Evidence of meeting #46 for Agriculture and Agri-Food in the 39th Parliament, 1st Session. (The original version is on Parliament’s site, as are the minutes.) The winning word was farmers.
A recording is available from Parliament.
Vice-president, Bank of Nova Scotia, Canadian Bankers Association
Let me take a cut at responding to that.
Liberal
Vice-president, Bank of Nova Scotia, Canadian Bankers Association
No, because what you're suggesting is already out there. It is broadly available through all the financial institutions that are members of the CBA.
Everybody has flexibility in their products. Basically when they work with clients, they establish repayment schedules over a specified period of time. As and when difficulties arise for those farmers, an opportunity is always built in for the customers wherein the payments can be set aside for a period of time until the situation fixes itself.
We reference the BSE issue, where there were clients who made no payments on principal loans for two and a half years because of the way circumstances went.
The objective we have is to make sure we have the patience to help us work with whatever comes down for the producer, because it will eventually turn itself around. We don't want businesses shut down prematurely. We also want to support governments as they take action to provide programs.
The other responsibility that we have as lenders is to say at what point a business is not going to be viable even when things do turn around. It is a judgment call for financial institutions. We clearly don't want to own farms. We clearly don't want to see people go away broke. Our goal is to say at what point you should be counselled to take another course of action, take the equity, invest it in another way, and do something else. Those are the kinds of decisions and processes we would go through.
Government chooses what it wishes to do. Our goal is to make sure the process is as clean, as amenable, and as supportive of the farm client as possible.
Head of Agriculture and Agri-business, RBC Financial Group, Canadian Bankers Association
To add to the point Bob made, during BSE, droughts, floods, and the avian influenza, when we offered the program to our clients, approximately 20% of our customers took advantage of it. Only 20% deferred payments. There was very low participation because of the desire to carry on and keep going.
Liberal
Albina Guarnieri Liberal Mississauga East—Cooksville, ON
That's interesting.
To anybody who would like to answer, is it the view of the panel that government should really be a provider of incentives and subsidies rather than insurance programs and quotas? Should we leave it up to the unions and the market?
Vice-president, Bank of Nova Scotia, Canadian Bankers Association
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.
Conservative
David Anderson Conservative Cypress Hills—Grasslands, SK
Thank you, Mr. Chair.
This is a bit of a comeback to Wayne's earlier question.
In your presentation you said, “Participants also expressed the need for predictable and bankable programming.” We have heard that many times from farmers, and we hear all the time that we need a predictable and bankable program. I suspect the definition of “bankable” might be a little different for farmers from what it is for bankers. What do you want to see or what do you need to see in a program to call it bankable?
Vice-president, Bank of Nova Scotia, Canadian Bankers Association
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.
Conservative
David Anderson Conservative Cypress Hills—Grasslands, SK
Can a margin-based program come to that point?
Vice-president, Bank of Nova Scotia, Canadian Bankers Association
I believe it can come close. It may not be exact, but even in a crop insurance program it may not be exact, because you always have dates and times when you add acreage. You subtract acreage and that sort of thing. So you've always got a range, but at least it would get us very close.
Conservative
David Anderson Conservative Cypress Hills—Grasslands, SK
I've always been a strong supporter of a strong crop insurance or insurance program, because it is predictable, and it's clear what your coverage is on that.
I have another question. Earlier we heard that there's zero net income across the board in the farm sector, and we keep hearing that all the time. Why do you lend into a situation like that? And why do you keep increasing your lending into a situation like that? What's the paradox?
Vice-president, Bank of Nova Scotia, Canadian Bankers Association
I don't believe it is a paradox. I think the situation is that when we're talking about the net income being negative, most of the time we're talking about that before the level of payments come in. When we talk about an agricultural industry, we know that around the globe, agriculture is an industry that has political support at all levels. It's considered a staple industry. How do your people get fed in your country, and are they able to generate income? That's a key part of government policies around the world. So I don't think that's really a disconnect.
But when groups talk about net income, they would like to, ideally, be soundly profitable without any kinds of payments. If we then look at our clients, we look at everything that happened in their business. So they've got the natural revenue from the sale of the products that they sell. In addition, they've got revenue from the payments that were due them from whatever insurance programs or whatever support programs fell their way. In that context, the ability of those producers to survive over the course of time has been very strong.
If we look at our trending in the organization I work for, the number of problem loans that we are seeing today is not significantly higher than what it was five years ago.
Conservative
David Anderson Conservative Cypress Hills—Grasslands, SK
You're comfortable lending into a situation in which people's income is dependent on government payments?
Vice-president, Bank of Nova Scotia, Canadian Bankers Association
What we are comfortable doing is working in an industry that we know has a large political aspect to it. Whether you are lending in the U.S. or Canada or the U.K. or Australia or wherever, you have various levels of involvement of government that will result in payments being made to producers. So it doesn't matter whether I like it or not, and it doesn't matter whether I would prefer that or not. What we need to look at when a credit application is put in front of us is what this producer faces going forward.
Conservative
David Anderson Conservative Cypress Hills—Grasslands, SK
In terms of biofuels, the price of oil is coming down. Do you have any analysis of your commitment to the biofuels industry in Canada over the next few years, given the volatility that we see in some of the energy prices?
Vice-president, Bank of Nova Scotia, Canadian Bankers Association
Brian, you'll probably have a word on this too.
I'm going to some research that the George Morris Centre in Guelph has done. My cut on this is that they find it easier to find sound economic factors that would let us show really good, strong growth in the biofuels sector if we were looking at biodiesel—easier than with ethanol, largely because ethanol requires a really strong support program, has done over the course of time, and has it in the U.S., and if we want to have an industry like it here, we'll probably have to do something in the way of matching that, if we choose to play.
But it's a little more difficult to find it there largely because our natural feedstock for ethanol is wheat, whereas the natural feedstock in the U.S. is corn. So except for Ontario and to a certain extent Quebec, we have to look at a bit different technology from what they use there.
Conservative
The Chair Conservative James Bezan
Thank you.
I have a quick question for CAAR.
I appreciate you guys coming in and making your presentation based on business risk management for your businesses. Security around your businesses is good for our communities.
The question I want to bring up, though, is how things in the farm economy are affecting your businesses right now. When you know that farmers are dealing with farm programs, how has that affected the way they do business with you? I know that a lot of the ag retailers are no longer offering credit, probably to the glee of our financial buddies who are here today. It used to be that there was some credit available at your stores.
We also are seeing a situation right now where, last year and again this year, input prices are going through the roof, compounding the problems a lot of the producers are facing. I just want to get a feel of that from you before we dismiss.
President, Canadian Association of Agri-Retailers
From our point of view, our health is in direct relationship to how the grower is doing out there. This year the inputs have gone way up, but farmers are a lot more optimistic about what they think they can receive next year, and many of them are locking into higher prices. But things happen; weather and other factors happen out there. We had a member who had two or three locations in northeast Saskatchewan. With two years of wet weather, he's out of business this past year.
Whether factors such as the high cost of inputs—and it's directly related to fertilizer this year, and fuel has gone up over time.... We go with the farmer, and he tends to buy more crop inputs and puts on more products if he has a good crop coming and can see a reasonable result at the end as far as income is concerned.
Conservative
The Chair Conservative James Bezan
For me? Okay.
Well, I'll tell you what I want to talk about really quickly here. I want to thank all of you for your presentations.
I want to hold the committee for a minute. You're free to go, as witnesses.
I'll just let you know that we got our travel budget approved at the liaison committee. We still have to get it through the House, which I believe will happen tonight or tomorrow, and I don't anticipate any problem.
My understanding is that we'll be going with three Liberal members, three Conservative members, one Bloc, and one NDP. We need to make our travel arrangements to get out to Penticton and work our way back.
I have questions first from Mr. Gaudet, and then from Mr. Miller.
Bloc
Roger Gaudet Bloc Montcalm, QC
I would just like to make a brief comment. I would like to wish Happy Easter to all my colleagues and to all employees. At the same time, I would like us to start at 3:30 p.m. and end by 5:30 p.m. at the latest. That is another Easter wish of mine.
Conservative