would go a long way. Farm commodity prices haven't changed in 30 years either, even in the good years. So you have the same farmer with the same farm and relatively low debt, but that $15,000 won't go very far today.

Even in the good years, the 3% of that farmer with $15,000 net income didn't accumulate much in his NISA account. So NISA is of little value to those people. At $100,000 gross sales, you're too big to be small and too small to be big. It's a big job running a farm like that. You don't have time for a full-time off-farm job, but your farm isn't big enough either to generate an economic well-being for your family even in good years.

Similarly with AIDA, even if you've had a wonderful three years at $20,000 a year and now have a bad year, a maximum AIDA payment to that individual isn't going to be a lot of money in the most perfect scenario.

So the perceived failure of AIDA is identifying what I would like to describe as a socio-economic issue in rural Canada. The same thing is happening in the United States, where you have farmers who were viable 20 to 30 years ago, they haven't changed, and they're not viable in today's economic environment. They're not competitive with their neighbours. Basically that's the case. They're my age and older, and they're not too anxious to expand either. So they're kind of caught in the middle. I think I can identify the problem, as many others have, but I'm a little slower with the solution to that.

The Chair: Thank you very much. I'm sure you've given us a lot of food for thought.

We'll go to questions now. We'll start with the official opposition. I believe Mr. Ritz will begin, for seven minutes.

Mr. Gerry Ritz (Battlefords—Lloydminster, Ref.): Thank you, Mr. Chairman.

Thank you, gentlemen, for your presentations here today. Of course we're all struggling for the answers and we just can't get them quickly enough.

Mr. Murphy, on the sheet you've given us, you're strictly outlining mortgages. These numbers don't include lines of credit, operating loans—

Mr. John Murphy: Yes, it refers to agriculture, including lifetime mortgages. That's our total portfolio of loans to farmers in Canada.

Mr. Gerry Ritz: So you're talking lines of credit to farmers, operating loans, the whole ball of wax.

Mr. John Murphy: Yes.

Mr. Gerry Ritz: The numbers for Saskatchewan, the numbers that are in trouble here, are roughly half the national total.

Mr. John Murphy: Yes.

Mr. Gerry Ritz: So does that not speak to Saskatchewan as really being in this crisis? You're saying agriculture is not in crisis because there will always be somebody there to put out the food, but we're talking about a major problem here in Saskatchewan.

Mr. John Murphy: We have 15,000 customers in Saskatchewan; 350 of them are in arrears. I wouldn't call that a crisis.

Mr. Gerry Ritz: For the 350 of them, it probably is.

Mr. John Murphy: Even most of them... Because maybe they're in southeastern Saskatchewan and they didn't get a crop this spring, they're in arrears because they just don't have the cashflow, but we have high confidence in their management ability and we'll see most of these people through. I would predict that very few of these people will lose their farms as a result of their situation today. Now, if Carlos is wrong and the grain prices are lower for a longer period of time, then that crisis becomes looming to each of those farmers.

Mr. Gerry Ritz: But the crisis we're facing in Saskatchewan is that we got the crop in last year and we got the crop off, and there's quantity there, but the quality of course is not there. The prices are still low, so we're still looking at net losses for everybody out there. How do we go out and explain to these people, “Gee, it's not as bad as you think; the Prime Minister has new numbers”?

You guys have great numbers, but numbers don't pay the banker and don't buy the food to put on your own table. How do we go back to them and say “Your debt load is okay; the same problem is happening in the States”? How do we sell that to them? You guys are going to term things out, and that's great, but what do we do next year? I don't think we've hit the bottom yet.

• 0935

Mr. John Murphy: For individual farmers it is a crisis. I've been on farms and discussed with farm families these exact situations every year in my 26-year career.

What we can do for these people is encourage them to go and see their banker. People are lying awake at night worrying about what their banker is going to do and say.

Last spring, because of problems in some areas, we insisted that for all our farmers who are in arrears—and we'll do the same this year—we have the review done before the end of December so that we can start working with them in time and ease their mind as to what we can and cannot do. Every year some small regions in Saskatchewan have a complete drought, and they don't get a crop. So we deal with this every year. Because of the price scenario and the poor quality of the crop, this year it's a little broader in numbers and regions.

We can sit down and map out with each client how we see them working through this. If they have a really bad year, they don't recover even if next year is perfect. We're looking at how you're going to recover from this over the next five years. That's the issue we have to address: get the farmers talking to their lenders immediately so that they stop worrying about it, and they get a plan in place to solve it.

Where I as a banker was the most cruel was in situations where you did the “one more year” thing, and you knew in your heart of hearts that this was never going to work. To sit down and get your customer to realize that his farm is in a non-recoverable financial situation, but he can get out now, save some equity, and go do something else—I think those kinds of conversations should not be avoided by bankers. We also wish that everything would work out well. But in some instances we have been cruel by not helping our customers see the reality of their situation. I think that is one of the biggest challenges right now with some of these worst-off people.

Mr. Gerry Ritz: Mr. Ryan, I enjoyed your presentation. It sounds like the Farm Credit Corporation has found its heart again. Originally, the Farm Credit Corporation's mandate was long-term land loans, 30-year terms, low interest rates, and so on, which farmers could bank on, budget on, and work toward. That has disappeared. You guys are another large lender, basically another bank. You've gone into homes and barns, you name it, and so on. The partnering you're doing with large groups in becoming involved in building terminals and livestock facilities and in value-added processing is great. I think where the future lies in farming is in getting that value-added stuff done right on the prairies, where we need to see it.

The problem I have with Farm Credit is your buddy down there, Agri-Land. Is it possible that we can somehow develop a government contact in Agri-Land, Farm Credit, or whatever, that we MPs can phone to short-circuit calls and to pull up a file when we need it? Right now we get the runaround something terrible. We can phone you guys, and you say it's Agri-Land. We phone Agri-Land, and they say, oh no, it has to go back there. We go around and around. I understand the frustration a lot of our farm constituents are feeling. Is that something we can look at doing in the short term? This is going to get worse.

We see Agri-Land as being heavy-handed, I'll call it. They're holding some of the buybacks at 14 times the assessment, when a bank certainly is not going to lend you that kind of money. No one has had time to put any money away to make that buyback down payment. Is there anything we can do to soften that stance?

Mr. John Ryan: I think there are many responses to your various questions. First of all, I'd like to respond specifically to one of your key questions: can we put one person as the point person? The answer is most definitely.

Mr. Gerry Ritz: Good.

Mr. John Ryan: That would be either Dan Bergen or Darren Bly. Perhaps we can talk afterwards about which would be the most appropriate person.

I think if you look at the Agri-Land situation as a whole, lots of discussion has been going on as it relates to the termination of the leases that are coming due at the end of November. We've heard different sets of numbers throughout the period, but approximately 800 are ready to expire at the end of November. A little over 500 have already made arrangements to actually acquire that land in terms of buying the land back. We have to go back to 1994, when about 1,100 acres were under Agri-Land. That has dropped now to less than 500. With roughly 800 coming due, over 500 have already been concluded. Roughly 400 are going to come up next year, and 20% of those have already made arrangements to purchase for next year.

• 0940

What we've been trying to do on the Agri-Land side right from day one is to return that land to the original owner. To date about 75% of everything we've sold has gone back to the original farmer. This year we have tried to the best of our ability to facilitate the sale of that land back to the former owners.

We've established a specific loan program to do nothing else but help those farmers interested in purchasing that. We've reduced the amount of down payment we require. We allow the first year's or this year's rent to go against the down payment. We've paid the taxes. We sit down with the individual farmer on a one-on-one basis and say, if you have new information that would suggest that the price we're looking for is too high, put it on the table, and we'll adjust our price accordingly.

I'm giving you a long response, but I wanted to give you an even more complete picture of what's going on in Agri-Land at this point in time.

To go back to your original question, we'd be very comfortable about putting one person in charge so that you can make that direct contact.

Mr. Gerry Ritz: Thank you.

The Chair: If I have the consent of the members, I'd like to go to Mr. Borotsik now, because he has a commitment in the House. If I hear nothing negative, Rick, you have it for five minutes.

Mr. Rick Borotsik (Brandon—Souris, PC): Thank you, Mr. Chairman, and I do thank members on the government side and certainly the opposition for allowing me to go ahead at this time.

An hon. member: You owe us.

Mr. Rick Borotsik: Okay. I know, you've always been cooperative.

First of all, thank you very much, gentlemen, for being here.

Mr. Ryan, as I said earlier, I have a wonderful working relationship with the FCC representatives in my area. In my opinion, they've certainly been very accessible and forthcoming in being able to deal with some very serious situations in my area because of not only crop prices but also natural disasters.

I have a couple of questions. You've mentioned some situations where in fact you can be somewhat flexible with regard to restructuring loan terms, redoing loans, and extending loans. Have you considered anything that is perhaps outside of the box? Have you looked at interest forgiveness in the area of natural disasters as opposed to commodity prices? I know you're in the business of not forgiving interest, but there are certain circumstances where I think you have to go a bit beyond the box. Have you ever looked at that as a philosophy for the FCC to try to help some of these individuals who find themselves in extraordinarily difficult situations?

Mr. John Ryan: We've looked at a lot of different options, including interest forgiveness. But, quite frankly, when you're looking at it from the point of view of our mandate today, it is to be on a full cost recovery basis. So we have some trouble with moving to interest forgiveness.

To go back to your disaster relief plan, we said that we need to make it as easy as possible for our clients to sit down and discuss their problems. That shouldn't have to be passed all the way up. The farther up the line it goes, the more difficult it is to get your hand around it. So what we've done is establish what we call a disaster recovery program wherein the local credit advisers have the authority to make the decisions that are required for the individual customers.

Mr. Rick Borotsik: Okay. Mr. Ryan, I only get five minutes, so I'm going to go for a number of questions here.

Mr. Murphy indicated that perhaps there are some situations where you sit down and suggest that maybe the outstanding loan isn't viable or the business isn't viable. First of all, I'd like you to touch on that. Is that also done through your three-year credit counselling?

Secondly, what are you finding right now with regard to land values? Obviously the FCC has had some experience in that, being not only a landlord but also a landowner. Are you finding that land values, particularly in Manitoba and Saskatchewan, are falling? If so, then that obviously affects the equity position these customers of yours are in. If that happens, where do you go from there? Extensions are only so good for so long.

Mr. John Ryan: As you're probably aware, every six months we issue the farm land values, which is a review of what has gone on in the sale of land throughout the country. The last review was issued in July 1999. We've seen an increase on a Canada-wide basis of less than 1% and in Manitoba and Saskatchewan a very slight decrease of about half of 1%.

Mr. Rick Borotsik: Do you anticipate that will continue? I believe that will continue, because the 1999 crop year never happened and the year 2000 is going to be difficult. We've already heard that from the economists. Do you find land values dropping?

Mr. John Ryan: To go back to your earlier question on the Agri-Land leases and so on, it hasn't dropped substantially. Obviously, if the grain prices continue to be at the low levels they are, it will have some impact. We have not at this point in time tried to forecast what that might be.

Mr. Rick Borotsik: I'd like to address one question, if I could, to Mr. Murphy. I can't remember the numbers, but you mentioned the percentage of farmers producing 70% of the agrifood. Can you give me those numbers again?

• 0945

Mr. John Murphy: The last Statistics Canada information is that 68,000 farmers have farm sales more than $100,000, and they produce 77% of all the commodities produced in Canada.

Mr. Rick Borotsik: That's a rather interesting statistic, and perhaps it speaks more to agriculture than we care to think.

You talk about AIDA and you say it perhaps is okay and it can work as that third level of defence, but I'd like to go a little further. You're now moved out of Winnipeg and into Guelph. Is that a sign that the Royal Bank sees that perhaps agriculture is changing as well? If so, philosophically, where does the Royal Bank see rural agriculture going in the next five to ten years? That's your job, Mr. Murphy. Where do you see agriculture heading?

Mr. John Murphy: We have a very positive view of agriculture into the future. In my job, I've tried to look at where we ought to be to serve this industry five years from now. We have to deal with the day-to-day issues.

As as example of some of the things we're doing into the future, Dr. David Kohl, who is probably the most respected academic in farm finance in North America, has agreed to join the Royal Bank and has been with us for the last few months on a sabbatical. We have Dr. David Kohl working for us on inventing what we're calling the centre for agricultural knowledge. Is there a better way to bring information to our customers, either those who are challenged or those who are looking at expanding?

It used to be that if a farmer was thinking of buying the farm next door, he'd go and talk to a couple of his neighbours. But with the amount of money that's involved today, the neighbour's opinion isn't really what is needed, always. So we would envision having a high-level website and information that would answer questions that we know farmers have. We'd move it up another notch to provide a chat line for farmers to access experts around the world. And the next level would be a 1-800 number, so that a client who's building a new hog barn outside of Brandon could call a marketing expert in Denmark, we could put him in touch with a ventilation expert in Australia, and maybe a geneticist in South America someplace.

Those are the types of things we see raising the bar and helping Canadian farmers compete.

I personally regret moving out of Winnipeg.

The Chair: I can understand that.

Mr. John Murphy: It's been my home for 10 years. It should not be construed as a downsizing of the bank's commitment to agriculture.

As we move to a more electronic platform... I don't know why Canadian Airlines is in difficulty, because I certainly spent my share of the Royal Bank's money going from Winnipeg to Toronto. As we go through changes...

Right now 14% of our farmers use Internet banking with us, and another 60% plan on switching to that platform. So as we evolve these systems in the bank, I need to be there more often and my team needs to be there more often to make sure that as these programs are designed, there's an agriculture component to them. So it was important for me to be... Well, they wanted me in Toronto. The compromise was Guelph.

The Chair: Thank you.

We'll say goodbye to Mr. Borotsik now.

An hon. member: With a tear in your eye.

The Chair: I understand he has some speech to give in the House in support of the government.

Voices: Oh, oh!

Mr. John Murphy: Before Mr. Borotsik leaves, can I make one more comment about NISA?

The Chair: Yes.

Mr. John Murphy: Two weeks ago I was at the American Bankers Association meeting in Colorado. There were 700 bankers there from the United States and Canada, and as an example of how they ought to do it in the United States, four speakers held up NISA as an example of how their safety net program should be designed in the future. They don't see the lump-sum payment they're doing as a sustainable entity.

Mr. Rick Borotsik: That's no consolation, Mr. Murphy, because quite frankly they are doing substantial lump-sum payments. They can say one thing on one side, but they're still giving on the other. So that's no consolation at all.

The Chair: Thank you.

Now we'll go to Mr. Calder.

Mr. Murray Calder (Dufferin—Peel—Wellington—Grey, Lib.): Thank you very much, Mr. Chairman.

Gentlemen, welcome.

John, you were talking about the airlines. I also sit on the transportation committee, so we've been dealing with airlines forever.

I lived through the farm crisis in the early 1980s, when I learned a lot of things. I think the banks learned to be careful where you park your car and keep the doors locked.

I'm looking at Saskatchewan. From 1997 to 1999, about 29 farmers a year went into an impaired loan situation. Until now you're up to 350. Out of that 350, obviously you'll be looking at who has their operating loans maxed out and who's going now to the feed store and running up credit there. How many of these 350 are not savable?

• 0950

Mr. John Murphy: I don't really know the answer to that. Our provision for credit losses in 1999 is just a little over $2 million, and that's basically one account. I would say that over the next five years, 10% of those will not make it. It won't be this year or next year.

This number is a dynamic thing. The guy ships some wheat, gets up to date today, and falls into arrears again six months from now. He might be in arrears for a while and pay his account off at the farm supply company. So from the time a farmer really gets into trouble, he can balance one against the other for three or four years before he really has to deal with it. That's why I'm saying we need to help the farmer face that issue sooner rather than later—

Mr. Murray Calder: I agree.

Mr. John Murphy: —to either save the farm, which is the number one priority, or if the guy leaves the farm, to save him some equity. It's easy to try to be nice, feel for sorry for him and give him a few more bucks on his operating loan to see him through another year, but in some instances that's not the nice thing to do.

Mr. Murray Calder: As I said, I lived through the early 1980s. I talk on a regular basis to the representative of FCC in our area. I come from Holstein, which is just outside of Mount Forest, so I know where Lindsay is.

I refer to them as shoebox farmers. Basically, their management skills could be a lot better than they are. Of the ones you're having a problem with right now—even the FCC might want to remark on this—what percentage of farmers should really have better financial management skills?

Mr. Marshall Stachniak (Vice-President, Farm Financing, Farm Credit Corporation): I think the number is becoming smaller and smaller all the time, to the point where it's small now.

The other part of the response is that you can never have enough expertise and knowledge. You should pay particular attention to Mr. Murphy's comments about setting up a chat line for farmers, to gain expertise from all places in North America and the world. I'm not sure if I'm answering your question.

I think the margins in agriculture have sharpened the managerial skills of farmers. Of the farmers we deal with, I've seen virtually none that would be shoebox farmers. I think most of those would be people with little debt, compared to farmers with sizeable debts.

Mr. Murray Calder: That individual would obviously be very computer literate and have management and bookkeeping skills down to a fine science, doing GST on a quarterly basis, etc.

Mr. Marshall Stachniak: With today's farmers, we're seeing more and more of that all the time.

Mr. John Murphy: If I may answer that, in the Angus Reid survey I mentioned, 78% of farmers surveyed had annual business plans. I would suspect those that don't are long-term clients of ours with very low debt loads and undoubted relationships. It surprised me that 35% use futures or options as a risk management tool, and 79% use computers for business on their farms. So I think the business acumen on farms is leap years ahead of where it was in 1985.

Mr. Murray Calder: I want to zero in on one statement you made, John. You said if NISA worked right, we wouldn't need AIDA. So what's wrong with NISA? How do we improve it so we don't need AIDA?

My last question is to Carlos. The WTO negotiations will be starting at the end of this month in Seattle. The Europeans have their carry-forward clause. I'd like your comments on what research you've done into that right now. This is a use-it-or-lose-it type of scenario. I agree with what Mr. Ritz has been saying. We have low commodity prices because other countries are subsidizing their grain—that's obvious. I wonder if you've done any research into what the Europeans are going to do with that carry-forward clause.

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Mr. John Murphy: I don't know if it's the design of NISA or the way some farmers have taken advantage of it. Some farmers, who could have, didn't max out in their contributions to NISA. What other option would you have for a 100% return on your money the first year? It's a tremendous opportunity.

On the other side, we've had farmers apply for loans to see them through the downturn who have substantial NISA accounts. Somehow they've developed the perception that it's not their safety net program, it's their retirement program.

Mr. Murray Calder: Like an RRSP?

Mr. John Murphy: Yes.

The other issue—and I think it's a unique design of NISA—is that they have to pull out the fund first, which is the government portion. That means it will attract tax. So it puts a throttle on how much money farmers will withdraw from NISA. They'll only draw the amount of money that doesn't put them in a tax position. That tax liability is a disincentive to use NISA the way it was designed. That's a very subjective view.

Now that NISA is coming into its own, perhaps some market research should be done on the farmers' perception of its use and how they are using it. Are they drawing it when they need it, or are they afraid of attracting more tax? This is the first time NISA has ever really been asked to deliver. Before, it was just a nice deposit program. So maybe we should be looking now at how people are using it and how they perceive the use of it.

We should also be promoting NISA. The grain sector, as Carlos said, has a challenge. Most other sectors, such as the cattle business, have improved. Dairy, hogs and so on are doing very well. Now is the time to check on how NISA is working and maybe use that information to twig the design of the program, if necessary. It's obviously not perfect. A bunch of prairie farmers put it together. They wouldn't get it right the first round, I don't think.

I sat on countless committees as they sorted these things out. The perception they had of NISA when it was being formulated was at the end of the terrible 1980s. We're in a different era now, and I think it needs to be looked at again with more up-to-date perspectives. But I think it is working for those farmers who understand it and have applied it properly.

The Chair: Mr. Leitao, do you want to add to that?

Mr. Carlos Leitao: I haven't done any research on on the European issue. I don't know what they will do.

I will just comment briefly that the internal dynamics of the European Union have changed quite a bit since the late 1980s. It's a different dynamic now. It used to be the case that Germany was willing to underwrite the European agricultural budget. Germany is no longer willing to do that. So I would be a little bit more optimistic on that front. I don't think the Europeans will continue to carry on the same kind of subsidization we've seen lately, but I haven't done any specific research.

The Chair: Thank you.

Just before we go to Mr. Laliberte, this question is for Mr. Murphy or Mr. Ryan. Your stats indicate, Mr. Murphy, you have 350 currently impaired loans in Saskatchewan. That compares to 1,267 customers for FCC in Saskatchewan. Is there any overlap between those two groups? Because we don't have all the financial institutions serving farmers here, does anyone know the aggregate number, including all financial institutions?

Mr. John Ryan: I don't know what the aggregate is, but I am very comfortable saying there would be some overlap. Considering that the Farm Credit Corporation is involved in the term lending side of things to the individual farmer, they'd also have their line of credit. Their line of credit could be with the Royal Bank, the Bank of Montreal, or one of the other banks. So if they're experiencing problems with us, likely they're experiencing the same problems with one of the other financial institutions.

The Chair: Mr. Murphy, are you the largest lender in the agricultural community?

Mr. John Murphy: Yes, we are. We used to be the largest in North America in terms of loans to farmers, but with the merger of the Bank of America and Nations Bank, they now hold the title of largest commercial lender to agriculture. Of course the farm credit system in the U.S. is much larger than any of the banks.

I think about 40% to 50% of our customers also have Farm Credit Corporation mortgages, so there's a 40% correlation between our customers and their customers on these arrears lists.

The Chair: Thank you.

Rick.

• 1000

Mr. Rick Laliberte (Churchill River, NDP): I guess I'll try to change the perspective a bit and be a little more global in terms of the whole agricultural industry.

Being a fan of country music and all that, I've watched Farm Aid, run by the non-profit corporation in the States that has involved Willie Nelson. Their perspective just recently was that the farm crisis is being experienced in the United States as well, but their focus is on the multinational control of the agricultural industry and on how the input and output costs are controlled by only a handful of corporations, leaving producers squeezed in between.

Look at the whole aspect of the biotechnology that's going into the agricultural industry, and their control of intellectual property rights. You have pesticides, environmental impacts, and the cycle of climate change. You have the issue of carbon sinks in terms of the Kyoto protocol, and then the high cost of fuel. The list goes on and on.

It just boggles the mind to try to put a finger on anything, and you're just looking at the lender's side. I'd love to see the auctioneers invited to this committee. I believe you'll hear stories of, for example, whether families are leaving because they want to leave or because they're forced to leave. I think the auctioneers would know the emotion of a family liquidating their assets, and I think it would be an interesting perspective.

You mentioned hiring a doctor of some credibility. I would ask you to consider this: should Canada consider a royal commission on the family farm to look at the whole aspect of the agricultural industry and the family farm itself?

I mean, look at the agricultural industry. It's a very industrialized concept, and the corporate takeover of it is...

Your business could still flourish, and it doesn't matter who owns that land or who's producing. It could be a multimillion-dollar operation out there. But our concern is rural people, keeping our regions and communities strong. It takes families, not one corporation, to keep a community going. It's the small family farms that keep our rural life generating. Is that a perspective that should be...

In light of the new millennium, if young people are going to challenge a career in agriculture, maybe they should have a snapshot of what the industry in this country is looking like.

Mr. John Murphy: You hit on a couple of very key points that concern me. The focus that the media has given to the economic crisis in agriculture runs the risk that we are so preoccupied with it that we miss some of the more important, bigger-scale issues. World trade talks coming up in Seattle are a much bigger issue for the future of Canadian agriculture than the current commodity prices in the grain sector. The world's acceptance or lack of acceptance or understanding of genetically modified organisms in our agricultural commodities is a much bigger issue than the current short-term economic downturn.

You touched on the issue of the family farm. Almost all of the customers I'm talking about here, the 50,000 or so, are family farms, but a lot of people have different perspectives of what a family farm is.

To me, a family farm is a farm business that has sufficient economic viability to provide a livelihood for a family. With a 15% to 20% net margin, that means you have to have $150,000 to $200,000 in sales in order to be a family farm.

What we have in Canada is a socio-economic challenge that is different from these viable family farms—namely, farms that my friend, the Dr. Kohl referred to, calls “tweeners”, too big to be small and too small to be big.

Now, 120,000 farmers are going to turn 65 years of age in the next eight years, and they're sitting on $50 billion worth of assets. Many of them are too marginal to make a good living for their families.

So I agree with you, it should be looked at, but it shouldn't be looked at in the context of the economics of agriculture. Rather, it should be looked at in the context of a real sociological problem in rural Canada.

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You're right, it's exactly the same thing my colleagues from the United States are telling me, but in terms of government policy, the risk is that it's very dangerous to try to bring economic solutions to issues that are really socio-economic. It could lead agriculture in the wrong direction in Canada if we tried to do that.

So I think it should be looked at but it should be looked at in the context of how we address these marginal farmers in their circumstances, many of whom are going to retire in the next eight years. How do we deal with that?

The Chair: Thank you.

Mr. McCormick.

Mr. Larry McCormick (Hastings—Frontenac—Lennox and Addington, Lib.): Thank you very much for being here.

I'm just wondering what the Royal Bank... I realize you can't speak for other banks. We have the statistics, and I appreciate all the information you brought here today.

I'm wondering if there's been a greater number of applications that have had to be refused—for all the right reasons—in the last 18 months than in the preceding period of time. I'm wondering if you have any information on that.

The people in your portfolio, fine, but it's always those who are falling through the cracks that we're all concerned about. I'm not sure if the crisis is reflected, or could be expected to be reflected, in its entirety just from your figures. I'm just wondering if you have any comments on what you've heard from your branches as to the amount of requests for assistance that you're not able to meet.

Mr. John Murphy: First of all, on the statistics I supplied, the Canadian Bankers Association is collecting these for each bank to provide an aggregate to this committee, I believe.

The majority of our relationships are with customers who have been with us five years or more. On average, our customers have been with us fifteen years. With that tenure of relationship, we continue to meet their needs or they end up going someplace else that they think will do a better job.

Having said that, I can easily say a third of farmers wouldn't meet our underwriting criteria as being eligible for a loan. In most communities, the number of farmers who change banks year to year is very small.

Our loans grew by about 7% last year, but most of that was through existing customers. Of the 2% or 3% of growth from new customers coming in, a lot of that was new immigrants building dairy barns and so on. In communities, it's generally known what our underwriting standards are. People who wouldn't qualify just don't ask us any more for consideration.

Mr. Larry McCormick: I had a question also with regard to pork, because we've been looking at the prairies here, which is most important.

I had an individual...and I have no idea what bank. It wouldn't matter at this time. A family farm, they are, and a very large one. They ship breeding stock around the world. The main partner in the operation does not have any bank loans. At first they felt maybe age was why they were turned down by a bank the other day, but then it seemed to be because it was pork.

I mean, this wasn't a story where someone was just starting up a sow operation with thousands of sows. Rather, they'd been in the business for years, expanded, and bought other operations. I would expect it's quite a responsible operation.

I wonder what your comments are with regard to their feeling that they'd been turned down because the bank did not want to talk to them because they were in the pork business, Mr. Murphy.

Mr. John Murphy: Well, as a banker, I love the pork business. Some of my most successful customers have been in the pork business. Most of our pork customers went through very devastating prices over the last year and came through at the other end in fairly good shape.

There are bankers who don't like pigs, I'll say that, but a disproportionate portion of our growth in loans to agriculture in the last year have been to pork farm construction and to acquiring pork farmers from another financial institution.

Are there individuals... I don't know if it's our bank you're talking about or not.

Mr. Larry McCormick: No.

Mr. John Murphy: It could very well be that for whatever reason...

From our perspective, we look at the managerial capability and at the capacity to repay the loan. Collateral is in third place. But if the fellow has the marketing management, the production management, the financial management and the human resource management, it's been my experience that it doesn't matter what enterprise they're in—whether it's pork, grain, dairy or whatever—they'll be successful. With pigs, though, if you have mediocre management they will be a disaster for you. You have to be good at it or not be in it at all.

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The Chair: On that, you were saying about a third of your customers are refused loans, am I right?

Mr. John Murphy: I would say a third of all farmers in Canada probably wouldn't meet our underwriting loan criteria if they were to apply.

The Chair: Would that be historically consistent, Mr. Murphy?

Mr. John Murphy: Yes, although we perhaps have raised the bar over the last five years. For instance, for loans over $100,000, we insist on accrual accounting records. Some people would refuse to do that for us, and that's their choice.

The Chair: Thank you.

Mr. Breitkreuz.

Mr. Garry Breitkreuz (Yorkton—Melville, Ref.): Thank you very much, Mr. Chairman. As usual, I have a lot of questions. I have seven at the present time, but I'll probably get them in because there's no other opposition party member sitting here.

For both of you, I appreciate your very thought-provoking presentations. Would it be fair to say that those farmers who are most at risk across Canada, and especially those on the prairies, don't qualify for loans from the banks, and that the statistics that you presented may not accurately reflect the crisis on the prairies?

Mr. John Murphy: That's definitely a possibility in terms of the socio-economic issue that I talked about earlier. But the farmers that I talk about represent 70% to 80% of the production of food on the prairies or in any other part of Canada. In my view, at least a third of farmers probably can't afford to owe money because they can't service the debt. It's my suspicion that many of those have moved to credit cards and to input supply companies to support them.

I don't doubt for a minute that there are thousands of people in very delicate financial situations because of the reasons I mentioned. That should not be construed as an economic crisis in the food production industry in Canada. It is very much a crisis for many people and communities. I think you have to separate the two, so I would agree with you that these statistics don't necessarily represent whatever an average is.

Mr. Garry Breitkreuz: In talking to farmers...the answer for many of them who are most at risk is not another loan. If they do what you just suggested that they might be doing, it puts them more at risk, because those loans would even be of a higher interest rate.

Mr. John Murphy: Absolutely.

Mr. Garry Breitkreuz: These numbers indicate that there's a problem in Saskatchewan, but the crisis is beyond what you've given in your numbers because of what I—

Mr. John Murphy: I would agree. In Saskatchewan, we're addressing 15,000 small farmers who have a loan with us.

Mr. Garry Breitkreuz: Okay, thank you.

What are FCC's comments on that?

Mr. John Ryan: I think they're somewhat the same comments. However, I'd be very specific in terms of the farm credit also having 15,000 customers in Saskatchewan, and another 4,500 round figures in Manitoba, or roughly 20,000 customers with a heavy domination in the grain sector.

There are some problems there. There's no question about that, and we can't minimize that fact. The main point I would like to make in response to your question, though, is that the Royal Bank, we ourselves, and other financial institutions, all have these customers. I think the onus is upon us to encourage our customers to go in to sit and talk, to see if there's anything that can be done, as compared to waiting for something to happen that may never happen except for things getting worse. In looking at our portfolio, we don't expect at this point in time that things are going to improve in the coming months. I think we're going to see a further deterioration. As I mentioned in my opening remarks, we see the arrears as a lagging indicator, and it truly is.

Mr. Garry Breitkreuz: Yes, you've made that point, and I appreciate that.

The comments were made that AIDA is maybe one of the better programs. What I am hearing farmers say is that because of the way AIDA is structured, if you have a gradual decline in commodity prices—which is what we've had in the grain sector—AIDA can't work. I'm wondering why your assessment is different from that of farmers.

• 1015

Mr. John Murphy: I think I handed out a thing that said how farmers stack up. I apologize that it uses U.S. data, but I couldn't find Canadian information that gives the same thing.

This handout answers that question exactly. If you look down to the operating expense ratio, this is a group of farmers in the top ten, the high 20% average and the low. If you look across to 1995, 1996 and 1997, the top 10% spent 61¢ for every dollar's worth of revenue. In 1998, they spent 64¢ for every dollar's of revenue. The low 20% spent 96¢ for every dollar of revenue. I'm 100% confident that if you did a similar survey of Saskatchewan grain farmers, you'd have the same kind of distribution for the level of efficiencies of one neighbour versus the other.

What it is is a three-bushel yield better because they did things differently. It's at a slightly lower cost because they negotiated differently, or did things differently. It's a 10% better price because they picked a market position that's different.

Then you go up to the debt coverage ratio. The top 10% can meet their debt commitments 2.74 times in 1998, but in the low 20% they are 33% in the hole. From reviewing the files, I know for a fact that this is exactly true for Saskatchewan grain farmers. Farmers in this successful category remain very quiet. They certainly wouldn't speak out against their neighbours' problems.

One statistic you might want to look at is deferred grain tickets. With deferred grain tickets, when a farmer is in a taxable position this year and doesn't want to receive the cash in 1999, he'll defer it into 2000. I haven't seen the stats yet, but I hear there is a very high amount of deferred grain tickets in Saskatchewan. At the same time, you have other—

Mr. Garry Breitkreuz: But that's because of the AIDA program.

Mr. John Murphy: I don't know. Even in the 1980s there was still a lot of use of the deferred grain ticket. You have this dichotomy of some farmers doing relatively well, and others underwater. That's why you get a conflict in point of view.

Mr. Garry Breitkreuz: Thank you.

The Chair: Thank you. We'll have to wait until later for Mr. Breitkreuz's remaining questions.

Mr. McGuire.

Mr. Joe McGuire (Egmont, Lib.): Thank you, Mr. Chairman.

I'm having a little difficulty balancing what we're hearing from our witnesses this morning, with what we've been hearing for the past number of months from premiers, politicians, farmers and farm groups. You certainly paint a very different picture from what we've been hearing. That's why you're here today. It's because of the picture that was painted going back to last November or December, when we developed the AIDA program to respond to the precipitous fall in commodity prices in grain and hogs.

I'm trying to figure the difference between this year and previous years. We're told there were 1,000 bankruptcies in Saskatchewan in a good year. We're told there are going to be 6,000 or 7,000 this year. Now, your figures certainly don't indicate that there are going to be 6,000 or 7,000 bankruptcies in Saskatchewan this year. What is different? Why are we hearing all these things from Saskatchewan, Manitoba, Peace River, and the Annapolis Valley? Some of them are weather-inflicted, and others are commodity-price-caused. What is the real difference between this year and what we've been experiencing in the last three or four years?

Mr. John Ryan: Perhaps I can start by responding from a Farm Credit perspective. First of all, I wouldn't want to try to underestimate at all. Those who have problems have real problems, except that the numbers that were presented here today on the arrears side are a lagging indicator. They don't give you the complete picture of how things are today.

On your question of one year versus the next, I think the difference in some part can be answered by the fact that in the first year that they're having a problem it's not nearly as severe as for someone who has had a problem for two and three years in a row, be it because of wet conditions or drought conditions. We have found that most of them are able to survive the first shock, the first downturn, but when they get hit the second year or the third year, they've utilized their cash reserves or have utilized to the greatest extent possible their ability to acquire additional debt, be it on a short-term or long-term basis. That's one of the things we're seeing in terms of the clients we're talking to.

• 1020

Mr. John Murphy: I'm aware of the debates and discussions. I don't know if I understand the answer to that. It comes through in the Angus Reid survey we did. In all of Canada, 41% of farmers surveyed were optimistic about the state of agriculture; 23% were pessimistic about it. In Saskatchewan, 24% were optimistic, and 45% were pessimistic. In Quebec, as a contrast, 63% were optimistic, and 8% were pessimistic.

So there is quite a different view by farmers from province to province as to the future viability of agriculture. I have no idea how to explain that variability.

Mr. Joe McGuire: We've seen CBC...most media are going out to Saskatchewan, talking to particular farmers, and reporting on what they're being told and what they see. Is that any different from what they could have seen last year or two years ago?

Mr. John Murphy: In every one of the 26 years of my career, we've had a number of farmers in serious financial difficulty. So I could have found somebody for the CBC to get a bad-news story from every year in the last 26 years. In some years it's easier to find them than in others. On the other hand, farmers who are successful are scared as hell of talking to anybody in the media.

Mr. Joe McGuire: Yes. It sounds like a lobster fisherman to me.

The other question is on a more global scale. At your conference of the American bankers... As for the number of farmers and farm families who have to rely on off-farm income to make ends meet, it seems as if it's a North American phenomenon. I've heard people from Pennsylvania at the farm safety conference saying half the farmers in Pennsylvania work off the farm—and they're sitting in the bosom of 100 million customers. We've heard stories from right across our country that farmers can't make it any more unless either their wife is working or they're both working.

How do you adjust to it? What is the future of the the family farm, or a relatively small farm—no matter what your interpretation is—if the people who work on the farms need income from someplace else?

Mr. John Murphy: Again, if I may share the statistics, 35% of our customers have no off-farm income whatsoever, while 21% receive 1% to 5% of their income off-farm, 15% receive 6% to 10%, 15% receive 11% to 30%, and 14% receive more than 31%. On average, 14% of farm income, on this survey, comes from off-farm income.

Part of it's by choice. There was a good article on TV this weekend about a women's network helping farm women find careers. It's the choice of many farm families to have a different career besides the farm. Others are for young farmers starting up—we have lots of those here too—and are a way to get the business kick-started. The vision is to have both partners and the children in the farm, but when you're starting up, that little bit of income off-farm is quite valuable.

I don't think that's changed much. Back in Lindsay, in 1944 when I was born, my mother was a nurse, and she worked part-time as a nurse through most of my dad's career as a farmer.

Mr. Joe McGuire: Thank you.

Mr. John Murphy: It was a choice.

The Chair: We'll go to Mrs. Ur, and then Mr. Casson.

Mr. Murphy, you were mentioning that a third of the farmers would never qualify according to the Royal Bank's loan criteria. Can you just tell us if you have any idea how many you actually refuse, if you can give me that number? You seem to be suggesting, apart from this number, that some of them may be going elsewhere to, say, a credit card company—which might be your bank—or farm suppliers for some credit assistance. Do you know whether some of the farmers who might be refused by your bank are going to, say, farm suppliers, then getting into trouble with the farm suppliers, and then you have problems or get complaints from the farm suppliers?

Mr. John Murphy: We don't keep statistics on turndowns, so I don't know how to answer that question. I don't have a number. I know that credit from farm suppliers has increased substantially. It would be my conjecture that there will be considerable situations where those loans will be non-repayable. I know supply companies are coming to us now wanting priority agreements if they are going to finance some of our customers—which is a debate—much like the cash advance for crops program, where we do provide priority agreements.

• 1025

I speak quite a bit to farm supply groups, and what I offered them is that all we can do is treat our customers fairly, and if they ever find anyone who is not treating them fairly, they can call me and I will visit that farmer personally. Last year I spoke to about 300 different farm supply companies across Canada and made that offer, and I've had one request. It was a situation where the fellow was in trouble. The bank's assessment was right. He needed to make some business adjustments rather than borrow more money.

The Chair: I see.

Mrs. Ur and then Mr. Casson.

Mrs. Rose-Marie Ur (Lambton—Kent—Middlesex, Lib.): Thank you.

I appreciate your presentations this morning. They were both very good and certainly gave us another viewpoint with which to look at the trying times we're experiencing.

Mr. Ryan, how many of your cases are mediation versus consultation at the present time? Has that changed over the crisis period? How can our good Canadian farmers ever hope to compete with the treasuries of Europe and the United States? If there's a crisis or if there's a downturn, well, they're there with the cheque.

I had a speaker up in my riding a couple of weeks ago who said that some people are going to their mailboxes and quickly putting it in their pockets because they're rather embarrassed to receive the cheques. We can't afford to do that here in Canada.

So how many are mediation versus consultation at the present time?

Mr. John Ryan: I guess what I can do is give you an appreciation of actual accounts that have moved to some form of liquidation or on which legal action has been taken. If I look at it year over year, there has really been no increase. We have something like 200 cases across the country that have moved into legal action, and that would be very similar to what we had last year. I don't remember the exact number, but we haven't seen a major spike forward.

In regard to your question on how we compete, I'm sorry, I don't have an answer to that in terms of the subsidies that are going on in the EU and the United States.

Mrs. Rose-Marie Ur: In your opinion, Mr. Murphy, or Mr. Ryan, in regard to the size of farms that are experiencing difficulties, are farm size or the age of the farmer factors? Do you see any correlation there?

Mr. John Murphy: No, I wouldn't say so. The overall managerial ability is a factor, and to some extent, age—lack of experience—does come into play. We have such a small number. I don't know how many we have in litigation right now, but it wouldn't be more than a handful. But in the long term, over the years, the number of farmers in financial difficulty we've dealt with ranges all over the map. It was never commodity specific. I wouldn't say it's age specific either. It's more the types of managerial systems deployed by these farmers, and in some instances, in the eighties in particular, some of the saddest cases were when the parents went into debt to get the kids into the business, then got hit by 20% interest rates, drought, and low commodity prices. Those were the tough ones.

In those situations, the farmers didn't do anything wrong. They just made the wrong decision at the wrong time.

Mrs. Rose-Marie Ur: Right. What percentage of your total banking is agriculture?

Mr. John Murphy: If you include agriculture and agribusiness, agriculture is about a third of the business loans, but the Royal Bank's total assets are approximately $280 billion, and $4.5 billion of that is loans to farmers. So if you look specifically at loans to farmers to the size of the Royal Bank, it's relatively small, but it has always been a very important part of our history.

Mrs. Rose-Marie Ur: Has that been growing?

Mr. John Murphy: Yes.

Mrs. Rose-Marie Ur: You gave percentage points for optimism versus the lack of it in the provinces. Does that not also equate to diversity within a province? If you look at Saskatchewan, much of the farming is in the grain sector. If you look at Quebec and Ontario, there's certainly much more diversity there, and the optimism for farming is certainly a lot rosier than it is out west.

• 1030

Mr. John Murphy: That's a valid assumption. It would be interesting to do the cross-tabs on these statistics to see if that's the case.

Having lived in Saskatchewan and in Manitoba over the last 19 years, I know there's better media coverage in the prairies than there is in Ontario and Quebec. By better, I mean there's lots of it. There's a lot of media interest in agriculture. In Ontario agriculture is a small fish compared to the overall Ontario economy. That may be the same thing in Quebec. But when I lived in Regina, you go and have a haircut, and the barber wants to talk about what the price of wheat is doing to farmers. Do that in Toronto and they think you're from the moon or something.

It's a general public interest issue that focuses on agriculture more in the prairies than it does in other parts of Canada.

Mrs. Rose-Marie Ur: How can we assist those farmers you were saying come to you and no longer can get a bank loan, for whatever reason? I know you don't track them once you're unable to help them. What would your suggestion be? How could we address their concerns? Are they the ones who really need the AIDA then? Are they more so than—

Mr. John Murphy: They don't need AIDA. They're sitting on relatively high net worths and have no cash, and they're in their late fifties and sixties.

There was an attempt a few years ago... I forget what they called the program, but it was an assistance program to help farmers move off the farm.

A voice: Transition.

Mr. John Murphy: Yes, the rural transition program. That didn't get picked up on, but we need something like that, that would be of appeal to those farmers, to help them make that decision and do it gracefully, and we need to have a high degree of respect for the individuals. Let them retain their dignity, let them retain their equity, and let them move on to something else.

There has to be a way we can figure out to help those people in that respect. Lending them more money and getting them into deeper trouble is not what we should do.

Mrs. Rose-Marie Ur: Thank you.

The Chair: Thank you.

I think Mr. Ryan wanted to add something to that.

Mr. John Ryan: I'll piggyback a bit. On one of the surveys we've done in the last two years, we asked what the number one issue was facing farmers, and it was the intergenerational transfer of the family farm. How do they get their equity out before they move on and pass it on to their family or to somebody else?

One of the things we did in response to that was develop a specific program called the family farm loan, which has actually had a considerable take-up or pick-up in terms of people wanting to be able to move the farming operation to the next generation.

The Chair: Thank you.

Mr. Casson.

Mr. Rick Casson (Lethbridge, Ref.): Thank you, Mr. Chairman.

Thank you, gentlemen, for your presentations.

Mr. Leitao, you indicated that you feel this global situation we're in, with high production and low price, could go on for at least another six to 12 months. Canada, to position itself in the global economy, with the size of the country we have... We've talked about our inability to compete with the Americans and the European Union in subsidies. What's going to change that situation if the subsidy issue does not change? If these producers continue to be subsidized by these countries, production will stay high.

Mr. Carlos Leitao: You're right, if the subsidies don't change, then the situation will be very serious. However, I think the subsidy situation is going to change. It has to change. In fact the start of the next round of world trade talks, the Seattle Round, is exactly the right occasion to start the ball rolling on a new set of rules regarding international trade.

Canada does have some clout through the Cairns Group in trying to force the U.S. and Europe to come to some understanding. Both the U.S. and Europe want other concessions on other issues out of this round of trade talks. So I don't think we are totally disarmed or totally hopeless. The situation is not hopeless. There is hope.

As I alluded to earlier, within the European Union too, the situation is not the same as it was in the 1980s regarding support for agriculture. The budget of the European Union... There are 15 members of the European Union now, with eastern Europe knocking on the door to join in, so they can no longer waste the amount of money they did 10 years ago on agriculture.

So I think the elements of some sort of deal are in place.

• 1035

Mr. Rick Casson: Yes. Hopefully, they'll seize the opportunity and use the next round as their excuse to reduce subsidies, as we did in the last round.

To both Mr. Ryan and Mr. Murphy, are you hearing from your clients that the increase in input costs is a huge problem? Some of these graphs indicate that. And in the grain sectors on the prairies, what about marketing choices? These young people or these farmers that are getting connected—more and more are using computers and different methods for tracking and as accounting tools. Do you hear about those issues?

Mr. John Ryan: Certainly from our perspective we hear a lot about the input costs. What they're really saying is they've got lower prices coming down, input costs going up, and their margins are getting thinner and thinner. In fact, recently, in talking to some of our people, the credit advisers in the local offices are saying they now need a bumper crop in order just to break even, and you can't expect a bumper crop day in and day out.

Mr. Rick Casson: Year after year.

Mr. John Murphy: On a similar note, it's interesting to note in reading Agri-Week, a western Canadian agriculture newsletter, that according to them fall sales of fertilizers and chemicals were very strong on the prairies this year, notwithstanding the increase in prices.

Mr. Rick Casson: Well, you need it to get that bumper crop.

I would like to ask both of you about a long-term safety net program. What should it look like? How should it be structured? I'd like your comments on that. That's what we're doing here. We're trying to establish a way to make something like AIDA work better. You've commented on NISA and urban education. The barber in Toronto doesn't want to hear that the farmers are asking for money. If we had a system in place that just kicked in and took over and we didn't have to be going through this bailout situation time and time again, it would play well for everybody. Get it in place during the good times, as NISA was. So how should it be done?

Mr. John Murphy: I think what we're hearing is that for the viable family farm, NISA and AIDA are working. But for these smaller farms, the world is going to pass them by. They haven't changed. They've relatively small gross sales. For anything tied to gross margins, the gross margins in good years are so small that AIDA or NISA are not a solution. I view AIDA and NISA as economic applications to the cycles of agriculture, but the people who are having the difficulty have a more profound difficulty in the socio-economic structure of their farm business.

Obviously AIDA and NISA aren't perfect, but I think to enhance those programs, learning from the experiences we're going through right now, is the way to go, as opposed to... I think you're as close to having it right as we've been in a long time. And it should preclude the need for ad hoc payments, but we need to look closely at those situations that it's not working for, and whether there are non-economic factors affecting those farms that need to be treated in a non-agriculture economic way.

Mr. Rick Casson: Is that then part of the scenario where you analyse it and you say there are 20% of the farmers here that we cannot help, through AIDA, through NISA, through banking, through whatever? Are you suggesting a transition program of some kind?

Mr. John Murphy: I believe so. The question was raised about interest forgiveness. We've done that a few times, but it makes our good customers pretty upset if they've done everything right and gone through the same cycles as their neighbour, and they've paid us back in full, yet we forgive some loans to the neighbour who maybe made some mistakes. I view farming as a free enterprise entity. It provides the opportunity for everybody to profit. It also provides everybody the opportunity to lose, and we're never going to have a circumstance where everybody wins all of the time. There will always be some losers, and I don't know if it's fair to those who succeed to reward those who didn't to the same extent as those that were successful.

Mr. Rick Casson: I guess if you're being run out of business due to circumstances beyond your control, that's the aspect we have to look at.

The Chair: Mr. Ryan.

Mr. John Ryan: In terms of both the NISA and AIDA programs, we've heard consistently on the NISA program that it's been a good program, that it's been well received. We've heard positive comments on AIDA; we've heard not-so-positive comments on AIDA. There have been some changes made in AIDA that have been more positively received.

• 1040

I understand there's lots of consultation going on and I would encourage that consultation to continue and, following the consultation, decisions to be made as to whether or not further changes are made.

The Chair: Thank you.

Mr. McCormick, and then Mr. Breitkreuz.

Mr. Larry McCormick: Thank you very much, Mr. Chair.

I am just wondering about the crisis in the prairies especially. We mentioned, and we heard mentioned, the communities. Of course the communities are affected. This is always a concern. We want to see rural Canada remain. We don't want to see too many more ghost towns in this country. We have some of them in Manitoba now, and elsewhere in the provinces.

Outside of your jurisdiction, and perhaps in, I'd like your comments on what you feel is happening in these small towns with small businesses and medium businesses. This wouldn't show up on this graph, as far as your customers go.

I often think about Yorkton, Saskatchewan. I believe it's in Mr. Breitkreuz's riding. There's an air seed company. It's been in the news; it's public information. A year ago or so they had 1,600 employees; today they have very few, I expect. I have not been to Yorkton recently.

Whether it's that or whether it's the car dealers, the pick-up dealers, what do you feel is happening there? Again, whether we have to find programs for this 20% or 30%, I'm sure there's quite an impact on the communities. Mr. Murphy? Mr. Ryan?

Mr. John Ryan: One of the comments I would make is that it's hard to generalize. We find some very small communities in rural Canada that are doing quite nicely. They're very independent, entrepreneurial. They have found ways to set up business and expand those individual businesses. I think there's some opportunity in the agricultural sector for us to be looking more on the value-added side, at what more can be done. It doesn't necessarily mean it has to be just large enterprises; they can start small and they can expand over a period of years. There are some very clear challenges, though, in rural Canada, and I think the challenge before us is how do you develop programs that will help encourage expansion and development in those local areas?

Mr. John Murphy: It's a North American phenomenon. There are a lot of small communities throughout Canada, and indeed the United States, that are at real threat of extinction, as farms consolidate—they've been consolidating for 50 years and they continue to do so. These farmers that I talked about, when they decide to sell the farm or downsize, are going to rent or sell their land to a neighbour, to people in the community. Also, I get concerned even in the Winnipeg area. I get farmers complaining about there not being any grocery store in their community, but on a Sunday afternoon Costco is full of pick-up trucks in rural Canada.

The other issue that's going to be a new threat to small communities is the Internet commerce. Our customers now can deposit money with mbanx without ever going into Yorkton, or they can have a line of credit with Wells Fargo Bank without even going into Yorkton. And more and more agricultural supply companies are looking for ways to have direct sales of fuel, fertilizer, seed, and agricultural chemicals to farmers over the Internet. So the threat to small communities is growing.

Mr. Larry McCormick: I'm just wondering about this also, for another time. The farms are amalgamated and large operators buy out the others, but the threat of the multinationals in the processing, I think, comes right back to our producers. This threat is certainly there today. It's probably a major factor in the pork industry. I don't think the marketplace is any place for the government to get involved, but that did not help the crisis, when the prices didn't end up in the supermarket...

Mr. John Murphy: Yes. The industrialization of agriculture is a threat and an opportunity. More and more it's the genetic line and nutrition and the processing and the farmer all tied into an agrifood chain linkage. As an example of what can go wrong, the viability of my farm customer depends a lot on his contract with the packer and with the feed supplier. For instance, just recently Ralston Purina went into receivership in the United States. That breaks the link in a whole lot of those food chains. So what does that do to the viability of farmers who are tied into those links?

We need to learn a whole lot more about contract law and how that will all work with our customers. It's the way it's going, but I think we need to find a way to help our customers manage their relationships in those today.

• 1045

The Chair: Thank you.

I want to go to Mr. Breitkreuz, and we have two short questions from Mr. McGuire and Mr. Calder. I want to leave us about three or four minutes before the hour. We have a couple of very short housekeeping matters to deal with.

Garry.

Mr. Garry Breitkreuz: Thank you, Mr. Chairman.

What are some of the other solutions to the farm crisis besides AIDA and NISA, in your estimation? You must have given this some thought as you've dealt with farmers, and so on. Are government support programs the only way to go? What other solutions besides AIDA and NISA do you see?

Mr. John Murphy: One of the real cruxes is that group of farmers that wants to transfer the farms to the next generation or find a graceful way to exit farming. We're trying a process we call Buy a Farm, where we've made arrangements with local accountants and local lawyers and local financial planners to provide a farm family with a free consultation for an afternoon to start the process of thinking about the issues we need to deal with. That's something we've just started. We started in Mr. Borotsik's area last spring, but because of the floods down there, nothing happened.

In each province in Canada, we have two or three pilot tests, and hopefully we can learn from that. I have a enough of a time trying to be a banker, let alone thinking of being a politician solving these problems, but it has always seemed to me that there's a bit of a disparity between large successful farmers and small beginning farmers. The large successful farmer has a 50% tax rate, therefore his after-tax interest is 50% of what we charge him. If you're a beginning farmer and have almost a break-even situation, on the interest you pay you don't get the same tax advantage as a larger farmer does. I don't know if something could be done about that as an assistance to beginning farmers.

The issue you have to home in on is how to get these top bright young farmers to be successful. There are still lots of them starting out. Farmers are not becoming extinct. Lots of new farmers are entering the business. At the other end of the spectrum, how do we, with the maximum circumspect, assist farmers who have ended their career into something different, a graceful retirement or a part-time arrangement? I think those are the two areas we need to work on.

Mr. Garry Breitkreuz: I thought maybe you had missed my question when you talked about transferring the farm to the next generation, because the crisis really centres on the fact that the margins are so small. The tax thing is something we have pointed out, and I'm glad you mentioned that.

You talked about younger farmers getting started. I think one of the inaccurate statistics you've quoted is in regard to bankruptcy, that bankruptcies are really not much higher than normal. If you have fewer and fewer farmers out there, there will be fewer to go bankrupt, so the percentage is probably going to be higher. I think a fairer indication would be how many young farmers are actually starting up. Do you have any statistics in that regard?

Mr. John Murphy: Yes, I do, but first of all, bankruptcies never were a reasonable assessment of economics on the farm.

Mr. Garry Breitkreuz: No.

Mr. John Murphy: Very few of the farmers we wound down went into a bankruptcy position. That is a fairly rare thing.

Somewhere in here I have the breakdown of beginning farmers.

Mr. Garry Breitkreuz: Do you have it by province?

Mr. John Murphy: Yes.

Even this doesn't tell the whole story, because in many cases when a farmer is just getting started, he's part of a successful family farm and he's working on the shirt-tails of mom and dad.

In Canada, 3% of our farmers said they were just getting started, 51% were established and expanding, 36% were stable, and 9% were scaling down.

Provincially, 1% were just getting started in British Columbia; 2% on the prairies in total, 3% in Alberta, 2% in Saskatchewan, 1% in Manitoba; 5% in Ontario; and 1% in Quebec. If you compound the 3%, 3% is enough to turn over the farms in the next 10 years.

Mr. Garry Breitkreuz: But on the prairies it's not, because on the prairies it's much more lower than that.

Mr. John Murphy: This varies from year to year too. But for established and expanding farmers, on the prairies it's 48% versus 51% nationally. So there are about the same number of farmers in a developing growth stage on the prairies as there are nationally.

• 1050

The Chair: You have thirty seconds to go, Garry.

Mr. Garry Breitkreuz: Well, I have a comment here.

I'm concerned when you say prices are going to turn around in six to twelve months, because back in the eighties banks were predicting a rosy future and they actually contributed to the problem. We have other experts saying it's going to be fifteen or twenty years before things turn around. You make everybody feel comfortable and they maybe get into using your services a lot more. I think it's going to contribute to the problem by giving them such an indication. I just raise that flag.

Mr. Carlos Leitao: I was just saying it the other way around. We don't expect prices to recover in the next six to twelve months. They might afterwards if subsidies stop, if volumes of production start to decline. If nothing changes, then of course prices won't recover.

The Chair: We have time for a couple of shorties.

By the way, Mr. Murphy, are you in a position to share with the committee those stats that you have in front of you?

Mr. John Murphy: Some of this information is proprietary, but I'll select the types of things I've shared with you and send them to your committee.

The Chair: Would you do that with the non-proprietary information?

Mr. John Murphy: If you'd like, yes.

The Chair: Thank you.

Mr. McGuire.

Mr. Joe McGuire: Thank you, Mr. Chairman.

I was wondering if the witnesses would comment on the American way of doing their safety nets versus the way Canada does ours. At their recent meeting, Mr. Murphy, the American bankers were holding up the NISA as a better way of doing things. Overall, though, with our crop insurance and NISA and AIDA versus the ad hoc types of payments that the Americans use, which is preferable and why?

The Chair: Can you make it very short, Mr. Murphy? We're running out of time.

Mr. John Murphy: Given the way they're doing it in the United States, the extent to which they have unsolved problems is every bit as great as here, and they're spending a lot more money on it proportionate to the size of the industry.

Mr. Joe McGuire: So their farmers are just as badly off as ours.

Mr. John Murphy: I would agree. The ones who are well off are getting bigger cheques than our farmers who are well off. That's the difference. The ones who are not in good shape are getting some money from the government, but it's not enough to solve the problem.

The Chair: Murray.

Mr. Murray Calder: John, I'd like to go back to what the chairman just asked too. You have in place tracking on already established loans right now in Saskatchewan, and we're seeing that an average of 29 of those a year are starting to become impaired. You've also said that those who are being turned down at the bank are obviously going to the suppliers because they don't have to go through the same credit litmus test, and that you're beginning to experience problems with your suppliers. How badly is that problem increasing with the suppliers? Obviously it's the other side of the story.

Mr. John Murphy: I don't know. I have anecdotal evidence from suppliers that they have farmers in difficulty, but I don't have the availability of stats on that.

The Chair: Yes, Mr. Ryan.

Mr. John Ryan: To just quickly respond, Mr. Chairman, the response from some of the suppliers we've talked to suggests that there's an increase in the debt, but a lot of them are making their payments at the same time, when they are scheduled to be made. They're therefore not pushing the panic button at this point in time.

The Chair: I would just ask the witnesses to sit tight, because we have a couple of housekeeping items that I think can be done in just a matter of seconds. At least, that's my hope.

Members, I bring to your attention the motion—I believe it's in front of you—that's required to be passed to cover the cost of these meetings. It provides for up to $60,000. I don't think we would ever spend that amount, but I think it's best if we leave ourselves that kind of space.

Mr. Garry Breitkreuz: I'd really like to ask a question on this. Without a list of witnesses, how do we know this is money well spent? I'm really concerned that we get a really good cross-section of representation from farmers on the prairies. To me, in light of what we've heard, we need to really have a close... And that's not here, so we're being asked to approve a pig in a poke here.

Mr. Larry McCormick: Does Reform want to spend more money to bring in more people? Should we?

Mr. Garry Breitkreuz: No, I want to make sure this money is spent to accurately reflect the crisis out there. I've been on this committee for a number of years. Very often we don't get a really good picture, and that's a disservice to ourselves.

Mr. Larry McCormick: I'm sure we'll have an opportunity to work on the list.

Mr. Garry Breitkreuz: Well, I don't think we'll—

Mr. Larry McCormick: We get that all the time.

• 1055

The Chair: Mr. Breitkreuz, I think the matter you raise is a good one, but I don't think it really pertains to the expense itself. We need permission to pay the expenses of the witnesses coming in. If you want a discussion about the kinds of witnesses, I think that's fine. But this particular motion doesn't address the kinds of witnesses that you perhaps raise in your question.

Mr. Garry Breitkreuz: Maybe I've missed something here. Correct me, because I could be out to lunch. Are we going to go out as well to talk to the people where they are?

The Chair: No, I think that was decided at the last meeting. There was a motion by Mr. Borotsik to that effect, but he withdrew it. We passed the motion moved by Mr. Calder. By the way, Mr. Breitkreuz, your party supported the motion.

Mr. Garry Breitkreuz: Mr. Borotsik's motion?

The Chair: No, it was withdrawn, as was yours. It was Mr. Calder's motion that was passed, and it was unanimously passed.

Could I have a motion in support of this motion?

Mr. Larry McCormick: I so move.

Mr. Murray Calder: I'll second it.

(Motion agreed to—See Minutes of Proceedings)

The Chair: There's just one more thing. You might recall that late last May or early last June, the committee passed a motion in support of our going to Europe. That was supported by the Board of Internal Economy. Because of prorogation, however, that authority lapsed, so we have to restore that authority. We haven't picked a date yet, but I assume it will be February or something like that. The authority would be restored exactly as it was, with eight members—four from the government and four from the opposition. You're familiar with the breakdown because it was passed in June, so all we need to do is simply restore this. I'm just wondering whether somebody would move a motion to that effect.

Mr. Larry McCormick: I so move.

Mr. Ian Murray (Lanark—Carleton, Lib.): I'll second that.

The Chair: Mr. Casson.

Mr. Rick Casson: Mr. Chairman, are we supposed to get a 24-hour notice of motion on this?

An hon. member: It's 48 hours.

The Chair: Do we need it for this kind of motion, Mr. Clerk?

The Clerk of the Committee: Not if it is the same thing.

The Chair: If we simply agree to it, there's no need for it. All we're doing is simply restoring what was already done.

Mr. Rick Casson: Yes, but there are new committee members here, myself being one. I wonder if we could just get the same documentation, and then we can bring it back.

The Chair: Well, your party has already supported it, Mr. Casson.

Mr. Rick Casson: Yes, I know.

The Chair: And not only your party, but—

Mr. Rick Casson: Let's have another look at. Does it have to be done right now? Why can't we wait until next week?

The Chair: Well, it's such a simple procedure. We're doing exactly what we've already agreed to, that's all.

An hon. member: It's for the WTO.

The Chair: As you know, it has to do with talking to some of our counterparts over there about this issue of subsidies, which all of us are so concerned about.

Mr. Rick Casson: Do you know what the dollar figure was to do this?

The Chair: Yes, exactly. It was $70,000 for the trip, and it was totally supported by all of us and by the Board of Internal Economy.

(Motion agreed to—See Minutes of Proceedings)

The Chair: I would like to say thanks to the witnesses. You did a very good job. I appreciate those numbers that you have given us, Mr. Murphy, and I look forward to the others.

Mr. John Murphy: Do you want me to send the copy to you?

The Chair: Yes, please.

Thank you, Mr. Ryan. Thanks to all of you.

This meeting is over.