:
Thank you very much, Mr. Chair.
Let me begin by saying that I would like to applaud you as chair and this committee for engaging in this very important discussion.
I would also like to preface my comments by saying first that the discussion on business risk management doesn't always have to be about more money. It also has a lot to do with how strategic we are with the money we flow. Are we being strategic with the way we flow the money? Are we being effective in the way we flow money? Are we being as effective as we can be in using taxpayers' money to help sustain farmers through periods of crisis?
Business risk management programs were never meant to be programs that create profitability. They are meant to sustain farmers through a period of crisis. When we talk about profitability, of course, there are all kinds of other things that we can include in the discussion.
The other thing I would like to say is that business risk management programs don't always have to be what we refer to as traditional safety net programs. They could also be such things as a biofuel initiative, or incentive-based environmental programs like, say, the ALUS program. Those can be initiatives that also help the income crisis and help move farmers towards a more profitable stage.
I would like to also say that some of the changes that have been made to what we have in our current suite of safety net programs have been very positive. You will know about the inventory evaluation change, the improvement in negative margin coverage, and of course the announcement we had a couple of weeks ago with regard to changing the top tier of CAIS to a contributory tier, which we believe is very positive. We're looking forward to working out the details of that top contributory tier.
Of course, on that one we certainly hope the provinces are going to support that leadership. We hope they will support the concept of the top tier as well. We would like them to contribute some money, of course.
We believe the cost-of-production approach that was announced is positive also. It will draw attention to one of the biggest impacts of farm profitability, and that is escalating input costs.
So there are a lot of positive things that have already happened.
We circulated a handout. I'm going to focus my comments on a few of the components in that handout.
We certainly support the work that's being done on production insurance for other commodities, aside from grains and oilseeds. We hope the production insurance development for those commodities is going to result in an insurance product that works for farmers. We want to make sure the product does work well and that farmers will want to use it: otherwise, it will end up being simply a premium for a CAIS offset. We have to make sure it's effective.
We of course also support the work on the catastrophic disaster component that's been talked about.
Having said that, I'd like to focus on a few of the other components. One, of course, and you will read it in the handout, is that we believe supply management should be defined as a business risk management program. They don't want to be part of the top tiers of our safety net program. They of course want to be eligible for disaster, because you can have disasters there, but they feel their policy is a business risk management program and that it simply needs to be defined as that.
The other thing I would like to focus on is companion programs. You may recall that the industry was dragged kicking and screaming to the table in the first development of the agricultural policy framework. We had a provision there that provinces could use some of the federal 60¢ if they contributed their 40¢ to help in the development of regional-specific or commodity-specific companion programs.
One of the things that's been talked about is that while our problems across Canada may be the same, the solutions aren't always the same. We sometimes have different solutions for different regions, different provinces, or different commodities. We would really like that provision back, so that the needs that can't be addressed by one national program can then be addressed by developing a companion program to fill the gaps.
And there are some examples of why that is necessary.
If you compare the agricultural industry in Prince Edward Island to the agricultural industry in Saskatchewan, they may have different needs that aren't addressed by a national program, and in that event we would like them to have the ability to be able to address those provincial-specific needs that crop up.
Saskatchewan might decide to develop something around improving their production insurance for grains and oilseeds. Prince Edward Island might develop something that's unique to their industry and that would better address a need in their industry.
If you talk commodity-specific, you will recall that prior to the APF, the horticulture industry had an SDRM, a self-directed risk management program, which was basically a NISA top-up at the time. That was meant to address the fact that they didn't have effective crop insurance programs for that industry, so the commodity had the ability to develop something specific to that industry that wasn't addressed by a national safety net program.
Those are some of the examples we've got whereby provinces could tailor something and be more effective in the way we flow money and in addressing some of those specific needs.
Another good example is the fact that the Ontario grains and oilseeds and the Quebec grains and oilseeds sectors have come up with a risk management program for their industry. That might work in Quebec and Ontario, because they don't export a lot of grains and oilseeds. Saskatchewan, on the other hand, is more sensitive to trade action because they export probably 85% to 90% of their production and might want to use something else to address something specific in declining margins in that industry, so we would really like to see the provision for companion programs to come back and allow that flexibility.
Now there are those that have told us they can't afford a provincial-specific companion program, and our answer to that is simply that we already have provinces that are tailoring certain components around the CAIS program. Alberta has done some things for the grains and oilseeds sector. Quebec of course has an ASRA program that is effective in their province.
So we're saying if those provinces that don't have enough of their own money could use some of the 60¢ coming from the federal government and contribute their 40¢, that would at least provide them with some seed money to develop something they could use in their own province.
I'll leave it at that, Mr. Chair. I'm not going to go into any more detail. I'd be happy to answer more detailed questions if you have them, but I'll leave it at that for now.
:
Good afternoon, Mr. Chairman. Thank you for inviting us to appear before your committee.
I will briefly explain the situation of the UPA, which represents all agricultural producers in Quebec. The Quebec Farm Producers Act recognizes all agricultural producers within a single structure. That means that the UPA represents all of the producers. Forty-three thousand producers in Quebec are grouped on two levels, regional and specialized. We represent producers in every region and cover every type of agricultural output.
The UPA promotes the objective of autonomous agricultural undertakings with an emphasis on family farming. With respect to representation and land occupancy, we believe that this approach helps to ensure a good distribution and diversity of production. It is a given that, in some cases, help will be required to support certain types of crops.
In Quebec, the UPA has adopted a collective marketing approach, which has resulted in increased revenues. We intend to promote the recognition of income security measures to help bridge the gap caused by market fluctuations, but our main aim is to maximize our market income.
I think that through their intervention programs, the Canadian and provincial governments are seeking to address consumer needs while providing the producers with the best possible price for their product.
In Quebec, our work is, to a great extent, governed by the 50-year-old Act respecting the Marketing of Agricultural, Food and Fish Products, which gives us the leverage to maximize our earnings while ensuring the recognition of our production costs. This also helps to limit our involvement. However, from time to time, circumstances dictate that we must resort to some type of intervention. In such cases, we turn to the farm income stabilization insurance program, or FISI, which provides for an annual, stable farm income based on production costs. There is a cost associated with the products that are sold, but because of price fluctuations, some years are leaner than others. This program helps to stabilize farm income.
We have come before the committee today to urge the federal government to recognize these support programs which help us to work together. We are asking for federal government participation because an individual province cannot, on its own, respond to the needs of the producers.
Mr. Lavoie, a UPA economist, will now walk you through the various statistics that support the need for federal involvement.
:
Thank you, Mr. Bilodeau.
Good afternoon, Mr. Chairman.
Essentially, I will explain our document, beginning at page 8. I think the page number is the same in the English version. Yes, that is correct. I will give you a summary.
We started by analyzing the trends in total net farm income for Canada and, of course, for our province, Quebec. On the following pages there is a comparative analysis with our neighbours to the south, the Americans, to see what they are doing and what we can learn from them. I can say that, when it comes to any lessons that we might learn—and this goes along with Mr. Friesen's earlier comments—money is not the only factor when it comes to establishing net farm income; we also need business and industrial strategies. These strategies should be regional or provincial, rather than always applied on a Canada-wide basis. Strategic alliances are more likely to develop at a regional level.
I will now turn to page 8. When it comes to income security, in an open-market context, unfortunately, there is a higher concentration of consumers. I am referring to processors or the food distribution network. This leads to pressures that drive down profit margins which then results in a steady drop in farm income.
As Mr. Bilodeau said, the UPA is actively working to strengthen our collective system. This involves bringing producers together to provide them with more clout in the marketplace. This would involve a correction of the situation by stepping up the process to give power back to the producers within the group.
Turning to the statistics, on the top right-hand table, you will see a red and blue line. The red line represents dollars expressed as a constant, which means that the figures do not account for inflation. The blue line represents current dollars. We can see that income in Quebec was relatively stable from 1990 to 2006. In 2007, there is a sharp drop. We might wonder why that is. Essentially, it is because of additional energy costs, as well as the rise in the Canadian dollar, which hit our income levels like a shock wave. Why is that? Because our commodities are priced in American dollars. The currency conversion represents a drop in income for all sectors.
There is the same trend in Canada, but net income has dropped more rapidly. That can be seen on the table at the bottom of the page.
Based on that context, as I said earlier, on page 9 we have a comparison of the Canadian and the U.S. trends. On the first table on the right side of the page, the black line illustrates U.S. farm income from 1980 until today. We can see that the Americans are currently experiencing record net incomes while in Canada, we are also setting records, but we are going in the opposite direction.
We also calculated the net income minus inflation. We used Statistics Canada data: never have there been such low net incomes in Canada, when inflation is not taken into account. I believe that Statistics Canada began collecting this data in 1926. I would say that this situation is catastrophic. If we consider what is happening with our neighbour to the South, there is an even greater cause for concern.
The other table, directly under this one, is even more worrisome because it is more structural, in other words, it sets out the issues as they relate to the competitiveness of Canada's agricultural sector. The black line illustrates the U.S. farm debt from 1980 to the present day, in other words, the debt over assets. We can see that the Americans, after having experienced a crisis in the 1980s, have bounced back and are now in an unprecedented situation in terms of their debt. The U.S. businesses are in excellent financial health. In Canada, debt has reached a record level. This is also quite alarming. What happens when a net income crisis continues year after year? Farms go further into debt, which has enormous ramifications in terms of our competitiveness.
What does the vertical red line mean? It coincides with the change in the vision or approach to Canadian agricultural policy in the mid-90s, when a decision was made to let market forces apply and structural elements in our agricultural policy were dismantled. The results were far from positive for agricultural producers, in fact, it was quite the opposite. On that, I support what Mr. Friesen said earlier: it involves more than simply increasing subsidies or whatever, we need an agricultural policy that will give some leverage to the agricultural sector—I repeat, agricultural sector—so that the farms can regain their financial health.
The graph in the lower left-hand corner shows the trends in working capital ratio. There has been a rapid drop in Canada, whereas in the United States, there was a dip in 2002 but there was an immediate correction. There again, their situation is much rosier.
The UPA has worked closely with the Canadian Federation of Agriculture and other provincial members in order to find a solution by developing a strategy to improve the net income. The UPA wholeheartedly subscribes to the positions expressed by the Canadian Federation of Agriculture.
What we were asking for, essentially—and I would like to thank the minister for the decision that he made a few weeks ago—is the re-establishment of a business risk management component which would make the program more predictable and improve farm management.
As to our other objective, if we want to change the trend that I spoke of earlier, then it is essential to have federal funding for provincial programs so that each province can then adopt its own strategies to re-establish profitability and acquire more market share. As Mr. Friesen said, these strategies can vary according to each province.
We would like a return to livestock insurance for diseased animals. Moreover, we need a better strategy to manage catastrophes, which can be quite damaging. Current programs do not work well for managing catastrophes because that was never their intended purpose.
I will give you a specific example that involves Quebec, namely, the golden nematode. Some farms have been hard hit; their crops were completely wiped out. The existing program known as CAIS worked well for some farms but was of absolutely no help to others. This led to a feeling of unfairness and frustration among farmers. Of course, we must recognize that supply management can be used to manage risk.
My conclusion can be found on page 11 of our brief. If farms are to become profitable once again, then it is essential to have companion programs and to reinvest in provincial programs so that strategies can be devised. That is the only way that we will make it. Thank you.
:
Thank you, Mr. Chair and committee members, for this opportunity to be here to represent farm families across the country who are voluntary members of the National Farmers Union.
We support much of the analysis that was just given by our colleagues from the UPA. Much of it is very similar to our own analysis of the current situation.
I want to start by using a phrase that people have probably heard too much lately, and that is “climate change”, but I'm talking about the financial climate change that has really come into place when we're talking about farm incomes across the country.
In climate change terms, we've been through the five hottest years we've ever had in farm income, which means the five worst years we've ever had for net farm income in the country. This is coming on the heels of the previous 15 years, which were really negative years for farmers across the country.
We have distributed one page that has two graphs on it. In a nutshell, what the top graph is showing is that, over the past 20 years, Canadian farmers have created a farm gate wealth of two-thirds of a trillion dollars. That's not the retail value; that's the value that farmers sold that production for, the farm gate value. For that work, the farmers have kept exactly zero. The net income out of that two-thirds of a trillion dollars is zero.
What we are worried has happened, though, coming out of the 1990s, is that there were a series of business risk management programs developed as a result of the statistics that came out of the 1970s and 1980s. Our concern is that we think there have been programs developed to deal with the situation from the 1970s and 1980s, but not the situation that we've gotten ourselves into in the 1990s, and now the first five years that we've just come through.
Leading up to that period, in the 1970s and 1980s, when we first started to hear about things like the NISA program in the very late 1980s, it was still generally accepted that farm incomes were cyclical. They went down, but yes, they always came back and went up again.
Between 1945 and 1985, there was this tremendous range of farm incomes, but they were always positive and were always somewhere between $10,000 and $30,000, on average, right across the country. But that changed, starting in about 1985. They started this tremendous, almost constant, downturn. So that cycle that farmers used to be in disappeared. What we were left with, though, was still the generation of programs that were geared, tailor-made, to that cycle, but the cycle has disappeared.
That's the context we're starting from, and one of our concerns right at the moment is that in some quarters there seems to not be an acceptance that there's a farm income crisis. We don't have to go very far to find groups that will say in public that there is no farm income crisis. This is tradition now. We've had it for 20 years. Farmers shouldn't expect farm income, because they haven't had it for 20 years, and there are still farmers there. As long as they can find one farmer anywhere in the country who is still paying the bills, they say, well, that guy must be a good manager, and for all the rest, there's something wrong with their operations. So the first thing, I guess, that the National Farmers Union would be looking for from the committee is the acceptance that there actually is a net farm income crisis.
That brings us to the issue of the business risk management programs, and the way we're looking at it is that there are two ways of setting up those programs. There is a marketplace-funded business risk management program, and Mr. Friesen already alluded to the fact that supply management would fit into that category. We also see organizations, institutions like the Canadian Wheat Board, fitting into a business risk management plan that gets more money from the marketplace and distributes that money to the farmers. That's marketplace money that's business risk management programming.
Then there's the taxpayers' side--the $4 billion or $5 billion that has been transferred to taxpayers through the various business risk management programs.
We're thinking about the solution, and Mr. Friesen used the term “companion programs”. We call it more a suite of programs. There isn't one magic bullet that's going to turn this around. There are many programs that all have to be used. It wasn't one incident that created the farm income crisis for farmers.
If we want to look at the players around the farmers, a lot of them have been doing very well--the input suppliers, handlers, and retailers. It's not that we think they should make zero; we think they should make a profit and a decent return on investment. But if they can do that, why shouldn't the farmers be able to make a decent return on investment?
Gradually, over the last 20 years, we've seen farmers as a group essentially being nibbled to death by ducks, because every single player is just taking a little bit more out of the system--a few more percent here and there. Regulatory changes have occurred that add cost to farmers' business. It's just a little bit here and a little bit there, and over time we've seen the reduction to zero net farm income.
The solution to this is an integrated suite of programs that needs to be designed with a heavy reliance on cost of production programming. We say that because the margins on the farms have been reduced to such a level now that if the cost of production money isn't there quickly, the farmer gets behind the eight ball and can never catch up. If a payment comes from some program that was installed three years ago, it's just not going to help that farmer maintain and be able to pay the bills.
I'll close on the note that it's not fair or reasonable to think that the different provincial jurisdictions across the country can afford a 60-40 split on decent programming, on real business risk management programming. And it's not fair or appropriate for the federal government to unilaterally put in place programs without consultation with different provincial jurisdictions and then just expect that the jurisdiction will pick up 40% of the cost.
Thanks very much, Mr. Chair.
:
Thank you very much, gentlemen.
We have met on many occasions and discussed the same subject matter. I'm going to lead off in a little different direction. We're not going to get into details today, because we've worked on them for the 14 years I've been here and I don't think we're one bit closer than we were then.
I'm just wondering if it's time to start thinking about whether we need to have 10 different ministers of agriculture in Canada, and that we need one. That's an idea you might ponder. You might not want to give me the answer today, but think about it.
We know there are different treasuries in this country. We're trying to talk about fiscal imbalance. We're trying to transfer dollars from the rich to the have-nots, and it'll never be enough. Maybe we need to look at food security as a matter of national security. If we looked at it in that context and eliminated the provinces in terms of their responsiveness to agriculture, we would probably have even more money for agriculture, and at least we would know whose ox was being gored, or whose ox should be gored. Right now it's blame, blame, blame. One blames one level of government for it and the other blames the other level of government. I think we're really at a stalemate.
Quebec and Ontario have put forward a concept of business risk management. We had market revenue that provinces enjoyed. I haven't yet had a farmer tell me they didn't think market revenue was a good program. So there was a program designed to mimic the risk management program we had a number of years ago. But we don't find agreement across this country on implementation of that kind of bill.
How do you as farm leaders see it? As your representative politicians, we're hearing the same old story. Now there's a move to get rid of the Wheat Board. What's next? The supply managed sector?
I have to wonder what the farm leadership commitment to agriculture is. I know you have a job to do, but so do we. I think it's time we started wrestling this thing to the ground and saying, listen, this is where we need to go.
:
Good afternoon. Thank you for coming.
[English]
I'm going to start with the statement that often we can see that those primary producers in Canada are suffering, and many would say it's because of a direct result of U.S. government and European Union policies of subsidies. I think a lot of us often will agree with that.
Many will ask, then, why is the federal government not standing up for farmers vis-à-vis...within the ramifications of WTO, but still not standing up for farmers to be stronger to maybe counteract what they're doing south of us to have something more substantial here?
I want to use an example, and the example I want to use is the fruit growing industry. Maybe I can get some feedback here, starting with Darrin and down the table. I'll try to be brief.
Currently the B.C. fruit growers, I believe with endorsement from the horticulture association, have said that they would like the federal government to undertake a rapid response mechanism to combat the dumping of Washington State apples in British Columbia and the rest of Canada. In other words, if the dumping occurs today, well, then, tomorrow we have trade action taken to stop this--in other words, we increase the tariffs.
They see this as one way of not using federal money but using federal clout and using federal teeth to stop this until this problem is regulated. The history of this in the past has been that when this type of trade action happened, by the time we got things going, months later, the prices would have increased. It would be too late. Plus it would be costly.
This could be considered as a disaster response. It could be considered as a cost of production. What is your feedback? These folks have come out with this, and I'm just wondering what your thinking is on this.
Darrin, maybe we could start with you.
First, on the long term, a couple of you mentioned supply management. There's no question it's one of the foundations of our agricultural policy, but a trend has been set in the recent issue of the Canadian Wheat Board.
What do you think the threshold should be in terms of any ballots or voting in the industry? Is 13.8% high enough to destroy the system? If 13.8% of producers are opposed and it's on a ballot, which would be about 4.5% of the actual ballots mailed out, is it enough for a government to move to undermine that industry? It's what's happening in the Canadian Wheat Board.
I'd like you to think about that one, because the trend has now been established by the Government of Canada. Only 13.8% are opposed to the Canadian Wheat Board in terms of the latest plebiscite, and it's 29,000 votes out of 80,000 ballots.
Over the longer term, we are caught in a quandary. We have been in the whole farm program in Canada, and it creates a situation where there's really cross-subsidization within the industry. When you have a producer of two commodities, he or she ends up cross-subsidizing the farm operation. How do we get around that? I know producers who set up separate corporations to try to get around it.
Secondly, when you look at the inequitable position we're in with the United States, and it is in the UPA's paper, the farm debt/debt asset ratio is really serious. Even if we get it correct this time, and we sure as heck haven't been correct previously, we're starting off with a $51 billion debt load. Our debts are substantially higher than they are in the United States.
Folks, I was around when interest rates were 23.5%. I can tell you that if interest rates ever moved to 10%, we wouldn't know what hit us. How are we going to get around that problem as well, in terms of a farm safety net package? We have to look at it.
:
I would just build on what the two previous speakers have said, actually, especially in reference to the cross-subsidization.
I've been critical of these independent and ad hoc government programs because lots of times it seems that the government would like to tie farmers to the mailbox at election time. It could be just coincidence, but that's the way some of these things get rolled out. That's not what farmers need to keep in business. That's not going to give farmers the ability to plan into the future.
What farmers really need, which ends that discussion about how we get around the cross-subsidization on the farm, is increased market power so that farmers are allowed to make their money from the marketplace, earn a living from the marketplace. There was, in fact, a report published just a couple of years ago, which I know you're quite familiar with, called Empowering Canadian Farmers in the Marketplace, which started to go down that road. It talked about changing competition policy, for instance. So there is some competition amongst the input suppliers and the retailers and the handlers and the other people whom farmers deal with.
What we've really set up here in this country right now is a double standard: one standard for industry and one standard for farmers. So on the industry side, we have a legislated marketing tool called patent protection so that those industries can get their money back from the marketplace. Look at who is the most profitable. Drug companies, machinery companies, and seed companies are doing very well. They have to stay in business. But on the other side, the legislated marketing tools that are exactly parallel to patent protection, things like supply management and the Canadian Wheat Board, are being destroyed. Farmers are being told, “No, you can't have this legislated marketing protection because we don't feel it's appropriate.” So we've got a double standard, which is working against farmers.
:
Thank you, Mr. Devolin.
I'm going to ask for a little homework from everyone. We're out of time, but I do have one question--actually two--surrounding the BRM.
Every time I go out and talk to farmers—and I'm a cattle producer myself—I'm not hearing a whole lot of support for a CAIS-style program or a lot of support for a margin-based initiative, so I need to be sold on this. CFA is suggesting this; we're hearing it from the provincial organizations. Definitely, through the discussions that have taken place, through the consultation across the country, there has been a lot of talk about a margin-based program. So I want to know why this and not something else. It hasn't worked as far as many producers are concerned, so I want to know, in a written submission, why a margin-based program?
Secondly, we have all this talk about more provincial programs, more companion programs. We are a trading nation. How do we make sure that those programs don't put us over the top and create some sort of trade retaliation?
I'm a cattle producer living through the BSE crisis, so I know exactly what happens when we get initiatives taken by other countries and how it hurts us right in the pocketbook. So I ask that you do that.
With that, I thank you all for coming in today.
We're going to suspend for a minute or so to clear the table and bring in our next witnesses. We will extend tonight till quarter to six to deal with everybody in a proper manner.
Thank you very much.
:
Thank you very much to the committee for having us present today and for listening to the concerns of our industry.
The Canadian Association of Agri-Retailers represents a national voice for the crop input retailers across Canada. We have approximately 960 members across the country.
We have four main critical issues we are concerned about, but we want to address one that's of primary concern to our agri-retail sector today and a top priority. That's the cost of compliance with new and proposed industry and government regulations, specifically in two areas. First is the physical upgrade to retail sites to comply with security and safety regulations for crop input products. This spans a wide area of government sectors, including public safety, agriculture, environment, transport, and health. Second is proposed industry and government amendments to safety and stewardship requirements for anhydrous ammonia, which is more of a specific product. It's a fertilizer our members sell to growers to produce their crops.
On site security and safety upgrades, part of the cost-of-compliance issues relates directly to the future industry and government security standards regulating physical upgrades to retail sites, as well as currently mandated safety standards for crop input products. We believe government and industry have a shared responsibility to Canadians to ensure that safety.
Crop input products like fertilizer are essential to modern agricultural production, but must be secured from terrorists and criminals. These products include ammonium nitrate, which has been and is a possible bomb-making material; and anhydrous ammonia, which is a possible catalyst for crystal meth production. The crop protection products we sell may also cause bodily or environmental harm.
The cost of physical security upgrades can be prohibitive. These include fences, locks, surveillance, guards, etc. All these can be mandatory upgrades under the industry-related ammonia code of practice.
The cost of compliance with government and safety regulations can also be prohibitive. These include proper use guidelines, tracking, training of staff, storage, transport regulations, as well as insurance and liability exposure. We already contribute to the AWSA warehousing regulations, and we are also involved in container recycling programs with manufacturers. They get the bulk containers back from growers and into the system to be reused.
Ultimately, when retailers incur these costs they can try to pass them on, but in a very competitive market it is very difficult to do. If they can pass them on they will end up with the consumer, or they may decide to no longer carry that product, which diminishes competition and puts additional costs on the grower.
Until now the retail sector has met all current regulations, but resources are being strained. Government support is essential to ensure future compliance and avoid economic collapse of some of these operations.
On the issue of ammonia safety, there is the cost of compliance to new and more stringent regulations pertaining to the safe handling and storage of anhydrous ammonia, which is critically important to crop production. Examples of potential new regulations facing retailers include consideration to perform hydrostatic pressure testing of all anhydrous ammonia field tanks. In Canada we have approximately 12,000 tanks currently in service. Another example of regulations that are already forcing retailers to incur additional costs is the reclassification of ammonia. That requires special labelling, and of course training of staff again.
CAAR is working closely with Transport Canada and other industry stakeholders to implement these important regulations, but the cost of compliance with so many regulations has become prohibitive, with no current assistance from industry and government.
Unfortunately, the net consequence is that farmers will be hit indirectly in most cases. Operational closers or retailers may make the decision to not carry a particular product like ammonia, forcing that grower to go farther to acquire it. In the end he may have to change his equipment and move to a product that's available. That could be a dried form, like urea or phosphate, or a liquid. So there are costs to the grower if our operators and dealers no longer carry it. And of course the retailer himself loses revenue on a very legitimate product.
We believe there is a viable solution to these problems. CAAR recognizes the importance of prompt compliance with all security and safety regulations to protect Canadians, but urges the government to help offset the economic strain on the retail sector in this process. CAAR believes the blueprint for a solution has already been established in the form of a government contribution program for security upgrades at designated Canadian ports, whereby government rebates 75% of the approved upgrade cost.
CAAR recommends that a similar type of rebate program be established to assist agri-retail sites to comply with new security and safety regulations. We would be very eager to work with the appropriate departments to define eligible expenses.
In closing, we hope we have clearly defined the single most challenging business issue we face as agri-retailers in our sector. Security and safety regulations are important, but unfortunately come at a high cost of compliance. Agri-retailers implore the government to consider a cost-sharing program that will facilitate prompt compliance without adverse economic effects.
Thank you.
On behalf of the members of the Canadian Bankers Association, we would like to thank the House of Commons Standing Committee on Agriculture and Agri-Food for inviting the banking community to appear before you today to speak about business risk management within the agriculture sector.
You've already met me. My name is Brian Little. I'll introduce my colleague, Bob Funk, who is the vice-president, agriculture, at the Bank of Nova Scotia. We're representing the industry as a whole. However, there may be times when we will be speaking specifically for our own institutions.
The government has undertaken a consultation process on the next generation of agriculture and agri-food policy, and the banks have participated in that discussion. Financial institutions constituted only a small part of the stakeholder group participating in that consultation, so we're pleased to see in the summary of stakeholder comments that “Participants consistently mentioned lending institutions as key to the future of their businesses”.
The summary went on to say that these participants “suggested that governments maintain open, ongoing relationships and dialogue with financial institutions to ensure a clear understanding of programming, and to help governments to understand how program design could make programming more transparent and predictable, thus making lending decisions easier.” Participants also expressed the need for predictable and bankable programming. Our focus as bankers is primarily on the risk management component of these programs.
The banking industry could not agree more with this. These are all important elements for lenders because government initiatives play a big role in agriculture. Programs can be an important component of farm incomes and can therefore determine the risk that lenders are exposed to. Therefore, good communication is important and very crucial between the industry and government.
The CBA and members meet regularly with the Minister of Agriculture and Agri-Food. We did so last month and will do so again later this year. We think it's fair to say that an important factor that helped all the stakeholders related to the beef industry weather the BSE storm was the fact that the banks maintained close communication with the government, with their clients, and with other stakeholders during that period of stress. It was extremely important for all stakeholders to fully understand what the banks were doing and were prepared to do during that crisis. It is good to see that others recognize the value of such ongoing relationships, and the banks will continue to take this approach going forward, in normal times and in times of stress.
On the role of lending institutions in agriculture, we believe that banks and other financial institutions are important components to what makes a healthy and successful sector. Lenders are there to help ensure that the sector has access to financial capital to grow and to make investments that improve productivity in the sector. Lenders are there to ensure that the producers who have viable operations over the long term can withstand temporary shocks, even if those shocks last for a long time. This is precisely what we did in the case of BSE, avian influenza, drought, and floods.
The banking relationship with the agricultural sector is about more than just lending. We provide cash management and transaction accounts. Often producers come to their banker for advice. That said, the focus on bank activities in the agricultural sector is usually with respect to lending, so let's talk about that.
Canada's banks are important financial supporters of the agricultural community and rural Canada. Since 2004, total bank authorizations to the agricultural sector have grown by 6% and now exceed $28 billion, about 43% of total authorizations to the sector. Bank loans outstanding to the sector now exceed $20 billion. These funds are increasingly provided to producers across the country in new ways, through the opening of strategic branches, and more commonly, through the use of mobile bankers, who employ cars and laptops and meet with the client at the farm as opposed to in the branch.
Banks are one part of a very competitive financial market that the agricultural sector can draw upon. There is the Mouvement Desjardins, which is concentrated primarily in Quebec. In the rest of the country, there is a network of credit unions providing a wide range of services. There are suppliers of trade credit, and there is Farm Credit Canada, a federal crown corporation that offers financing. Together, these institutions supply over half of the debt financing available to the agricultural sector. In total, including the banks, about $65 billion in financing was made available to the sector in 2005, of which $46 billion was outstanding at the end of the year.
With so many different institutions offering financing and so much competition in the marketplace, we believe that financing is not a primary concern of producers in this sector, and we believe the evidence supports that view.
According to Statistics Canada, agriculture producers and other primary industries did not view access to financing as an obstacle to growth. The real issues facing the sector were low profitability, government regulation, and taxation, each of which was cited as a concern by over 50% of the respondents.
On the other hand, obtaining financing was cited as a concern by 16% of the respondents. The availability of credit to agriculture has been enhanced through the use of specialized staff, trained account managers in agriculture in both the marketplace and in the risk adjudication process. The only factor that scored lower as an obstacle to growth was management capacity of 13%.
Statistics Canada's survey of small-business owners in small and medium enterprises provides further evidence that there is a great deal of competition and choice with respect to access to finance in rural Canada. Rural SMEs, of which the agricultural businesses are a part, are more likely to request financing in any given year than urban SMEs--34% versus 20%. In addition, rural SMEs are more likely to have their debt-financing requests approved than are urban SMEs--88% versus 77%.
So both of these statistics indicate clearly that banks and other lenders have a strong commitment to agriculture and to rural Canada and understand the nature of the sector. Again, access to credit doesn't seem to be the major concern of rural SMEs.
When Statistics Canada asked these firms why they did not seek financing, less than 5% of the rural SMEs responded that they thought their request for financing would be turned down, that applying for a loan was too difficult, or that the cost of debt financing was too high. The SMEs that did not apply for financing did so largely because they didn't need it.
Based on government data and surveys, it appears that the major issues facing the sector are of a basic economic nature. The key result in this respect is profitability. Only 20% of the income of farm households comes from net farm income and most of this is related to program payments.
In addition, an increasing share of production is being exported, so access to world markets is an issue. There are fewer farmers in Canada, they are getting older, and they are operating larger farms. Succession planning and entry into the sector by a new generation of producers are serious issues, especially in light of the large capital requirements for farming.
Moreover, as more producers and processors employ new business models to increase the value added, new approaches to financing will be needed. Banks and other lenders must find ways to support their agricultural clients within the context of this environment.
Before closing, I'd like to make two observations about government programs for the sector. The banks and other deposit-taking institutions have a close relationship with their agricultural clients. That relationship is made stronger through government programs that provide income support to the agriculture sector and that help to lower the risk of lending to the sector.
We note, for example, in the recently tabled budget the reference to the new income stabilization program that would be delivered through the establishment of a new savings account program for farmers. Consultations with the provinces are forthcoming and that will require the establishment of savings accounts, and the banks will be meeting with Agriculture and Agri-Food Canada very soon to discuss those criteria.
As the accounts will have deposits made by both farmers and the government, with the deposits and interest income being subject to different tax rules, depending upon the source of the deposit, tailor-made accounts need to be set up. It is imperative that the industry be given sufficient time to do this. In order to avoid unnecessary and costly system changes, it's important that the industry be provided with certainty that the program speculations and system requirements are finalized before institutions begin setting up their accounts.
Secondly, the government has decided to continue delivering the Farm Improvement and Marketing Cooperatives Loans Act, FIMCLA, which is designed to increase the availability of loans for improvement and development of farms and the processing, distribution, or marketing of farm products.
Some reforms of the system have recently been suggested by the department. We would simply like to make the observation that the loan limits for the program have not kept pace with the developments in the sector, in particular, the rapid escalation of capital requirements for farms. Consequently, we are observing a decline in the number of producer requests for financing under this program.
We thank the committee for this opportunity to share with you the banking industry's thoughts, and we welcome your questions.
:
Thanks, Mr. Chair. Thank you, gentlemen.
My first question is to the Canadian Association of Agri-Retailers. Much of your presentation was on the cost of compliance in several areas. I'll not go into them, but do you know what happens in the U.S. in that regard?
Some of the inspection fees that we have in Canada through CFIA and other agencies, if they were operating under the U.S. government policy, would be paid for by the government, and they are GATT green. In this area of anti-terrorism and security measures, do you know the policy in the United States and do you know if it's GATT green?
I heard you say these costs are not passed on to farmers, but in one way or another, they are--not directly, but in one way or another they are, so if they can be picked up under a GATT green program, maybe that's what we ought to be doing.
While you're thinking about that one, I'll ask the Canadian Bankers Association the other one. You made the case, I think, that whatever programs we come up with have to be basically predictable and bankable. My feeling is that although we don't know the details--the government is slow in getting us the details--the savings account program is likely the right idea. It's likely a NISA-type program.
If this is going to be similar to the previous NISA--which we're not sure of, but I think it will be--did you have any problems in the banking industry with the previous NISA savings account program that we ought to be aware of before this one is brought into play?
Those are my two questions, Mr. Chair.
:
I'm conspicuous by my absence.
There is no question, I think, of our going the direction of less stringent regulations. We recognize that these regulations are important. They're important for the security of Canadians, and the benefit does accrue to Canadians.
If we were to give you the shape of what we think would be the solution, we believe the blueprint actually already exists in the form of the example we provided. And you have notes to that effect in the appendix called the “Marine Security Contribution Program”, whereby 75% rebate to the retailer would be appropriate for all approved eligible costs that are applied for on an annual basis. It's a $115 million program. It's absolutely identical to the requirements for the retail sites.
What we require and what the new regulations are likely to bring down are things like fencing requirements, surveillance, lighting requirements. It may get even more intricate than that, but right now I want to emphasize that retail sites are in compliance with current regulations, whether they're industry-regulated or whether they're government-regulated. But the future is going to be far more stringent.
We agree that we have to do it, and not only to do it thoroughly, but do it promptly to pre-empt a potential event. What I mean by that is terrorist acquisition or criminal acquisition of some of these hazardous materials.
We believe that the blueprint is already there. It's a simple one. It has precedent in the form of the Marine Security Contribution Program.
CAAR, however, would like to further suggest that our association be the central coordinator or facilitator of a program, because we have the relationship with the retailers, and we have the expertise to work with them to bring the consulting so that these sites can be upgraded appropriately and quickly. With that, we can be the central coordinator if you so choose, even doing on-site consultation with some of the members as well to bring them up to code, up to regulation. We think we could work hand-in-hand with government to do that.
:
I'll take the first run at that.
I think the opportunity for businesses to do well is the best when the marketplace is the best. If you know the revenues you can get when you have a viable level of revenue that you can extract from the sale of a certain type of product, if you know what the costs of production are going to be, and if those factors can be managed in the context of a market that is mature and stable, it is the ideal world.
We know Canada is not the only game in town. We have to compete with everyone else when offering products to the market and suffering changes in respect to the climate.
Australia is going to potentially have 60% less wheat on the market than they have had in past years. What does that do? For our farmers here, it offers an opportunity under these circumstances, but I think it's a pretty bittersweet kind of opportunity.
I guess the bottom line is that I don't believe organizations can really put into place programs that can foresee all of those factors, protect the industry, and create total stability.
I think we have to accept that, as has been the course over time, the marketplace will have swings and it will have cycles. We have to find ways to support industry through those, but I don't think there's too much that can really be done. Nobody has enough money to dampen the cycle to zero.
:
I'll see if I can take a run at that, because I've taken several runs at that. I'd like to refer, perhaps, to CAIS.
We have situations in our respective banks at this point in time in which we're still waiting for payments, and not just for the last year, but in some cases for the year before. It has to do with the fact--which we talked about before--that the program was implemented really quickly, implemented in difficult times. A shock was laid on the system immediately thereafter. It caused a multiplicity of actions to occur. Evaluation of those programs became difficult, and the response of the program itself could not be as effective as it should have been.
So what do we change to make it bankable? The first thing is that if I am a farmer on the prairies, for example, and I grow crops, I can buy crop insurance. I get a piece of paper that says I'm enrolled in crop insurance; here's the acreage that I've enrolled; here is the value per acre that I've enrolled for, so that's what my crop insurance payment is worth.
If CAIS could approach that--or “son of CAIS”, or whatever we are going to deal with going forward--and give us evidence of enrolment, clients could come to us and bring a piece of paper and say “We are enrolled in this program”, and then say “Here's the clear measure by which our reference margins are going to be calculated”, so that if we're going to deal with reference margins, this is what they are worth so that we know something about what the revenue level that is supported by that program will be. Those are probably the two key things that would help us. If we had documentation, that would make it bankable. Then you could treat a payment that you were waiting for like an account receivable.
When you don't have that evidence, you can't treat a payment that you're expecting. If you don't know what it is, when it's going to arrive, or how big it's going to be, you can't treat it as an account receivable. So that would add clarity.