On behalf of the Canadian Bankers Association, its 51 members, and its 500,000 employees in Canada, I would like to thank you very much for the invitation to speak to the committee on the subject of young farmers and the future of farming.
My members are here to answer your specific questions, so I will keep my comments brief. I will, however, take a moment at the outset to put the banking industry and its association with young farmers in the wider agricultural and rural community into some perspective.
The banking industry believes young farmers are an important part of the agricultural and rural community success story. Indeed, we are seeing a resurgence of interest in agriculture from the younger generation of farmers. While bright and determined, these younger farmers need more support and advice than do experienced producers. At the same time, both the new and older generations of producers need to recognize the new reality of agriculture, wherein they might be part of global supply chains and need to hedge international risks.
Through our roughly 2,100 rural and smalltown branches, we supply the tools, advice, and support to help them, their families, and their communities. These include one-on-one interactions around business plans, as well as ongoing business seminars at which banks provide access to expert business speakers. On the business side, banks provide deposit and operating accounts, insurance investments, and financial advice, as well as operating term and mortgage loans. I will elaborate on a couple of these products in a moment.
Banks also work with producers on succession planning to ensure a viable transition to future generations of farmers. Indeed, the industry is developing customized products for succession and transfer of ownership.
On the personal side, we help rural customers save for their children's education and their own retirement through GICs, stocks, bonds, and mutual funds. Banks provide specialized advice, lines of credit, loans, mortgages, and everyday banking needs such as deposit and savings accounts. In short, customers in rural Canada have access to the same services and prices as do customers in Canada's largest cities.
Specifically for young farmers and those contemplating farming, we provide sponsorship and support through a number of local and national initiatives. Indeed, my members would be happy to discuss their support for Outstanding Young Farmer programs, 4-H Clubs, and university programs to support agricultural youth in entrepreneurship, farm succession seminars, networking opportunities, scholarships, and the Royal Agricultural Winter Fair.
Our bankers understand the importance of access to credit for any farmer, and particularly for young farmers just starting out. Our lending decisions are based on an assessment of the borrower's ability to repay the loan. We make decisions on an individual case-by-case basis, but it should be realized that those decisions are balanced with more macro-conditions, such as the prospects for the business sector the borrower operates in, economic prospects in general, the cost to the bank of raising funds, etc.
In light of these considerations, what have been the results? About 18% of the total funds lent to SMEs by banks across the country are dedicated to the agricultural sector. That's almost one dollar in five, and it reflects the long-standing commitment of banks to this sector. Throughout the period of global financial turmoil, Canadian banks continued to provide financing to their agricultural clients. From the first quarter of 2008 to the end of 2009, the amount of credit we made available to the agricultural sector went up every quarter and increased by a total of more than 7%. Over the longer term, and consistent with our focus on prudent and responsible lending, bank credit has expanded in line with the agricultural sector's growth. Between 2001 and 2008, the provision of bank credit has been consistent with and appropriate for growth in this sector, and this largely reflects the fact that most of bank lending is for the purposes of working capital.
Canadian banks utilize the same prudent lending practices and excellent risk management systems in agricultural lending as they do in every other line of business. These practices and systems have led to a banking system that is today internationally recognized for its safety and soundness. As the experiences in other jurisdictions show, poor risk management is not just bad for lenders, but bad for borrowers as well; its negative effects extend into rural communities generally, and even into the broader economy.
The agricultural community has access to a highly competitive financial marketplace. Banks, credit unions and caisses populaires, Farm Credit Canada, finance companies, provincial government agencies--all compete to provide credit to the sector. About 70% of lending comes from private sector institutions, and banks provided 38% of total farm credit in 2008.
Also important is the nature of the financing that banks provide. Two-thirds of bank lending to the sector is non-mortgage credit, working capital, and operating lines of credit, making banks the largest providers of this type of credit with $14.7 billion outstanding in 2008. This type of financing is more complex than lending against assets, so it requires the bank to truly understand its customers and to work closely with them over time.
Governments also play an important role in the agricultural sector, and banks are important partners with government. Sometimes we are the conduit by which programs are delivered. Sometimes we provide expert advice with respect to some of the key features in the design of new programs. Recently, the industry has been consulted early in the process of program design, has provided financial and business expertise, and has implemented agriculture-specific government programs. All of this has worked to the benefit of producers, lenders, and the government.
I'll give you a couple of examples.
Banks participated in the evaluation of FIMCLA, and were instrumental in successfully rolling out CALA this past summer on very tight timelines. CALA is a program that assists young farmers. Since it was passed last June, banks have increased the volume of lending by 61% and the number of CALA loans by 35% when compared to FIMCLA.
Banks provided expertise to government officials who were designing the hog industry loan loss reserve program--HILLRP--to assist struggling hog farmers. The CBA and member banks were in regular communication with government officials, stakeholders, and/or customers on this program both during its creation and its implementation. We started speaking to our customers about government assistance to hog farmers even before completing program development. These actions resulted in banks accounting for almost half the volume of HILLRP loans made.
These agricultural initiatives are in addition to our work with the government on a broader range of credit initiatives such as BCAP, business credit availability program. We look forward to continuing this positive relationship with government.
The one overarching theme related to our support for young farmers, their families in rural communities, and our work with the government and stakeholders is the importance we place on building and maintaining relationships. Banking is about more than simply lending money. It's about relationships, and nowhere is this more evident than in the agricultural sector.
These relationships have helped us work with our customers through the inevitable peaks and troughs that come with working with this sector. The past decade has seen farmers confront BSE, avian influenza, drought, floods, H1N1 virus, and country-of-origin labelling. When these inevitable events occur, we work with farmers, taking into account their individual situations to find solutions that are sustainable and in their best interests. Sometimes banks need to have tough conversations with their clients, so that farmers can make decisions that preserve the capital of the farming operation. The banking industry's work during these events is testament to the importance we give to the sector and our interest in contributing to its long-term viability.
On this point, I'd like to refer to a survey of SMEs that the CBA conducted during the height of the financial crisis. Let me just point out that these were SMEs in general, not just agricultural producers. Eighty-nine percent of SMEs who approach their bank about their credit needs said their bank was willing to work with them. This does not happen without a strong bank-client relationship.
The key to the strong relationships we have with farmers is understanding the circumstances. Banks hire individuals with a P.Ag. designation and university graduates with an understanding of the agricultural sector. These individuals are account managers and specialists who advise farmers on such matters as farm loans, economic forecasting, farm business planning, and general farm management. They serve their clients through non-traditional means and modern technology. They employ cars and laptops to meet with clients at their farm in order for them to spend more time on their businesses and with their family. Banks dedicate resources to educate them through programs such as the Olds College bankers school. These account managers and specialists often move up to agriculture specific credit and risk adjudication positions.
In short, bankers live and work in rural communities and have the skills needed to support their agricultural clients. They donate both their business resources and considerable personal time to supporting local agricultural associations, clubs, and events. We have a stake in seeing farmers in rural communities thrive.
Thank you for the opportunity to meet with you on your study. I've kept my opening remarks short to enable my members to elaborate on issues I have raised here and on specific initiatives for the agricultural sector, particularly young farmers.
We would be pleased to answer any questions you have.
:
The specific question is on the concern from the...
I'll run out of time here, and then I'll give you the question, I'm sure.
I just want to give you a compliment in one area. My office has been dealing with one heck of a lot of farmers in financial distress, some being sold out. When it comes to trying to do a deal with a series of lenders, banks are willing to do a deal; Farm Credit is damn near impossible. It's just damn near impossible to do a deal with Farm Credit, because they won't write down principal, whereas the banks will.
So I congratulate you in that area, and I would ask you, in that area, about Farm Credit. They're supposed to be a last-risk lender. What I'm hearing from bankers is that they're going to the greater ability to pay back loans and are not into the high-risk lending they used to do. That burden is falling, to a great extent, on you. I see it in the cases I deal with. So I congratulate you in that area.
The question, for the yes or no that asked for, is on the HILLRP loan. We have farmers informing us that when they go into the bank, in cases in which the interest rate might have been prime plus 2% before, they're saying, okay, we'll lend you the money, but we want prime plus 6%, prime plus 5%.
:
Thank you, Mr. Chairman.
Thank you, witnesses, for being out today.
It's seldom that I get to see this many bankers all in one place, so I look forward to your input. The comments we're making here about young farmers are so important.
Mr. Wrobel, I look to your comments at the start, and I think they're extraordinary, actually. You say that the banking industry believes young farmers are “important”, and that you are seeing “a resurgence of interest in agriculture by the younger generation of farmers”, whom you call “bright and determined”.
I think that is an incredible, clear picture and description of what I see, not only, likely, in my area, which is an agriculture area in Lambton--Kent--Middlesex in Ontario, but there are young farmers coming along in a very difficult time. It's difficult sometimes because of markets, there's no doubt; and difficult, I think, because we have increasing land prices, increasing land rent, incredible prices. I farmed, and when I look at some of the equipment and their cost...
They need to be looking broader in terms of how they market. They are not just farmers who get up and do their job. They become marketers. Actually, they become more than marketers--they're commodity advisors, almost, within an integration of young farmers around them. These are just incredible young people.
You make the comments “recognize the new reality” as part of a “global supply”. Is that in fact a recognition that when they come in and talk to you, either with their support...? And it might be a parent, because usually these are often successions. I think the comments I made earlier recognize that there has to be, for someone to want to get into farming, to go into a multi-million dollar business, more than just a fleeting thought and just a love to do it.
So can you help me on this? Do they actually recognize these new risks they're up against?
:
Thank you, Mr. Chairman.
I appreciate all of you being here today as we start this study on the future of farming and young farmers. It's actually quite fitting that we have a panel of bankers here on our first day of study to talk about this issue. As much as we wish it could be otherwise, the relationship that farmers have with bankers is certainly a very important relationship for the farmers.
Although I think the banks need to do more work from their end in terms of the relationship with the farmers, I would commend you on some of the efforts you're making. Some of the things I've heard today have been in terms of trying to make sure the relationship with farmers is a good and strong one. I often hear farmers complain about the big bad bank, but on the other hand, they talk about Joe, at a local branch, who is very good to deal with and very understanding about farming and the business. It may be a small contradiction in some ways, but I appreciate the work you're doing to try to improve.
To begin with, in your presentation you specifically mentioned the Olds College school for bankers. Olds College is actually in my riding. It's in my home town as well. As it is one of the premier agricultural schools in all of Canada, I would say that anyone who receives an education there certainly receives a good education, one that will be valuable, and has spent time with some of our great future farmers. I commend you for that and for mentioning it.
The question I have is to all of you. Try to answer as briefly as you can, because we have a very limited amount of time. I guess it's a three-part question.
One of the things mentioned in your presentation, to quote you, is that “The key to the strong relationships we have with farmers is understanding their circumstances.” I'm very curious; all of you hold senior positions within your organization in terms of dealing with agricultural portfolios, and I'd like to know about your specific backgrounds. Do you have a background in farming? Did you grow up on a farm? Do you have a degree? What is your specific agricultural background?
Secondly, what is the one piece of advice, the best piece of advice, you would give to a young farmer? You deal with them when they come into the banks to get started in the industry. What would be the one best piece of advice you would offer to young farmers? Certainly the key to the future of family farms is helping our young farmers.
The third part to the questions is this. What one specific program do you have that's designed to help young farmers get started in the industry, whether they're taking over a family farm or looking to start their own farms?
I know it's a lot to try to answer. But very briefly, each one of you could answer, if you can.
:
I have three specific questions to ask. Whoever feels most qualified to answer them can step up. If more than two want to answer, that's great.
One of the things you do in giving out loans is assess the risk. Obviously you're profit-oriented, and that's fair. In assessing that risk, I think you need to know, when a farmer might run into some kind of trouble, what kinds of programs are there for the government to assist. One of those programs is AgriStability.
We've had many farmers come before us to... I can't count the numbers. And this isn't a criticism of the government; this is an assessment of the program to decide whether or not it's working.
So the farmers talk about this olympic averaging, and how the protocols are not working. They say it's not being fair to them because they need to have two years where they're in the black and not the red, and they can't get those two years in many cases.
I'm wondering to what degree might you recommend--if you could, if you look at this--that we redesign or tweak the business risk management so that it helps the farmers and lessens that risk so you might be more willing to have them qualify for loans. That's the first question.
The second question is about transition, about succession planning. We all know how much is going from one generation to the next. I used to be a succession planning lawyer, and I did a lot of work helping plan the transition of farms from one generation to the other. I would assume that you've been engaged with the government to some degree in helping them redesign some tax rules and laws that might address the issue that Randy was talking about. I'm just wondering if you have some advice for us on how some of the tax laws might be adjusted to enable that transition to occur when it might not otherwise occur.
My third question is on loans, not just to farmers but to other areas of the industry that ultimately help the farmers. That involves loans to companies that turn biomaterials they get from processing plants into energy, that kind of thing. As you know, we're becoming far more innovative now in pursuing the use of those materials to create energy.
I'm wondering to what degree the banking industry is prepared to participate in that as a partner. Government is a willing partner, with the announcement of $25 million and $40 million in the recent budget, and we applaud that. But how willing is the banking industry to participate with that industry in financing those projects?
Those are my three specific questions.
:
Thank you very much, Mr. Chairman.
I'm glad that Mr. Valeriote is happy with and applauding what we're doing. I just wish he'd start voting for what we're doing as well.
At the end of the day, Mr. Funk, you know, I hear you say that we need to think ahead and have a strong business plan. No offence, but I don't know too many people who would look at a strong business plan on a farm and still invest in that farm in today's day and age. But we still need these guys. We still need our agriculture producers. We still need our smaller farmers as well.
We've had the Canadian Pork Council, and everybody at the Meat Council, and the cattlemen, and they all say the same thing: their number one issue is cashflow in today's day and age. We were just hearing today about more issues about cashflow. I'm not trying to be confrontational, but I ask you this: what is it your industry is undergoing to assist in and alleviate this cashflow problem as much as you can, on the good business practices that are undergoing with some of our farms, or many of our farms?
I mean, I sit down with these farmers today, and it is a real misnomer for people to think that farmers go out there and plant their crops and then pick them off and then end up balancing the books at the end of the day. These guys know their input costs down to the dime before they ever plant it. They're some of the best businessmen I have in my constituency, running some of the least profitable businesses.
So what is it that your industry is doing? In conjunction with the government, how effective are some of these programs? We've put out hundreds of millions of dollars to help with transition programs and the APP, but I would like your reaction on how successful these programs have been.
Just on our travel and what have you, I think everybody should note that we can deal with some committee business if there's an urgent need or if something comes up. I would stress, however, that since our travel is pretty intense timewise, if any motions or other business are brought up while we're travelling, each member should try to at least find out if there's unanimous consent so that we can limit debate.
I guess how I'm going to deal with it, if it doesn't appear there's unanimous debate for a motion or something, is that I'm basically not going to entertain it. You know, we have a limited amount of time. But if something comes up, I just want to stress that...
Take, for example, this motion we just dealt with from Mr. Eyking. If we hadn't had unanimous consent today, we could have dealt with that on Monday or Tuesday or whatever.
Just so we're clear on that; so your motion--
An hon. member: [Inaudible--Editor]...Mr. Chair.
The Chair: Certainly. We're on committee meetings. I don't see any reason why not.
Now, I'd never argue with you, Mr. Storseth, as far as the rules and procedures go, but I believe we have the powers to...
Mr. Hoback.