[Recorded by Electronic Apparatus]
Thursday, September 26, 1996
.0906 
[English]
The Chairman: Good morning, everyone. Welcome to the first committee meeting of this session. We welcome to the committee this morning the parliamentary secretary to the minister, Mr. Pickard, and officials from Agriculture and Agri-Food Canada as our first presenters.
The issue before us today is Bill C-34, the Agricultural Marketing Programs Act. I believe Mr. Pickard has some opening comments, so over to you, Mr. Pickard, for those comments and an explanation of the bill.
Mr. Jerry Pickard (Parliamentary Secretary to the Minister of Agriculture and Agri-Food): Thank you very much, Mr. Chairman.
Mr. Chairman and members of the committee, I would like to introduce some of our departmental officials who have come to help us with consultations with the bill this morning. With me are Phil Jensen, the director general; Dave Cuthbertson, manager from the national marketing programs directorate; Bruce Riddell, manager of the legislated marketing programs division; and Diane Fillmore, legal counsel. We always have to have some legal counsel with us as well. They are going to happily answer any questions that you have this morning, and will fill you in on some of the amendments that are coming forward as well.
This morning we are dealing with the Agricultural Marketing Programs Act. This act is basically a compilation or putting together of four existing acts in one program: the Advance Payments for Crops Act, the Prairie Grain Advance Payments Act, the Agricultural Products Cooperative Marketing Act, and the Cash Flow Enhancement Program.
The act will provide several different advantages over what was there before: the reinstatement of interest-free cash advances, a common legislative base for agricultural marketing programs, the reduction of current crop and regional inequities, the reduction of the inconsistencies in program administration, and also the reduction of overall program costs.
The act will benefit producers in several different ways by providing easier access for producers to the financial marketing programs, by allowing all producers to obtain cash advances under similar administrative requirements, by reducing defaults by better screening before issuing advances, and by improving controls and improving collection of default advances. It will also streamline the approval process for the price pooling program, and do it in a more timely delivery system. It will also allow for the maintenance of our ability to address the usual market conditions.
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There have been extensive consultations on this bill with the industry and with the provinces, in three separate rounds of consultations with the stakeholders - I guess over 80 different groups within the industry. Actually, the department dealt with over 160 separate organizations. They viewed all the provincial concerns as well, and I have come back with the feeling that throughout the industry - and throughout the country in general - it is a very positive step in bringing together these programs.
The first round of consultations was held in the spring of 1995 in order to obtain the views of producers on the direction for change. That was followed by a consultation process in the winter in order to review the recommendations for change for producers, and organizations were all generally supportive, as I mentioned.
The third round of consultations, in the summer of this year, was undertaken to obtain views about the 70% advance rate as proposed, the alternative...to the spring advances, as well as the proposals for regulations. Producers rejected the proposal of a 70% advance rate and suggested minor changes to regulations, which have been incorporated where possible.
The impact of the costs of the program will be very positive. There will be no increase in program costs for interest costs from current levels, which must average no more then $40 million annually over the next three years. Changes to default administration and control under the advance payments program should allow for this cost to be significantly reduced from the current levels of $64 million in the 1993-94 crop year to under $25 million in this present year.
The act will be implemented for the 1997-98 crop year. This will allow sufficient time for producers to become familiar with the changes and will allow the organizations that must administer the programs to develop the necessary systems and procedures to deal with the new bill.
At this point, I might ask Phil Jensen to review with you some of the amendments that are being proposed at this point in time. Phil.
Mr. Phil Jensen (Acting Director General, National Marketing Program, Department of Agriculture and Agri-Food): Thank you, Mr. Pickard.
I believe you have had circulated to you the proposed amendments that we're making. There are essentially five of them. I'd like to go through them in the order they are presented to you in the document you received.
The first amendment is to clarify that the security in this particular section can be shared with other lenders to secure repayment of the advance. The purpose of this is to ensure a smooth transition between other programs of this nature. They may even be of a provincial government nature.
Mr. Hermanson (Kindersley - Lloydminster): I'm sorry to interrupt, but I'm trying to find where these amendments are in my package.
Mr. Jensen: It's Bill C-34, clause 10.
The Chairman: They were just handed out by the clerk a few minutes ago. Do you have a copy of this?
Mr. Hermanson: I've found it. Thank you.
The Chairman: It's in your package. They were just handed out to your desks this morning. If you don't have them, just take a look and we'll go ahead with those. Does everyone have a copy? Fine.
Mr. Jensen: So that's the first page that I'm talking about now.
As I was saying, in as plain English as I can, the purpose of this amendment is to permit a smooth transition between some programs that are of a similar nature and the programs contained in this bill. This has particularly been an issue in the province of Ontario, where the Agricultural Commodity Corporation is running an operating advance program in the spring. Producers have used this and wanted to see if there could be some way by which we could ensure a transition between that program and our federal program running in the fall as a harvest advance. This amendment will permit us to do this under certain conditions prescribed in the agreement to ensure fiscal responsibility, to ensure administrative control, and things like that. So that's the purpose of the first amendment.
The second amendment, which is on page 2, is at the request of the Canadian Wheat Board. The Canadian Wheat Board has asked that we put in an amendment that gives them the authority to require elevator managers to endorse permit books. This is the mechanism by which advances are repaid as producers deliver grain in the west. The Wheat Board has asked that this be in legislation, so that is the second amendment.
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The third amendment is aimed at clarification. I guess I would characterize the drafting in the original legislation as unclear. This therefore clarifies that the total amount a producer can receive during the crop year is a maximum of $250,000, or a lesser amount designated by the minister. The current wording allows receiving up to $250,000 from each administrator, so it's not as clear as it should have been in the original draft.
The fourth amendment, which is on page 4, is to clarify that the interest that the minister must pay under the guarantee - this is, if you will, the subsidy the producer eventually receives - is only to reduce the administrative interest costs that they have incurred, and not the interest rate that a defaulted producer must pay. It's a technical clarification, and again it's there for our agreements with our delivery agents.
The fifth amendment, on pages 5 and 6, is essentially one amendment that applies to two current existing acts. This amendment aims to ensure that producers who are under default under the current programs - Mr. Pickard mentioned the $64 million under the PGAPA program, the Prairie Grain Advance Payments Act - if they have not paid back their loan, would also be under default under AMPA. In other words, we could go after them. But because there are two acts currently and we're putting them together into one in advance payments, the amendment is essentially split into two to cover the two acts.
So those are the five amendments, Mr. Chairman, that we are proposing.
I should add just for information, too, that within 24 to 48 hours we expect to have our draft proposed regulations that have been prepared. We could also deposit those with the committee for your review.
The Chairman: Mr. Pickard, do you have any other comments?
Mr. Pickard: That's fine, Mr. Chairman. I think we would just open up to questions from the committee at this point.
The Chairman: Okay.
Mr. Hermanson.
Mr. Hermanson: Thank you, Mr. Chairman, and good morning, gentlemen. I have just a couple of questions to kick things off.
First of all, I have a general one. This is probably one for Mr. Pickard, because it is more of a political question. There has always been a debate.... The Conservatives considered, or actually implemented, interest on the cash advances. This would guarantee that the cash advances were interest-free. What is the rationale for having the interest rate advances over, say, taking the benefit of that - which is several millions of dollars - and putting them into safety net programs, such as increasing crop insurance by that amount or even more, for instance, rather than the interest-free...? I want to know why we're going down this road versus that road.
Also, are there any implications in doing this with our trading agreements, particularly NAFTA and GATT? Are we going to have to ratchet this down? Are we going to get into trouble somewhere down the road because we've locked this in as an interest-free benefit to producers?
Mr. Pickard: Okay, I think this is the first issue. When we first harvest a crop, if we allow the total sale of that crop on the market at that point in time, there are particular cases where people are cash-strapped and don't have any protection about selling the crop two months, three months, five months, or eight months in the future.
Mr. Hermanson: I understand that.
Mr. Pickard: They're really under a tremendous amount of pressure. The interest-free side of this really allows the farmer to look at not trying to dump things at an early time - and this is in products right across Canada. It probably would be more applicable when we start looking at horticultural crops, in particular, where people will get rid of their crops or consignments in a short time and lower the market price extremely at one time.
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Mr. Hermanson: I'm not saying you shouldn't have cash advances. I'm just asking what the rationale of having the interest-free cash advances is -
Mr. Pickard: Interest-free -
Mr. Hermanson: Crop insurance -
Mr. Pickard: Interest-free in this case allows them to distribute the sale over a period of time, and that's the whole point of giving them an interest-free advance. If we try to deal with the issue and look at it from a farming perspective, if you're tight for money.... In many of our businesses there is a great deal of difficulty in not selling the crops to pay off the bank knocking at the door. In this case, the farmer is at least allowed a period of time over which he can share that sale. That's really the important part.
Your second question...?
Mr. Hermanson: GATT, NAFTA, is -
Mr. Pickard: I believe these programs will be GATT and NAFTA green. I see no problems.
Mr. Hermanson: Some of our agriculture sectors are fairly regulated and also fairly dependent on effective transportation. As a prairie grain farmer, I know there are a lot of times when we expect to move an entire year's crop before the end of the crop year period when the advance has to be paid back, or else we're in default. Sometimes there are things like rail strikes or labour disputes at the west coast or there aren't the sales to move the product in the air. With higher penalties for default now, is there any mechanism in this bill that would consider circumstances beyond the producer's control? And what are they?
Mr. Pickard: Do you want to handle that?
Mr. Jensen: Yes. The answer, Mr. Hermanson, is yes. There's a stay of default provision or section for exactly that type of thing. The defaults were getting out of hand, particularly under one program over the last few years, but that was simply because producers were not paying the advance back. We have provisions to take care of events beyond their control.
Mr. Hermanson: How do they work?
Mr. Jensen: Simply, the program administrator would advise us of whatever event was beyond their control. We would discuss it with them, review the situation, and then recommend to the minister that a stay of default be put in place that would allow the loan to continue.
Let me give a specific example. Let's say the Wheat Board did not have delivery opportunities for one reason or another. We could look at that and say it isn't the producer's fault because he can't deliver the grain. We'll issue a stay of default until the delivery opportunities occur - let's say three months later or whatever - and at that time the producer would have to repay his loan. That's essentially how it operates.
Mr. Hermanson: Are the producers assured they'll have forewarning as to when they will go into default when there's a stay of -
Mr. Jensen: Yes. We have notification procedures. We have several series of letters and telephone calls. There are a lot of warnings given to the producer.
Mr. Hermanson: And that's in the act?
Mr. Jensen: Yes. Regulations.... And some of it is put into our administrative agreement. We have three levels here. The act is going through Parliament. The regulations will put certain things in place. Then we have our administrative procedures and agreements with the producer organizations, which give a little finer level of control on certain issues.
The Chairman: I just want a clarification, Mr. Jensen. Mr. Hermanson asked if those things were in the act, and you said they were in the regulations. I just don't want where the stay is left uncertain. Will that be in the regulations or in the act, or does the act specifically address that possibility, with the specifics in the regulations?
Mr. Bruce Riddell (Manager of Legislation, Department of Agriculture and Agri-Food): The authority to enter into stays of default is in the legislation itself, in subclause 21(2).
The Chairman: And the logistics of how it will happen will be in the regulations?
Mr. Riddell: No. They'll be in the agreement that the minister signs with the individual producer organization...the necessary flexibility to work on it.
The Chairman: Okay. Just so we're clear.
Mr. Hermanson: And is there any appeal process if there's a dispute? I'm not sure how it might happen, but suppose the Department of Agriculture and Agri-food says there's really no reason for default and yet a number of producers say there were circumstances beyond their control. Is there any mediator or appeal process here or is it just that the minister or the department says so and it shall be so?
Mr. Jensen: There's no formal mediation procedure for this type of program. That would be considered too costly to implement. We have only about ten or fifteen staff members running this whole series of programs across the country because we deliver them through producer organizations. The minister makes the ultimate decision on these types of things and our experience has been that there are a lot of opportunities to feed in those types of concerns. We usually err on the side of caution if it is unusual circumstances.
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Mr. Hermanson: Thank you, Mr. Chairman.
The Chairman: Mrs. Cowling.
Mrs. Cowling (Dauphin - Swan River): Thank you, Mr. Chairman. My question is with respect to overlap and duplication. Is one of the purposes of the bill to move away from the overlap and duplication present with a number of pieces of legislation we have in place?
Mr. Pickard: It certainly would remove any overlap and duplication. More important, we had two acts that were developed at different times in history. Those two acts gave advance payments on different bases and on different criteria and were viewed to be unfair. This bill will bring all four acts together, making everything consistent and fair. The rules and regulations will be consistent across the country, which I think will enhance it.
Second, we had a program in place in the west - in Saskatchewan - where defaults were as high as 50% on some of our advance programs in certain years. Other provinces showed very high default rates as well. We believe this bill will adequately correct that system in order to make it fair for everyone participating. In this case, people who are actually paying back and doing the right thing are going to be advanced, because the costs will probably be lower to them in the long run when we don't have so many defaults to run back on.
Mrs. Cowling: Mr. Chairman, as we move into the 21st century and we look at massive change within the farm community where we have both partners involved in the farm business, perhaps a father and son or father and daughter, I would assume that - and you can correct me if I'm wrong - clause 20 somewhat covers that off. Is that where addressing that particular issue is covered?
Mr. Pickard: Clause 20. Are you talking about the maximum advance that -
Mrs. Cowling: Yes.
Mr. Pickard: There are two aspects to the advance. As was mentioned, there's a maximum advance of $250,000 and within that there's a $50,000 cash advance, interest-free. Previously there could have been more than one $50,000 advance to a group of producers if they had two sets of books or if there were an application by the daughter and an application by the father, for example. They could have had two or three $50,000 interest-free advances. This corrects that position.
Mrs. Cowling: Thank you.
The Chairman: I have a point of clarification again so that we all have it straight. I'm going to put two or three scenarios out. If it's a family farm corporation and they grow wheat, canola and barley, can they get the maximum no matter how many partners are in the family farm corporation, be they father, son, husband, wife, whatever? What is the maximum they could get interest-free?
Mr. Pickard: I will go to Phil for this, but it's my understanding that it's one interest-free advance per operation to a maximum of $250,000.
Mr. Jensen: Yes, that's right, Mr. Pickard. This has been a difficult issue for us across the country. As Mr. Pickard mentioned, we consulted with 160 stakeholders on this. Eighty-five farm groups made representations. The essence of the act is that if you file a separate tax return, if you are a separate operation in the financial and tax and legal senses, you can get an advance.
To answer your question, Mr. Chairman, if it's one corporation, that is just one operation.
The Chairman: But you didn't.... So in one corporation growing three crops, my example.... You didn't answer the question. What is the maximum amount of interest-free money they can get?
Mr. Jensen: It's $50,000.
The Chairman: It's not $250,000.
Mr. Jensen: You said interest-free.
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The Chairman: That's what I said: interest-free, it's $50,000. If they want more, they pay interest, but it's still to a maximum of $250,000.
Mr. Jensen: Exactly.
The Chairman: If it's a father-son operation and the books are split and it's two businesses-father and son work together but they file this as two separate businesses - it's $50,000 to each business.
Mr. Jensen: That's correct.
Mr. Hermanson: Mr. Chairman, could I ask a supplementary -
The Chairman: I want to make sure we're all clear on it, because I know -
Mr. Hermanson: This issue just arose in Saskatchewan with the provincial farm fuel rebate. If a husband and wife both own land but they have one permit book and they file income tax separately, given the legal ruling in Saskatchewan that the farm rebate has to be made available to both the husband and the wife, in this case would the interest-free cash advance have to be made to both the husband and the wife, and why not?
The Chairman: If they filed separately.
Mr. Jensen: As I said earlier, this is a very complex issue, and provinces treat this differently as we move across the country from how the federal government does. The recommendation we're making is consistent with the procedures and practices followed with other federal government programs across several departments, but specifically within Agriculture Canada. I'll leave it there, Mr. Chairman.
Mr. Hermanson: There may be some other impact here that you haven't considered, the Charter of Rights or something.
The Chairman: As another point of clarification, I've never farmed in the west. Can you have one family farm business that files one income tax return and have two permit book holders?
Mr. Jensen: Yes.
The Chairman: Even if that was the case, because they filed as one business, income tax-wise they'd be eligible for one $50,000, interest-free.
Mr. Jensen: Yes.
The Chairman: I want to know what it's going to be with this, not what it was. What we're talking about is what it's going to be.
Mr. Jensen: Perhaps to put a bit more clarity on it, Bruce Riddell, our manager of the legislation, can take people through the attribution rules and it will clarify it a bit more...which is in the legislation.
The Chairman: It's an important item. I'm not interjecting ahead of Mr. Chrétien, but if we're on the subject I'd like to make sure we have it clear here.
Mr. Riddell: It is a fairly complex issue. As we've discussed so far, each business operation is eligible for a $50,000 interest-free advance, to a maximum $250,000 advance, but there's another....
In western Canada, under the old system we were granting advances to permit books. So one farmer could have more than one permit book and as a result, if he had sufficient grain in storage, could get more than one interest-free advance.
Under the new system it's based on a business and it goes to people or to business operations, so that in the event of default and so on it removes a lot of the flexibility that farmers had to play with the system.
Under the new system, every farm operation gets a $50,000 interest-free advance, maximum $250,000. If there's a farm operation - we'll use mine - say I'm farming and I have a business operation by myself, plus I have another business operation with my son and both operations have sufficient grain to get a $50,000 interest-free advance, now we're looking at the attribution rules. What we're saying basically is that a person can only get a maximum of $50,000 interest-free under the act. So in the situation I described, on one or the other of those advances, the interest-free limit would be reduced proportionate to the share in the various businesses.
I'm trying to keep this as simple as I can so I don't get myself confused here.
In my own farm operation, say I applied for $50,000 and I got my interest-free advance. In the relationship with my son, we applied there for another $50,000, but because I had the first advance of $50,000 and I share the other operation equally with my son, they would take the $25,000 from my first advance eligibility and reduce the other one. So for the operation by myself, I would get a $50,000 advance; the one with my son would only be eligible for a $25,000 interest-free advance.
The problem we're trying to address here is that some farm operations, once again, have multiple operations, really just on the one farm but for various reasons they have this corporation and that corporation, and this partnership and that partnership, and we want to make sure those types of structures get treated equally with, say, his neighbour who's farming the same land base, is producing the same crops, has the same family relationships and so on, but has chosen not to get into complex corporate arrangements, so we can maintain equity in that fashion.
.0935
The Chairman: I think you've cleared it up - unless you want more clarification, Marlene.
Mrs. Cowling: I have a supplementary. If business operators are outside of the province or if it is foreign ownership, what happens?
Mr. Riddell: You have to be a Canadian citizen or a landed immigrant in order to get an advance. If it's a corporate entity, then at least 50% of the ownership in the corporation must be Canadian.
Mrs. Cowling: What about out-of-province operators?
Mr. Riddell: As long as you're just in another province, that's fine.
Mr. Hoeppner (Lisgar - Marquette): On a point of clarification, I feel that this is very unfair, and I'll give you an example.
The Chairman: No, I just want a point of clarification. We don't want -
Mr. Hoeppner: That's what I'm getting at. I have a son and a son-in-law who are farming as a partnership. They farm 2,500 acres. They have to file individual income tax returns because they are a partnership.
The neighbour's son across the road has a half-section. He qualifies for $50,000 of interest-free money. My son and son-in-law are farming an operation much bigger and they're being discriminated against because they can get only one.
You are trying to tell me that you want to make this fair. How can it be fair?
Mr. Jensen: First, the way you've described the situation, the partnership, it depends on how they're filing -
Mr. Hoeppner: Because it's not a registered farm corporation, they have to file individually.
Mr. Jensen: If that's the case, if it's an informal partnership, then they can get two advances, because they're filing separate income tax returns. This gets sort of complicated, but if they have separate residences and separate and distinct operations, then they can get two advances. That's the first point.
Mr. Hoeppner: The Wheat Board tells you that you can't, that you have to have two permit books. That's confusing. That's a terrible situation.
The Chairman: Just let Mr. Jensen explain it.
Mr. Pickard: Books are not part of this any longer. As a matter of fact, in theory you can get an advance without a book.
Mr. Jensen: That's correct.
Mr. Hoeppner: That's changed, then.
Mr. Jensen: That's right.
I'm sorry. What was your second point?
Mr. Hoeppner: My second point was that the neighbour's son, who farms on his own and his father is not involved at all, farms only a half-section. He can get $50,000 if he has the grain. So he gets a much better advantage, whereas my son and son-in-law have formed a partnership to become more efficient because of machinery and usage of other -
Mr. Jensen: We did some analysis on the size of the advances, and we found that the average grain advance in the west is only $16,000 to $18,000. We consulted with groups on whether the $50,000 was enough. We had regional meetings on the prairies, in Calgary, Regina, and Winnipeg - in fact, we had two sets of meetings - and the general consensus was that it was enough, especially for grain producers, because most of them were not using anywhere near the $50,000.
The only sector in which it was considered to be a bit of a bind was horticulture, because one acre of carrots is worth a lot more than one acre of grain or one acre of potatoes.
The consensus of the 85 groups that made submissions was that the $50,000 was adequate and we should stay with that. For the grain farmers it was considered fully adequate. That was the message we were given.
The Chairman: Mr. Chrétien.
[Translation]
Mr. Chrétien (Frontenac): I would like to invite my colleagues from the Reform Party to do double time starting at 9:45 or 9:50 because my colleague and I have to leave. We have to attend another meeting at 10 o'clock.
When you began consultations across Canada, in May 1995, you encountered some reluctance, especially among horticultural farmers concerned about carrots.
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A meeting was held at the UPA building in Longueuil, which did not result in unanimous agreement. However, after some amendments, some corrective measures or explanations you provided, apparently they are now ready to accept, in principle, Bill C-34 in its entirety.
Could you, for everyone's benefit, explain what the farmers who expressed the most reluctance feared at that time? I would imagine that this did not occur only in Quebec, but throughout Canada. Could you also explain what you changed in Bill C-34 to win the approval of these lobby groups?
[English]
Mr. Jensen: Yes, this is one of the bigger issues we had to face, and I should say, because this is a very complex piece of legislation, we're putting four acts and one program that are currently in place into a new act and we touch a lot of producers and a lot of commodity groups. We have had a number of issues such as this, as you mention.
What happened with horticulture, and it also affected some commodities such as maple syrup in Quebec, which we considered a horticultural product, was that because of the way they market, it wasn't the same mechanism for marketing as you would find in grains and oilseeds or some of the other products such as, one could even say, potatoes. The big problems appeared to be in products such as apples, onions, maple syrup, honey. As you say, it was not just in Quebec. The honey producers out west had a problem too.
So we met at the annual meeting of the Canadian Horticultural Council in March. We had the meeting in Longueuil, Quebec, where the producers raised this. We then met with other groups and we had a big meeting where we looked at possible means to address this. So we've modified the definition for the horticultural point of sale to recognize the nature of the horticultural industries.
Let me explain what I mean in a general sense. In the bill, as I said, we're putting four programs in one act into a new one. The new act has essentially three programs. The first one is the advance payments programs. The second is the price pooling. The third one is the government purchases program, which isn't used very much.
Let's take them chronologically. A producer will use the advance payments program first, because he harvests his crop and then until he has a chance to sell it he needs an interest-free advance, for various reasons. So that's the first stage, stage one as it were.
Stage two is the price pooling program, which a lot of cooperatives across the country use. In horticulture, with stage one and stage two the timelines are mixed together a little more than they are for grains and oilseeds-in fact, a lot more. So we've changed the definition for the advance payments programs for the horticulture sector such that they can harvest it and they can store it and they can collectively store it, which was the big problem in apples, where a lot of producers were storing their apples together. They would be in separate bins but they would be in the same structure. Under the other regulations, affecting grains and oilseeds, when you do that you do what is called ``lose control'' of the product.
So we made an amendment specifically for this part of the industry. We consulted with our grains and oilseeds...not our colleagues but their colleagues. They were accepting of this amendment. That's where we are here: we put in place an amendment specifically to help that sector.
[Translation]
Mr. Chrétien: Let's take a very specific case, maple syrup. You know that in the case of maple syrup production, some years are great whereas others are terrible. Right now, in Quebec, a class action is currently underway. Producers are seeking a substantial amount of money from the Fédération des producteurs de sirop d'érable because they were not satisfied with the sales.
Let's take a very specific example. The maple syrup producer wants to store, in his barn, in his sugar shack or anywhere else, barrels of maple syrup to sell them in the fall, because he knows full well that in the fall, he may obtain 25, 30, 40 or 50% more than he could get in spring. In this case, you could offer him an interest-free loan of up to $50,000.
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The same maple syrup producer could liquidate his maple syrup through the Société coopérative de sirop d'érable which is located in Plessisville. The co-operative will give him an estimated price of $1.70 per pound, for instance, and if it manages to sell the maple syrup throughout the year at a higher price, it will add to the amount already paid out every three months.
In this very specific case, $50,000 would be, for the maple syrup producer, a quite reasonable amount. He could, without going through his co-operative, decide to store his maple syrup himself on a temporary basis, perhaps even for one or two years, in order to fetch a much higher price. You are well aware of the fact that the situation with respect to maple syrup is quite particular. If all the farmers - if there was only one, of course, this would only be a drop in the barrel - decided to hold firm for a certain amount of time, let's say one or two years, and to stockpile, they could obtain almost twice the price and that would lead to a product shortage, in production.
In this very specific case, do you not think that Bill C-34 would be used for purposes other than those for which it was originally designed?
[English]
Mr. Jensen: Your question illustrates some of the problems we've had to do our best to try to resolve as we went through.
Let me tell you where we came out on that. In Quebec - well, in Canada really - there are three organizations that sell maple syrup. The co-op at Plessisville is the largest, having about 70% of the market - but there's also the fédération in Quebec, which has about another 20% of the Canadian market. Then there is the New Brunswick producers' organization, which has about 10% of the market. I stand to be corrected on the percentages, but I've been told that's approximately where the figures are.
In order to satisfy all three groups, we have to have in place a program that provides the advance payments to producers who are not using the co-op mechanism, because some are not. So to be fair, to be équitable, we had to ensure that the program could be used by all these producers.
We have had a lot of discussions with Luc Lussier from the co-op, and our understanding is that he supports the program and supports the decisions we've taken on this issue.
Your question is a very broad one, because it strikes at the structure of how you support cooperatives in Canada. I guess the only point I would make there is that this is one program. The advance payments part of it, anyway, has one specific purpose. It is not designed to address every agricultural policy issue that exists.
On the issue of how we deliver advance payments and price pooling, it's my understanding that the three organizations support where we've come out on these issues.
The Chairman: Mr. Chrétien, do you have a supplementary?
[Translation]
Mr. Chrétien: I have to leave.
[English]
The Chairman: Will you be back later?
Mr. Chrétien: I will probably be back at 11.
The Chairman: I have another point of clarification, Mr. Jensen. It's along the same line.
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I believe that in the past some co-op organizations have used the program and they have borrowed - if I can use the term ``borrowed'' - against the program for their product when it was further processed, maybe after it left the field as a raw product and was further processed. The value went on against the value as it was further processed...I think you're familiar with how that's been used in the past.
Will it be possible to use this program in that manner in the future?
Mr. Jensen: The short answer is no.
Just to give you a little more background, this has been a program specifically in Ontario, where one or two horticulture further processors were using the program. There was an interpretation of the rules that was perhaps not as rigid as some would have liked. In particular, the Ontario vegetable growers made many submissions to us. We talked to them during the consultations at least twice and we've taken a decision, because the broad consensus among the industry is that they do not want this to continue. So that is what we've decided and that's what we're recommending. They have indicated to us and to the minister that they fully support where we're coming from on this.
The Chairman: Thank you.
Mr. Calder.
Mr. Calder (Wellington - Grey - Dufferin - Simcoe): Thank you very much, Mr. Chairman.
I would like to ask a question here - because I know it's going to be coming up later on today - about paragraph 10(1)(h). It reads:
- the producer must not have given the crop as security ranking in priority to the security interest
created by section 12.
What's your comment on that? Is there a way to solve that discrepancy? It goes to what Mr. Pickard just said about forcing the farmer to go out and sell a crop, and we don't want to do that.
Mr. Jensen: Again, this has been a very difficult issue for us. This actually has its genesis in a request by some Ontario groups for a spring advance program, which goes back to as long ago as 1993, if memory serves me correctly.
In the initial set of consultations, we consulted on a spring advance program, and I don't think it's too strong to say that it was vehemently opposed by farm groups across the country and even in Ontario, with the exception of two or three groups. It was felt that a spring advance program moved away from the purposes of this particular program, that it could be too costly, that it had the potential for diluting the benefits, etc. That was our first set of consultations.
We then consulted with the farm groups that recommended this and examined another possibility, which is the one you're referring to, a 70% advance rate under this to meld the two, if you will. We consulted on that over the summer and we received approximately the same feedback we received about the spring advances. Even in Ontario there is not widespread support for it, and in fact one or two major groups are opposed to it.
We have now come up with a third alternative, which is our amendment that I mentioned to you when I gave my opening remarks. The alternative is to amend that clause to permit, if you will, producers to not necessarily have to pay it back, as they would have before, to permit some security sharing, which would then allow the producer to proportionately pay back our advance and the ACC advance at the same time.
Our consultations with the affected farm groups lead us to believe that they think this is a reasonable accommodation. Given the feedback we have from other farm groups on the other two options, it seems to be about the best we could come up with.
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We have just, as of yesterday, received authority from the Treasury Board and PCO to go ahead with this. They believe that given the conditions we have put in, it would not cause major fiscal problems. It's now with the minister for consideration, so obviously it's his final decision. But we are at this time proposing an amendment to try to accomplish the point you've raised.
Mr. Calder: Okay, thank you very much, Mr. Chair.
The Chairman: Mr. Hoeppner.
Mr. Hoeppner: Thank you very much, Mr. Chairman. I would like to go into that advance issue again somewhat.
Is there provision in this bill for a roll-over? In my area I've seen people who weren't able to deliver and repay their advances because of the grading system. One year you get a tremendous amount of demand for number one, but the next year there is no demand and they want number two, so they can't deliver the grain.
Under the old system, I know you had to repay it before you were eligible for a new advance, and that has caused some problems, even going into the fall. It would help if this were provided and they could roll it over into the new advance, provided they had the grain to back it up.
Mr. Riddell: Okay, that issue is being dealt with under the stay of default clause we spoke of before. Basically, under the existing legislation the ability to roll advances over is being dropped. That was one of the key areas that was causing us a great deal of trouble in defaults. A producer could get an advance and then every year he would just kept rolling it, so he could basically keep a $50,000 interest-free pot of cash in his pocket.
Under the new legislation we've eliminated roll-overs, but we've left the provision for roll-overs within the stay of default caption. So if the situation you've described is actually the case, then we can prescribe roll-overs through the stay of default mechanism, specifically for the affected farmers. It would be the same situation.
Another situation would be that if all the grain under certain contracts on certain railway runs were not called, then we could put a stay of default in place for those producers on the railway run where all the grain had not been called under the contract.
Mr. Hoeppner: What is the difference, then, if you can apply for the $50,000 regardless of whether you need it or not? I know some farmers are well off enough that they don't need it, but they still apply for it because it's interest-free. It seems to me they are getting the benefit when a farmer who is not capable of or not able to market his grain still can't have the roll-over. I thought before that the roll-over wasn't there until you had paid it, because I know that has been the condition I worked under with a number of farmers in trying to get them roll-overs.
Mr. Jensen: They weren't suppose to roll over theoretically, but they did. The program controls were loose enough that they did roll over, and pretty soon these were some of our major defaults.
I think the best way to respond to your question is that the benefit to producer groups is not as high as some people might think. It varies from as little as $300 up to a maximum of about $1,200. So for very large producers it may not be worth their while to go through the paperwork and the program controls for $300, if that's the amount of benefit they would get. For others it is worth while. In any case, for equity reasons we have no way of excluding those who aren't in need.
What we've done instead is try to make it as reasonable as we could if there are dire circumstances. We face this in many of our programs in the department, and I think we have a reasonable record of recognizing producers in dire need. But the problem we've really faced with this act, as we've said a few times before, is that the program was so out of control in regard to costs. We were facing such pressure for fiscal reasons and from other farm groups that serious questions were being asked about whether the program could continue or not. We had to get the abuses under control. We still think we have sufficient mechanisms to provide for special cases, as you've mentioned.
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The Chairman: Mrs. Ur.
Mrs. Ur (Lambton - Middlesex): Basically my questions were asked already.
I had some producer groups in my area contact me regarding the advance payments at seeding time, and questioning the fact that we couldn't move in that direction. You alluded to it a bit in your previous answer as to the 70% advance payment, so you've touched upon it. I don't know whether you want to expand any more on it.
Mr. Jensen: I'm not sure I want to add too much more to that. As Mr. Pickard said, it would change the whole nature of the program. There was a fair amount of opposition against it from groups even in Ontario, let alone the rest of the country. It just did not have sufficient consensus among the farm groups to go ahead with that type of option.
Mrs. Ur: Can I ask why some of the other groups that opposed it what was their reason behind...?
Mr. Jensen: The reasons I alluded to earlier. The biggest reason for some of them was that it would change the nature of the program from a harvest advance to an operating credit for the spring. They thought that was a totally different concept and they just didn't think that was the type of program they wanted.
Another one was that it could and probably would dilute the benefits to everybody. In other words, if you spread it out through the whole crop season, and not just the marketing season, there would be no benefits in the fall when you needed them.
There were others concerns, too, but I think those were the two big ones.
Mr. Riddell: The administrative difficulty -
Mr. Jensen: Yes.
Mr. Riddell: - of just putting two programs in place and having to follow...because not only would you have your spring advance outstanding with the farmer, but you would also have his previous year advance outstanding, and the administrative complexity of designing a program for spring advances and getting it hooked in with crop insurance and lean searches and all the other things that would be necessary to put those programs in place.
Mrs. Ur: I'd like to have one more question.
The Chairman: Yes, a quick one.
Mrs. Ur: Regarding defaults, you said that basically they will be in the hands of producers who will be implementing the program. My question is, do you feel there may be a mechanism put into place? Sometimes, not necessarily in agriculture but in other areas where there is a problem, someone is viewing it away from the position and cannot understand the situation and cannot assess the liabilities as well as someone who is within the situation. Are you going to perhaps have an ombudsman or some kind of person should there be lack of communication between the producers and the program?
Mr. Jensen: Well, this is one reason we took a decision a number of years ago to deliver the program through producer organizations, because we feel there they are the delivery organizations. As I say, we have a very small staff in Ottawa and, in fact, across the country, because that's our only staff of literally about 15 to deliver about $3 billion worth of loan guarantees with an annual budget between $50 million and $100 million.
How we do it is we strike agreements with producer organizations, or in the case of the Canadian Wheat Board, it will act as a delivery agent in that sense to deliver the agreement to the producers, because we feel they are in the best position to do some of the things you've mentioned.
My feeling is that if you took a poll among those producer organizations, you would think there were many reasons to continue that practice.
Mrs. Ur: I agree. I always feel hands on is certainly a lot better than -
Mr. Jensen: Yes.
The Chairman: A quick question from me again before we go to the final question to you people from Mr. Hermanson.
The comment was made that it's a maximum of $60 million in the program for -
Mr. Jensen: It's $40 million
The Chairman: I'm sorry, $40 million. I was looking at the number 40 and said 60. What if demands were such that more money would be required?
Mr. Jensen: When the decisions were made in the 1995 budget and then rolled over into 1996, there was a period put out there of about three years on safety net programs. The budgets for this comes out of the safety nets envelope and so the numbers are known. On safety nets, what's happening is that the numbers are going down from, I believe, $800 million to $600-odd million in that period. But we have a fixed average of this dollar amount, this $40 million for those three years.
Obviously for most safety nets in this, when we get into the last year, we would have to go before cabinet again and seek authority to continue the programs at that time.
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But on how we will handle the $40 million, I guess there are two aspects. First I'd just like to mention, because a question was raised here a little earlier about the proportion between safety nets and advance payments.... We consulted producer groups on this $40 million in relation to the overall level of advance payments. They told us they wanted to keep the $40 million. They also told us the issue of safety nets was separate and they wanted to put forward representations on that, but they did feel very strongly about keeping the $40 million figure.
How are we going to manage it? Well, we've decided to go with a three-year rolling average. It's simply too difficult to do it in any other way when you're delivering it across the country. So let's say we spend $20 million the first, $30 million the next, then we have a big surplus for the final year. If we spend $60 million the first and $40 million the next, then we would have to crank down the program controls such that the average producer's benefits were reduced in that third year such that we kept within the $40 million.
But our experience this year is that we will be under $40 million.
Mr. Riddell: We'll be closer to $20 million.
Mr. Pickard: I think with the three-year rolling average a disastrous year can easily -
The Chairman: This rolling average answers the question, then.
Mr. Hermanson.
Mr. Hermanson: I have just a couple of quick questions, gentlemen.
There's a cost recovery component to this legislation. Cost recovery covers only the administrative costs of collecting the dollars, so the $40 million is entirely the interest subsidy. Is that correct?
Mr. Jensen: I should just clarify on the cost recovery that a component is now put into the legislation to permit cost recovery, as there is all.... A general principle has been taken by cabinet that departments should be able to...if a policy decision is taken to cost-recover the programs. But I should say for advance payments no policy decision has yet been taken to do that. It's merely putting it in because that's a general decision taken by -
Mr. Hermanson: I wanted to get into an example. I go to my local elevator agent and fill out a cash advance. That elevator agent and that company, be it SaskPool or Pioneer or UGG, could put a promotion on it, saying, come in to us to get your cash advance, we'll do it at no charge to you. Under this legislation they're allowed to offer that. Then Agriculture Canada would not receive those administration fees if the company didn't put in a claim for those costs. On the other hand, they could say, look, if you come in and get your cash advance, there is going to be $100 administration fee. Then they would collect that from Agriculture Canada.
How is this going to work?
Mr. Jensen: There are actually two or three types of administration costs. We have our departmental administration expenses, which we are not cost-recovering right now. The legislation makes provision for it, but there has been no policy decision taken by the minister to do that. So that comes out of the department's budget.
Let's take the case of the Canadian Wheat Board and the elevator, because there's really, in some senses, a mixed delivery there between the two of them versus the canola growers, whereas it's just the canola growers delivering the advance to those producers. So with the board grains you have the Wheat Board and the country elevators both having administration expenses. They will both be able to cost-recover their administration expenses. To my knowledge, the Wheat Board has not yet taken a decision on whether they will, nor have the elevator companies.
But there are maximums within the act. The minister has the authority to say what you collect back from the producers can't be outrageous. Their cost recovery doesn't come from the department. It doesn't come from the $40 million. It comes from the producers. The fees that have been talked about have been in the $50 to $100 range, from what I've heard.
Mr. Hermanson: Could you get one from your local elevator company and one from the Wheat Board?
Mr. Jensen: The Wheat Board and the elevator agency determine how -
Mr. Hermanson: So we don't know how this is going to work.
Mr. Jensen: Not at this stage, no, we don't. That's for negotiation between them and the Wheat Board.
Mr. Hermanson: Just a last question. I didn't realize - you learn something new in this business every day - the department could actually buy and sell agricultural products. The government -
An hon. member: That's been there for a long time.
Mr. Hermanson: Yes, I see that in the briefing here.
How significant is that? What is your department buying and selling, how significant is that, and how does this bill impact on it?
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Mr. Jensen: To be candid, it was more significant in the 1960s and 1970s, when the government was more into that business than we are now. In the past it's been used to buy up grape surpluses in Ontario. It's been used to facilitate sales between centrally planned countries, like the former Soviet Union, and Canada for commodities such as pork, which occurred a few years ago, but there's no budget attached to that particular part of the act and the department has no budget for this.
It also requires Treasury Board ministerial approval, which means that three or four ministers would have to approve it.
So it's been used very little in the last few years. The department does not plan to use it. It's part of the act simply because situations may arise in the future for one reason or another, maybe a sale to China - there are fewer sales to Russia these days - where, for administrative reasons, the government finds it easier to do the actual sale than to have the private sector do it.
It is not a big part of this act. The two big parts of this act are the advance payments and the price pooling.
Mr. Hermanson: Why wouldn't you just use the Economic Development Corporation as opposed to using the department?
Mr. Jensen: We looked at this and there is really no other act within the federal government that has the powers that we will have in here. When the old act was in place, it was not duplicated anywhere else in the government - to the best of our ability to find out if it was.
An hon. member: [Inaudible - Editor]
Mr. Jensen: For agricultural products, yes.
Mr. Hermanson: And the department can issue an advance on any purchases and sales that it makes through this program. That is up to, what, 50% of the producers' -
Mr. Jensen: It isn't really connected with the advance payments or the price pooling. The criteria for this government purchases program would be defined for each separate occasion on which it was used, but it has no budget and there are very tight controls on it in terms of ministerial approval. So it's unlikely that it's going to be used except for very rare cases.
Mr. Hermanson: Would there have been some wisdom in cleaning that up and perhaps changing that when this act was looked at?
Mr. Jensen: We did look at it. There have been some very minor changes to it, but we felt that the terms and conditions in there could still be needed and it was felt that it was best to include it as part of this act.
The Chairman: Thank you very much. I think you've enlightened all of us very much. In case we have further comments, we know where you all are. I know you will be willing and able to enlighten us and explain to us at that time.
Mr. Pickard: Thank you very much, Mr. Chairman. We certainly appreciate being able to come before the committee. We assure you that we'll be quite willing to try to handle any questions you have in the future.
We appreciate your cooperation here. Thank you.
The Chairman: Thank you.
Our next visitors this morning are from the Ontario Corn Producers' Association. Don LeDrew is the general manager.
Don, maybe you could introduce your colleagues who are with you this morning and their roles, and then whoever is going to make a presentation or comments to us may proceed.
Mr. Donald LeDrew (General Manager, Ontario Corn Producers' Association): With me today is Murray Smeltzer, who is the president of the Agricultural Commodity Corporation and will be covering that corporation's activities in more detail as we proceed through our presentation. Murray is also a full-time farmer from Grand Valley. Also with me is Brian Hughes, who is the general manager of the Agricultural Commodity Corporation, centred out of Guelph.
You'll note on the cover page of the presentation that the Ontario Federation of Agriculture has also endorsed and supported this presentation. Tony Morris, the president, sends his apologies for not being able to make it because of his having a conflicting meeting today, but he will follow up with a letter of support for the position stated here.
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I will proceed through the written statement that has been circulated.
Representatives of the Ontario Federation of Agriculture, the Ontario Corn Producers' Association, and the Agricultural Commodity Corporation appreciate this opportunity to meet with the standing committee regarding Bill C-34.
We are pleased that this legislation was introduced on May 3 to enshrine the $50,000 per producer interest-free feature. Even though we support the changes encompassed in the Agricultural Marketing Programs Act, we do have some serious concern with the following sections of the bill.
I might add, before I get into this, that we are very pleased with the amendment proposed by Agriculture Canada previous to our discussion, because the focus in our brief is particularly centred around paragraph 10(1)(h), which states that:
- the producer must not have given the crop as security ranking in priority to the security interest
created by section 12.
Perhaps I could give some background on why we have asked for that, and elaborate on that a bit more.
As stated in the presentation, we have been recently working with Agriculture and Agri-Food Canada officials to reword this section in order to allow shared security interest upon approval by the minister. This would give the flexibility needed to work cooperatively with individual provinces.
The Agricultural Commodity Corporation is a non-profit, producer-operated organization dedicated to providing low-cost operating capital. We'll get into more detailed information pertaining to the ACC as we proceed through the brief, and elaborate on the structure of the operation and the success ACC has had with the program.
The modification of paragraph 10(1)(h) is critical to the harmonization of the Agricultural Marketing Programs Act with this provincial program and potentially to any other programs of a similar nature that may be developed in other provinces. For example, ACC loan rates approximate 70% of the crop value and producers have the option of rolling the loan over to a storage-based security under the advanced payments program, which is covered by Bill C-34.
Unfortunately, as has been stated in the previous presentation, both the current advance payments program and Bill C-34 place a maximum of 50% of the crop's average price on the advance rate per unit of crop. This is referred to in subclause 19(2) of the bill.
Effectively, then, what happens is that the 50% maximum advance rate requires producers to either come up with the cash or liquidate stored crop in order to pay the 20% difference.
Indeed, the resultant forcing of a sale of a portion of the crop occurs traditionally at a time of year - a February 28 deadline in the case of the ACC program - when crop prices may indeed be at a low level compared to later in the crop year. The current year is a classic example of this.
An example might help to illustrate this. If a producer has 1,000 units of crop produced and in storage, and receives an ACC loan for that particular crop of 1,000 units at $70 a unit or $70,000 - an advance received prior to February 28 at $50 a unit, $50,000 - the difference at the time of roll-over where the $50,000 is applied against the $70,000 would be $20,000. That's a very simple example, but one that nevertheless illustrates the point.
The compromise proposal to change paragraph 10(1)(h) would not require an up to 70% advance rate. We are the organizations that have been promoting the 70% advance rate. We are very pleased to see that this compromise would in effect allow the possibility of providing the same thing. We are pleased with this amendment proposed by Agriculture Canada and ask for your support.
Via this proposal a difference would remain on the ledger of ACC or any other producer organization that develops a similar program - in this example, $20,000 - and a shared security arrangement would allow structuring of appropriate priority, guarantee and repayment agreements that would allow direct repayments per unit on the same shared basis.
By allowing the change in paragraph 10(1)(h) we can then confidently go to the province to request their agreement. Without this change, producer organizations will not have the flexibility to work with provinces in developing such beneficial programs. Further, not allowing this change will deny a fundamental marketing option to producers, and I refer back to the foreselling example I just gave of February 28.
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Again, I reiterate, we respectfully request your support in making this change to paragraph 10(1)(h).
The second part of the act, and it is related to the same basic subject, is subclause 19(2), which states that:
(2) The rate per crop unit may be specified for a particular crop in a particular area, but it must not exceed one half of the average price that, in the Minister's opinion, will be payable to the producers of the crop in that area.
The Right Hon. Prime Minister Jean Chrétien had written to the Corn Producers' Association in September 1993, prior to the election, promising to implement a spring advance program. You've gone through considerable discussion of that issue in the previous presentation, so I don't think I need to elaborate too much on that.
As Mr. Jensen stated, a compromise position was developed, calling for dropping the provision for springtime advances if advances could be issued at a rate up to 70% of market price and - this is an important point - if the provision was at the option of the individual farm organization administering the program.
This compromise position also called for the difference between 50% and 70% to be subject to interest payments by producers. That again was supported by the Ontario Federation of Agriculture and the Ontario Agricultural Commodity Council in correspondence.
In view of the further compromise again proposed today by Agriculture and Agri-Food Canada officials, we would be willing to agree to subclause 19(2) as written, but only if paragraph 10(1)(h) is indeed changed as requested.
Moving to another issue, subclause 40(1) states that:
40. (1) The Governor in Council may make regulations
...
(c) for determining a method of calculating the administrator's percentage mentioned in paragraph 5(3)(g), but the percentage must be at least 1% and not more than 15%;
Further, in subclause 40(2):
(2) Despite any regulations made under paragraph (1)(c), the administrator's percentage for crop years beginning in 1997 or 1998 is 2%, except for crops for which the Board is the administrator, in which case the prescribed percentage is 0%.
- the board being the Canadian Wheat Board.
Currently under the Advance Payments for Crops Act, the producer organization is responsible for paying 2% of each defaulted advance and the federal government pays the remaining 98% to the lender. The corresponding amounts are 0% and 100% respectively for the counterpart Prairie Grain Advance Payment Act program.
Under the new act the portion of each defaulted advance that will be the responsibility of the program administrator will be based on historical defaults for that organization. The liability amount will vary from 1% of the advance to 15%. That is a very substantial change in that procedure for handling defaults in terms of the administrator holdback or payment, more properly the liability of the administrator. The amount will depend on past performance.
We fully support this change. The problem is centred on implementation delays. It is not acceptable to allow the two-year delay specified for the Canadian Wheat Board administrators. We respectfully request that this inequity be corrected either by implementing paragraph 40(1)(c) in 1997, with no exceptions, or allowing the prescribed percentage to be 0% for both the APCA or the prairie grain organizations in 1997 and 1998. This is critical for equity and fiscal responsibility.
Moving on to the other issue in the opening part of our brief, we understand there will be a brief presented by the Ontario Wheat Producers' Marketing Board next week. As an organization, the Corn Producers' Association and the ACC are not involved in the components of the Agricultural Products Cooperative Marketing Act but have reviewed that and do indeed support that presentation.
If I might at this point, I'd like an opportunity to give an overview of the Agricultural Commodity Corporation because I think this is central to our primary focus today in changing paragraph 10(1)(h) to allow this shared security.
The Agriculture Commodity Corporation, or ACC, is a non-profit, producer-managed organization. It started in 1992 under provincial legislation and is operated by farmers for farmers. It specializes in providing operating capital for crop inputs at the lowest possible rates, by use of money market instruments, under the most reasonable terms and conditions, with no hidden costs. In 1996, ACC has loaned over $54 million and it has been in steady growth since 1992, starting out from $16 million and growing steadily to this point. It is in a very significant growth pattern.
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The board of directors is comprised of nine farmers appointed by over 12 farm organizations. They understand the financial pressures producers must go through from the time of ordering inputs until the actual crop is marketed. The board is totally responsible for authorizing loans and establishing the policies for credit, including loan and repayment rates.
The program has been very successful. It has provided farmers with another borrowing option in arranging operating finance.
Second, a very critical and key point is the bringing of pressure to bear on financial institutions to input suppliers when formulating the agricultural credit policies, including interest rates. In fact, ACC has improved on its base lending rate of prime by borrowing over $180 million in financing since inception, which is between prime minus 0.55% to prime minus 0.8%.
These rates have not been available in the past to the majority of farmers. ACC has also received numerous reports.... This is a very important point as well. When this program was initiated back in 1992, it basically had two purposes. One was to provide lower lending rates to producers by borrowing mass amounts of money as a coalition of farm organizations, utilizing the money markets and passing those rates on to producers. That has been very successful in the first objective.
The second objective has been equally successful in that even for the participants who are not in this program it has created a situation in which there's a lot of competition with this particular organization in providing interest rates. We're obviously primarily speaking of banks and input suppliers.
So it has had a very significant twofold impact: the participants and the non-participants.
The non-participant factor is not to be ignored. It's very, very significant. We hear continually of producers who, even though they do not participate in the program itself, go in to visit with their banker or their input supplier and say that they've been able to work out better deals. I think that is a very critical point in considering the beneficial aspects of this program.
ACC also has a history of providing funds at an opportune time for farmers to take advantage of - there's even a third area - negotiating cash discounts. The time at which the funds are advanced allows producers to go to input suppliers and negotiate cash discounts. The agency has also maintained a very low delinquency rate, which is 0.2% to date.
Producers utilizing this program have gained more control over their finances and assets. Due to the fact that the primary security is the crop and crop insurance, they have also gained greater flexibility where they market their crop. What we mean particularly by that is in cases with input suppliers or banks. Producers with more control over their own finances through this program are able to perhaps take advantage of marketing opportunities that may not be there traditionally.
The program is amended and enhanced routinely through the years. This has been accomplished since 1992. That comes as a direct result of the program participants, the farmer clients. Since 1993, ACC has also been the administrator of Agriculture and Agri-Food Canada's advanced payment program for apples, barley, oats, mixed grains, canola and spelt. Truly, the ACC is a ``farmer lending to farmer'' organization.
I won't go through all the details of the attachments, but it's for your information. To demonstrate the scope of the program, the number of crops covered is very extensive. The $54 million to $55 million loaned out this year covered a very wide range of crops in Ontario, everything from corn and soybeans, which are the two major crop components, to lima beans and carrots. So it's a very extensive list of crops for which loans are available.
The next handout pertains to the 12 organizations that participate in the program and sit on the board of directors.
Then, for further detail, there's a breakdown by commodity and by year, which shows the steady growth pattern since 1992 and the success of the organization.
Last, there's a breakdown, by region, of the utilization of the program since 1992, as well.
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That basically concludes the formal part of the presentation.
Again, I wanted to get back to the basic point. Here is the basic thrust of our presentation today and our basic request. The ACC is a program that works extremely well. It has a good success record. It has success for participants and non-participants with the effect it has had on the industry, but it has one basic problem. We reiterate the basic problem, which is the roll-over time and how we can integrate this program into the Agricultural Marketing Programs Act's advance payments program.
If you would support the amendment proposed on the shared security aspect, we then could take that, as any other organization across Canada could take a similar program, to our individual provinces - in our case it's the provincial Government of Ontario - and make a proposal to try to get their agreement to do that, and then work from there. That way, the 70% issue in that particular case would become secondary, and we would then be able to work with the province to negotiate a shared security system.
So the basic proposal of our discussion today is to ask for your support in changing that particular section.
I just received by fax here - this wasn't done for dramatic effect, by the way, it just happened.
The Chairman: A lot of newscasters have that handed to them, so it's really hot off the press, Don. We're impressed. We just didn't see the person run in the door, though. I don't know whether he had that sleeved all the time or not.
Voices: Oh, oh!
Mr. LeDrew: This is a letter, of which we can certainly get you copies, from Tony Morris of the OFA supporting the requests in our presentation today.
The Chairman: I think we're probably all pleased. We've known that there has been a concern there. Many of us have known that there has been a concern. I guess, speaking personally, not as chair, I'm glad that it looks like something has been able to be worked out that's satisfactory to everybody and can work within the goals and the aims of it.
Are there any questions or comments? Mr. Hoeppner.
Mr. Hoeppner: Thank you, Mr. Chairman.
I really appreciated this presentation. I wasn't too familiar with ACC, but to me it seems like a very good vehicle, especially with it giving competition to the banks.
Have you promoted this idea in other provinces, or are you keeping it hidden under your bushel, as they say?
Mr. Brian M. Hughes (General Manager, Agricultural Commodity Corporation): It's available for sale.
Voices: Oh, oh!
Mr. Hughes: We have developed this program quite extensively since 1992. We are constantly upgrading the system. We have had correspondence with a couple of the other provinces that have inquired. Once our systems are well in place, we would be willing to talk to the other provinces and show them how it could be done to help farmers right across the country.
Mr. Hoeppner: I think it's a good idea.
This is other thing I was interested in. You talk of marketing, such as different money management tools. Do you go abroad in foreign countries and borrow money, or is it done all in Canadian funds?
Mr. Hughes: You don't need to do that. We deal strictly in Canadian dollars. We tendered our business back in 1992, and the bank that won it was the Bank of Montreal. I set an interest rate daily by using the money that I have borrowed by the farmers and use the Bank of Montreal's money desk, using bankers' acceptances and the like.
For instance, yesterday my lending rate to the farmers was 1.08% below prime. That was using simple math. It's the old interest equals principal times rate. That's passed on to the farmer.
The Chairman: What's the prime now?
Mr. Hughes: Prime is 5.75%.
Mr. Hoeppner: I'm wondering, sir, whether you get quite a bit of government support in developing this agency. Does it guarantee a certain amount? I see 15% could be asked of you if there are defaults.
Mr. Hughes: The program is ostensibly quite similar to the advance payments program. Individual loans are guaranteed by the province up to 98%, with a total portfolio guarantee of 25%. This is limited in our case to a $200 million line of credit available to us through the banks.
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Mr. Hoeppner: So you really haven't used all your line of credit.
Mr. Hughes: No, and what we see is that this amendment to the current Advance Payments for Crops Act will augment the production part of the program for farmers, because numerous of our clients are saying, well, it's too hard for us to roll at harvest, or February 28, to get into the advance payments program, we'll stick with the current bank - and the like.
Apples are a perfect example of how this program can work very nicely. Two or three years ago we started giving production loans to apple growers. I think it was at 8.5¢ a pound at harvest. They can roll that over into the advance payment program, which I'm also administering, and they are getting the equivalent of 9¢ a pound on their fresh apples and a different rate for their processed apples. What ostensibly happens is it rolls quite easily from a production program into the advance marketing program without any problem whatsoever. The security is all there in place already, registered by us, and it's still valid. All the security and credit investigation we've done earlier in the year follows through to the advance payments program.
So if we could have it with corn, soybeans, and all the other crops, the advantages to the farmer would be numerous. It makes it a lot easier. Right now they are really struggling to come up with that extra 20% to pay us. It means they have to sell probably 40% of their crop to make up that 20%, depending on the prices.
The Chairman: Mr. LeDrew, you very kindly gave the committee copies of your presentation en français, but the clerk informs me some pages are missing. I don't know whether that was just in the transition from one.... A couple of pages are missing in that translation.
Mr. LeDrew: We'll clear that up with the clerk.
The Chairman: Yes, would you, please, because we probably would have had that pointed out to us had members of the Bloc been present for the presentation.
Mr. LeDrew: We extend our apologies for that.
The Chairman: Mr. Collins.
Mr. Collins (Souris - Moose Mountain): I want to thank the people who were here before, because I think you made an excellent presentation. Certainly coming from the west...it's nice to know we're streamlining some of our operations. The end result, we hope, is that everybody has a clearer picture of what we're about.
To you, the people who presented today, again I want to thank you, because it's nice to know we can work with you in the best interest of the concerns you raise. I do look forward to future undertakings by your group where they may be expanded to other forms of operations, whether in Ontario or out west. These are moves in the right direction, and it's nice to know we have that working relationship between the government and these organizations.
The Chairman: Mr. Hermanson.
Mr. Hermanson: Good morning, gentlemen. It's good to have you here. I always enjoy the corn producers. They have a fair bit of pizazz. How you managed to get Jean Chrétien's signature on that letter is quite amazing, particularly after some of the officials here suggested maybe that wasn't the smartest thing he ever did. It put you in a pretty good position to get some of these changes to the act that you want.
Do you agree, after some of the discussions you've had with the department, that the amendments that are being proposed - your amendment or the government amendment, which I guess is very similar - are a better way to resolve the problem between ACC and the advance payments programs than the spring advance you had initially got a commitment from Mr. Chrétien to support?
Mr. LeDrew: I guess I could best answer that, Elwin, by stating yes, it was the Ontario Corn Producers' Association and ACC that were pursuing the 70% issue. We indeed had support by the OFA as well for that issue.
To answer your question specifically, certainly a change in the legislation to allow the up to 70% rate would unquestionably be the preferred method of doing it.
Mr. Hermanson: But it doesn't need a spring advance to do that, does it?
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Mr. LeDrew: No, not at all. In fact, the compromise proposal to go up to a 70% advance rate, just to clarify, was on a per unit of crop. The current legislation covers 50% of the anticipated market price, as does Bill C-34. Compromise proposal number two, if you want to phrase it that way - this was the compromise to the spring advance - was not asking the federal government to provide a spring advance program, but simply to provide an allowance on an optional basis. Producers paying that difference per unit between 50% and 70% pay the interest on that portion - not interest-free - to allow that roll-over.
Unquestionably, the preferred method would be to have that changed to 70%. However, in view of the consultations that have taken place across the country, we view this other third compromise, if I may use that terminology, as very reasonable. We can use that to approach the provinces and to try to work out an agreement on that basis.
So in answer to your question, yes, we are quite confident that we can proceed on that basis.
Mr. Hermanson: Thank you.
I had better just make sure of this. The Ontario Corn Producers' Association is the administrator for the advance payment for the corn industry, but ACC is the administrator for all these other -
Mr. LeDrew: Perhaps I could clarify that. The Ontario Corn Producers' Association is a producer organization designated under the advance payments program. We administer it strictly for corn. The Agricultural Commodity Corporation is the coalition of the other farm groups that operate, number one, the provincial program that we were just discussing, but they also have a guarantee under the federal advance program to operate an advance payments program federally for canola, apples, barley, oats, mixed grains and spelt.
Mr. Hermanson: Why is your organization not under the umbrella of ACC when it comes to this legislation?
Mr. LeDrew: The way it works out in terms of the legal structure is that under the provincial legislation the ACC is a legal entity that handles a broad section of crops provincially. They also have the authority to do so for federal programs. The OCPA's mandate is strictly for corn.
Mr. Hermanson: Might there be a change in that in the future to put it all under ACC?
Mr. LeDrew: It's an option that could be considered. It's certainly not on the slate right now.
Mr. Hermanson: But if there was legislation that would permit it, there would be no problem.
Mr. LeDrew: There's nothing in the legislation that would prevent it.
Mr. Hermanson: Your default rate is very low.
Mr. LeDrew: For the advance payments program, we've had it for the corn program for 13 years, and it's been under 0.1%.
Mr. Hermanson: Why is it so much lower than Canadian Wheat Board crops?
An hon. member: They're all Ontario farmers.
Some hon. members: Oh, oh!
Mr. Hermanson: I think the default rate is very low as well for canola crops out west. For some reason, however, the Canadian Wheat Board seems to have a much higher default rate. I don't understand why that would be, because farmers basically are pretty honest folk who like to honour their commitments. I just don't understand why it's so high with the Wheat Board.
Mr. LeDrew: I'd be more than happy to elaborate on that, I guess.
The Chairman: If you didn't, today would be the first time you didn't take advantage of the opportunity.
Some hon. members: Oh, oh!
Mr. LeDrew: Yes, maybe I could explain that. It has been in some previous presentations, as Lyle said.
We fully support the changes pertaining to that in Bill C-34. Our concern all along has been that under the Advance Payments for Crops Act - corn was one, but there is a host of others - there have been stricter guidelines in terms of credit checks, means searches, inspections of the crop and default and repayment mechanisms under defaults. There have been much stricter guidelines under that portion of the act, the APCA. Under the prairie grain advance payments program, those have not been in existence to anywhere near the same extent. I think the results probably tell the story of what has consequently happened, again in our view.
The new bill calls for equity across Canada, which is an idea that we fully support. But because there have been much stricter guidelines, the introduction of the same guidelines for APCA as applied to the prairie grains program would in effect see everybody operating under the same rule book, if I can put it that way. And we feel that should also be a very major accomplishment in terms of getting the default rates down under the prairie grains program.
Have I answered your question?
Mr. Hermanson: Yes, that helped a lot.
You say the two-year delay is unacceptable. What can I do as an MP to correct that?
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Mr. LeDrew: Well, I guess what we were -
Mr. Hermanson: And will it be fair to the Canadian Wheat Board?
Mr. LeDrew: In our view, the concern we have is the two-year delay on the administrator's liability. I think our preferred view is stated in the brief. We're not objecting at all to the 1% to 15% administrator liability; we're fully supportive of that. We understand the way it would work is that the producer organization's record would be used to determine what that holdback would be. For example, if you had a 5% default rate in the previous year, the holdback would be 5%. If you're 1% or under, it would be 1%. That's fine, we agree fully with this, we have no problem with it. It's the implementation of it that is the problem, because there is a two-year delay. Consequently, what's going to happen is the 1997-98 and 1998-99 programs will still remain at the 98% guarantee from the government, with a 2% administrator liability, whereas the prairie grain programs will stay at 100% and 0% respectively.
All we're asking for is one of two things. Our preferred choice is to make the change and implement it in 1997-98 with no exceptions - that's the 1% to 15% scenario that I talked about. If you implement that, we'll be happy. If that's impossible, the second choice is to also give us 100% guarantee, and then 0%. That's not our first choice, because we feel it's more fiscally responsible to initiate the first option.
The Chairman: Thank you very much, gentlemen, for making your presentations and for making your comments and views known to us this morning. We appreciate that very much. As you know, this bill is before us after first reading. It's a little different procedure, but is basically very similar.
I remind the members that we have been sent a briefing note by the clerk on the differences in how we handle a bill here versus having it come to us after second reading. The note is provided so that we can all refresh ourselves or brief ourselves, and I ask us all to do that.
I believe that closes this meeting here. I remind the steering committee members that we have another meeting at 11 a.m. in room 306, West Block.
This meeting is adjourned.