Agriculture Committee on June 9th, 2009

[The Chair, Conservative, Larry Miller]

We'll call our meeting to order.

I want to thank all our witnesses for being here today. We have the Canadian Bankers Association, Farm Credit Canada, and Credit Union Central Canada.

Just to let you know, there may be votes we have to slip away for. You may hear bells shortly after 12 o'clock. Unfortunately, we do have to break to go to that, but there should be enough time to get back here and finish. I apologize in advance for that. It may not happen, but in all likelihood it will.

With no further ado, we'll move to our presentations of 10 minutes or less per organization. The Canadian Bankers Association is first. Who would like to lead off?

Go ahead, Mr. Wrobel.

[Marion Wrobel, Director, Market and Regulatory Developments, Canadian Bankers Association]

On behalf of the Canadian Bankers Association, its 50 members, and its quarter-million employees in Canada, I would like to thank you very much for the invitation to speak to the committee on the subject of the competitiveness of Canadian agriculture. 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 agriculture and rural communities into some perspective.

Needless to say, the prosperity of the agricultural community and rural Canada go hand in hand. The banking sector, of course, has a strong commitment to both. CBA member banks have about one-third of their branches in rural and small-town Canada. Through these roughly 2,100 branches, they provide a wide range of products and services to farmers, their families, and ancillary service providers in the overall rural community.

On the business side, banks provide deposit and operating accounts, insurance, investments, and financial advice, in addition to operating term and mortgage loans. On the personal side, they help rural customers save for their children's education and their own retirements through mutual funds, specialized advice, and specialized accounts. They provide lines of credit, loans and mortgages, and everyday banking needs. In short, customers in rural Canada have access to the same services and prices as customers in Canada's largest cities.

While banks are private sector, profit-seeking institutions that provide financial services to customers, they also work closely with government to provide delivery channels for a number of government programs, such as the advance payments program, FIMCLA loans, the soon to be established AgriInvest accounts, and CALA loans. We look forward to continuing this positive relationship with government. The banks are also working with the government on a broader range of credit initiatives, such as BCAP, the business credit availability program.

While I will discuss non-credit aspects of banking in a few minutes, let me first speak to credit issues, as they are on everyone's minds today.

In granting credit to any household or business, banks look to the ability of the borrower to repay the loan. They make decisions on an individual, case-by-case basis. But there are also macro conditions that need to be considered, such as the prospects for the business sector the borrower operates in, economic prospects in general, the cost to the bank of raising funds, and so on.

The agricultural sector is an important market for bank lending. Eighteen per cent of total funds lent to small and medium-sized enterprises is dedicated to this sector. That's almost one dollar in five. The amounts authorized for agricultural producers and related services tend to be higher, on average, than in other industry segments in recognition of the capital- and land-intensive nature of farming. Moreover, growth in bank lending has been in line with the sector's growth. Between 2001 and 2008, banks have expanded lending in Canada at roughly the same rate of growth as farming output. The provision of bank credit has been consistent with and appropriate for growth in the sector.

Each individual bank provides credit to the sector in competition with other banks, credit unions, caisses populaires, Farm Credit Canada, finance companies, and provincial government agencies. In aggregate, banks had authorized almost $30 billion in financing to the sector at the end of 2008. That is the amount banks actually offered to provide to their customers. Chartered banks provided 39% of total farm credit in 2008.

It's also important to look at the nature of financing banks provide. Banks are the largest providers of non-mortgage credit. Banks accounted for 51% of this lending, close to $14.7 billion, in 2008. As this type of financing is more complex than lending against assets, it requires the banks to truly understand their customers and to work closely with them over time. The Canadian banking system is today internationally recognized for its safety and soundness due to its prudent lending practices and excellent risk management systems, practices and systems that we use in agricultural lending as well. These are what enable Canada's banks to continue to extend credit to businesses, even if some other parts of the financial marketplace are contracting. Moreover, as the experience in other jurisdictions shows, poor risk management is not just bad for lenders, it can have negative effects on borrowers as well.

As noted earlier, banking is about more than simply lending money. It's a relationship business, and nowhere is this more evident than in the agricultural sector. The relationships we build with our farming clients and agricultural stakeholders help us play an important role in supporting the sector. These relationships have helped us work with our customers through the inevitable peaks and troughs that come with working with this sector.

In this past decade, we have seen farmers withstand BSE, avian influenza, drought, floods, and now H1N1 virus and country-of-origin labelling. When these inevitable events occur, we work with farmers on a client-by-client basis, 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 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 to our interest in contributing to its long-term viability and competitiveness.

The key to the strong relationships we have with farmers is understanding their circumstances. Banks hire individuals with a P.Ag. designation: university graduates with an understanding of the agricultural sector. These individuals are account managers and specialists who advise farmers on matters such 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 farms in order for them to spend more time on their business and with their family. The banks dedicate resources to educate them through programs such as Olds College bankers school. These account managers and specialists often move up the agriculture-specific credit and risk adjudication positions.

We also educate our clients through presentations dedicated to the agricultural sector, such as business and succession planning. We also sponsor events and groups of farmers such as the Royal Winter Fair and 4-H groups.

Mr. Chair, I'm sitting here with my colleague Bob Funk, and we have a number of bankers who are sitting on the side. They all have specific stories that they would like to tell the committee. I hope we have an opportunity for them to tell their stories, because individual banks have different products.

I'd like to thank you for the opportunity to appear before this committee. I've tried to keep my opening remarks short, but we would like to talk about some specific initiatives for the sector, such as the full service approach to banking, new flexible credit products, initiatives for young farmers, client education, mobile banking, and a wide range of banking channels.

We would be pleased to answer your questions. Thank you.

[The Chair, Conservative, Larry Miller]

Thank you very much. I knew there was a bunch of your colleagues here from different banks. There are some empty chairs, and your colleagues are more than welcome to join us if they so wish.

[Marion Wrobel]

Thank you very much, Chairman.

[The Chair, Conservative, Larry Miller]

You're welcome.

We'll now turn it over to Farm Credit Canada. Mr. Stewart.

[Greg Stewart, President and Chief Executive Officer, Farm Credit Canada]

Thank you, Mr. Chair.

Good morning, honourable members. It's a pleasure to appear before the standing committee on behalf of Farm Credit Canada. My name is Greg Stewart, and I am the president and CEO of FCC. With me today is Lyndon Carlson, our senior vice-president of marketing.

FCC is a financially self-sustaining crown corporation. We provide financial and business services to Canadian agriculture and agrifood. This year, we are celebrating our 50th anniversary. Our corporate office is in Regina, and we have over 100 offices, most of them located in rural Canada, and we have about 1,500 employees. We provide customers with flexible, competitively priced financing, equity, insurance, management software, information, and learning. Our innovative products and services are tailored to the unique needs of agriculture.

In the past year, we made over 18,000 loans and nearly 25% of those loans were to new customers. We focus on the primary producer as well as suppliers and processors along the full value chain.

We know from our customers that one of the most important factors that determine the future success of a producer or agribusiness operator is their management capability. We received positive feedback on our FCC learning programs. Over the past two years, we've had over 25,000 people attend an FCC learning event. The FCC portfolio has grown for each of the last 16 consecutive years and now stands at the $17 billion mark. FCC profits are reinvested to develop more loans and services to benefit agriculture and agrifood.

Agriculture is an incredibly diverse industry. Some sectors are doing very well despite the global economic situation, while others, as we know, are struggling. Eight to ten months ago, there was concern about the availability of credit. We continue to see very strong competition for higher-quality, supply-managed, and larger loans; and for the most part, the predictions regarding tighter credit have not materialized. Canadian financial institutions have done a good job of ensuring that credit is available to Canadian producers and agribusiness operators. FCC customers were able to access credit in all sectors and all parts of the country, as evidenced by our lending results.

Our portfolio continues to grow. It grew 14% in 2008-09 and net disbursements reached $5.1 billion. Our portfolio has increased in every sector except hogs. Primary production is our core business and that represents 88% of our portfolio. The remaining 12% is agribusiness and agrifood lending.

We know that many farms will be transferred to the next generation in the next five years and new farmers are entering the industry. In 2008-09, FCC disbursed nearly $1.6 billion to young farmers, those under the age of 40. That represents more than 30% of total net disbursements in the past year. This new generation of producers is innovative, technologically advanced, and willing to try new things. They are the future of agriculture. Recognizing that interest and enthusiasm for agriculture starts early, FCC supports young farmers at every stage, from up-and-coming farmers in 4-H clubs and college students to products and services tailored to meet the needs of first-time borrowers.

ln the 2007 federal budget, the government decided to consolidate more of its borrowing. They mandated that some crowns, including FCC, borrow through the consolidated revenue fund. Our goal is not to be the lowest or the highest priced lender, but to be competitive and to provide a fair alternative to farmers and agribusiness operators. Our strategy is not to undercut competitors to win business, but it is to be competitive. We believe our customers value our innovative products, knowledge of agriculture, and our customer service.

FCC is supporting agriculture and lending in all sectors. At the same time, we pay close attention to the business plans of the customers and businesses we lend to. Before FCC lends money, a thorough assessment is conducted. We take into account the risk associated with the loan, and the ability to repay. FCC arrears have been low for several years. Currently, approximately one quarter of one per cent of principal not due is in arrears, slightly lower than last year. Our customers are committed to following through on their loan repayment agreements even in challenging times, and when they can't make payments, we offer our customer support program to help them make it through.

I certainly can't predict the future of Canadian agriculture, but there is optimism out there. In January 2009, we released the results of FCC research with our Vision panel. This is a group of 9,000 producers and agribusiness operators across Canada who share their opinions with us. The survey showed optimism in spite of the current economic situation. More than half of the 4,300 respondents said that they are optimistic about the future of agriculture, up 1% from the previous year. At the time of the survey, nearly one-quarter of respondents planned on expanding their operation in the next five years, and two-thirds believed that their business was in better shape than it was five years ago. This, for us, was very positive news.

But it's not all rosy. There certainly are challenges. Producers have experienced volatile commodity and input prices, and that is likely to continue. The Canadian dollar has been strengthening, impacting those businesses that rely on the export market. In addition, in 2009, the World Bank expects global trade to decline for the first time in over 25 years.

On the other hand, interest rates are low, and the average value of Canadian farmland increased 5.6% during the last six months of 2008. This is the third-highest increase since 1997. As a result, the asset base of producers has increased in value.

For 2009-10, we see optimism regarding growth, and margins are projected to improve in the crops, dairy, and poultry sectors, despite continued increases in production costs. Hog and beef producers will continue to be challenged, with prices below the five-year average and input costs above the five-year average. As this committee well knows, the recent COOL legislation is another challenge facing these sectors.

In closing, it is only when our customers succeed that FCC succeeds. We are very fortunate that 50,000 customers have chosen to do business with FCC, including nearly 4,000 new customers last year. Our financial strength allows us to invest in initiatives that enhance the ability of Canadian producers and agribusiness operators to compete globally.

Thank you very much for your time and attention. Lyndon and I would be pleased to answer your questions.

[The Chair, Conservative, Larry Miller]

Thank you very much.

We'll hear now from Ms. Skotnitsky of the Credit Union Central of Canada.

[Pam Skotnitsky, Associate Vice-President, Government Affairs, Credit Union Central of Canada]

Mr. Chair and members of the committee, thank you for the opportunity to speak today.

My name is Pam Skotnitsky and I'm the associate vice-president of government affairs at SaskCentral, which is the provincial trade association for credit unions in Saskatchewan. However, today I appear before you in my role as chair of the agricultural subcommittee of Credit Union Central of Canada's legislative affairs policy committee. I'm joined by Mr. Frank Kennes, vice-president of credit, Libro Financial Group, a credit union situated in southwestern Ontario.

Before addressing the issue that brings us before you today, I'm going to make a few preliminary comments about Canadian Central and the role the credit union system plays in Canada.

Canadian Central is a federally regulated financial institution that operates as a national trade association and finance facility for its owners, the provincial credit union centrals. Through those provincial credit union centrals, Canadian Central provides service to 440 affiliated credit unions across Canada outside of Quebec. Credit unions represent an important component of the Canadian economy. We deliver services through 1,700 locations to five million members. We employ 2,400 people, and we represent $114 billion in assets.

Credit unions in Canada come in all shapes and sizes and operate in almost every community, including large urban centres. Credit unions are the first choice for many members. In fact, one in three Canadians is a member of a credit union or caisse populaire. We believe these numbers reflect the system's strong cooperative values and commitment to the economic development of their communities in good times and in bad. This commitment is illustrated by our continuing presence in more than 380 communities in Canada where we are the only financial institution in town. It is also evidenced by the high level of the system's charitable donations, which in recent years have reached nearly $36 million annually.

Credit unions are significant lenders to the Canadian agricultural economy and in rural Canada outside of Quebec. In fact, over the past 15 years credit unions have been increasing their market share in agriculture. Using the most recent available data from Statistics Canada, there is currently $47.3 billion in farm debt outstanding in provinces outside of Quebec. This debt has been issued by chartered banks, Farm Credit Canada, credit unions, and other smaller lenders. Of that total, credit unions account for approximately $5.37 billion or 10.9%. This figure is up considerably from the 5.3% in 1993. In short, credit unions have more than doubled their share in the issuance of farm debt over the past 15 years.

Regionally, the Manitoba and Saskatchewan credit union systems are major shareholders of the farm debt outstanding in their provinces, controlling 25.7% and 22.8% respectively. The Manitoba credit union system has steadily reported remarkable growth over the last 15 years, with an average annual growth rate of 9.8%. Strong growth is consistently reported by the Ontario credit union/caisse populaire system each year, with an average annual growth rate of 10.3% over the last 15 years. The system's market share in Ontario stands at 5.6%. Meanwhile, the Alberta credit union system holds 5.8% of the province's debt load, with farm loans growing at an average annual rate of 7.9% over the last 15 years.

Canadian Central has reviewed some of the recent testimony before this committee, and we are aware that you have heard from a wide variety of stakeholders in regard to the broad issues. With that in mind, we wish to focus on the policy development process as it relates to agriculture and the financial sector.

In recent years, the Government of Canada has increasingly called on financial institutions to play an important role in agricultural program delivery. This is evident in business risk management programs such as the old net income stabilization account program, or NISA; the Canadian agricultural income stabilization program, CAIS; and now Agrilnvest. Financial institutions are central to the delivery of loan guarantee programs such as FIMCLA, the Farm Improvement and Marketing Cooperatives Loans Act, and previously financial institutions were asked to participate in loan programs to support the creation of slaughterhouse capacity in Canada. Also, there are advance payment programs where financial institutions play a key role.

Finally, changes to the policy relating to Farm Credit Canada continue to impact the way the financial markets evolve in relation to agriculture. Canadian Central views the deepening relationship with Agriculture and Agri-Food as having positive potential for producers, the Government of Canada, and for financial institutions.

However, it is our view that agriculture programs and policies that impinge on producers and FIs can only be successful if financial institutions are brought into the policy-making process in the early stages of development, rather than at the tail end. It is our concern that in the absence of appropriate and regular dialogue, policy and program outcomes will be less than optimal.

We can illustrate this point in relation to three areas of policy: that concerning the recent reforms of FIMCLA, the rollout of AgriInvest, and recent developments related to Farm Credit Canada.

Canadian Central considers the recent proposed reforms of FIMCLA, found in Bill C-29, to be the outcome of successful dialogue. To elaborate, when the federal government made the announcement that the FIMCLA program was to be cancelled, credit unions and other stakeholders were quite concerned. Canadian Central and other stakeholders immediately began a dialogue with Agriculture and Agri-Food Canada about these concerns, and the government quickly reinstated the program and undertook consultations aimed at reforming the legislation.

Through the consultation process, it was suggested that loan guarantee limits be increased, that the program be open to new farmers, and that the program parameters be changed to include increased cooperative eligibility and to assist new farmers and the intergenerational transfers of farms. It was satisfying to see that many of these suggestions were incorporated into Bill C-29.

In our view, this stands as an example of a fruitful consultation that will ultimately benefit all stakeholders. Credit unions were brought in at the front end of the program reform, and to its credit, the government was attentive to the suggestions to strengthen the program.

Unfortunately, similar discussions did not take place as policy was developing in relation to the old Canadian agricultural income stabilization program and the new AgriInvest program. Instead, financial institutions were brought into the dialogue with government as it sought to have aspects of the program delivered by financial institutions. This made for some difficult discussions and delayed the rollout of the programs as issues requiring attention were identified.

Finally, we would like to conclude with some observations about policy development as it relates to Farm Credit Canada.

Since Farm Credit Canada had its lending mandate expanded in 2001, credit unions have become increasingly concerned about the growing presence of FCC in agriculture lending and the rapid manner in which the FCC is increasing its market share. In fact, credit unions would readily admit that the strongest competition faced by credit unions in the agriculture market comes from Farm Credit Canada.

To illustrate, excluding Quebec market share numbers for comparative purposes, federal government agencies, specifically Farm Credit Canada, held 28.2% of the farm debt outstanding in 2008. In 1993, this number was around 9.5%. This number has been consistently growing over the years. In fact, over the last 15 years, the average annual growth rate has been 10.8%.

Today we have a situation in which smaller local community-based credit unions have to compete for producer business with a large crown financial institution that is able to source funds at lower rates because of government backing, and seemingly with underwriting criteria that are often more liberal than credit unions can comfortably accept. In some areas, continued competition from the FCC puts into question the future of credit unions in some communities.

To be clear, our concern is not with competition. Credit unions face competition from the banking sector every day. We welcome it and we manage to do quite well.

In our view, it is doubtful that the government envisioned this as its preferred policy outcome or that it knowingly tilted the playing field in favour of the FCC when drafting reforms to the FCC's legislation. However, there was little or no consultation with the credit union system or other financial institutions in the period preceding the reforms, and the parliamentary process associated with the passage of the bill was severely truncated.

It is our view that such an outcome could have been avoided if the Government of Canada had entered into a dialogue with financial institutions at an early date about potential reforms to the FCC Act. This could have been an opportunity to explore ways in which the FCC, credit unions, and other financial institutions could complement one another with their strengths and help serve producers in a mutually beneficial way. Unfortunately that opportunity was missed. Of course, it's an issue that will be taken up with government down the road. However, we include it to illustrate the need for closer dialogue as policy is being developed.

To conclude, we wish to thank you for the opportunity to appear before this committee. We look forward to answering any questions you may have.

[The Chair, Conservative, Larry Miller]

Mr. Easter, you have seven minutes.

[Wayne Easter, Liberal, Malpeque, PE]

Thank you, Mr. Chair.

Welcome, folks.

Pam--I'll say your first name because it's easier to pronounce than your last--on your point about Farm Credit, this is something I've been hearing for quite a number of years, and from the banks. I'm surprised the banks haven't mentioned it. There seems to be a concern that Farm Credit is getting into more markets. Competition is fine, but I hear on the ground that their objective is to go after the lower-risk loans and attract more secure money, and they're not in the business of the high-risk loans for which they were originally established. Farm Credit began as a lender to assist in the more high-risk field, and I know things have changed over the years and they have to go to the market for money.

So what's your view on that? Is what I'm hearing correct or wrong? Does anybody from the bank want to make a comment?

[Frank Kennes, Vice-President, Credit, Libro Financial Group, Credit Union Central of Canada]

That's exactly the concern we have. As Pam said, we're not concerned about competition, but we're concerned at this point about the cost of funds. The cost of funds that the credit unions and banks have don't allow us to put loans out at rates that Farm Credit can at this point, so from that standpoint we have concerns about the competition.

[Wayne Easter, Liberal, Malpeque, PE]

Marion.

[Marion Wrobel]

Thank you, Mr. Chairman.

To put it in context, the kinds of principles we would like to see that govern federal crown corporations like FCC are the ones that have been very well espoused in the current extraordinary financing framework the government announced in its previous budget. The financing should be incremental. It should add to what the private sector is doing. It should be on commercial terms, so it should be consistent with the prudent and sound practices that private sector financial institutions operate under. It should be directed toward businesses that have viable business plans. We'd also like to see it within the framework of a very well-defined public policy mandate.

For example, the Business Development Bank of Canada has a very well-defined public policy mandate to provide incremental financing. So where there are gaps in the financial marketplace, it should provide financing that the private sector doesn't. We think that governs the way it behaves, and those principles are very good and should be applied to something like the FCC as well.

[Wayne Easter, Liberal, Malpeque, PE]

Before I go to Farm Credit--and I imagine Mr. Stewart has a comment--I support the need for a federal crown corporation in lending. But I can tell you, Mr. Stewart, from my experience dealing with farmers in trouble, that I'd rather deal any day with the chartered banks. When farmers are in trouble the banks are willing to cut a deal, but Farm Credit is not willing to negotiate and come to some kind of settlement. In these times, I think that's needed.

Mr. Stewart.

[Greg Stewart]

Thank you.

On the last point, I would be disappointed if our staff were behaving that way. Our mandate and goal is to clearly work with our customers through difficult times. We stand behind them. We have a customer support strategy that we proactively roll out to producers when they're experiencing challenges--specifically in the last year in the hog and beef sectors. In all cases, we have nowhere else to go but agriculture. So we support all sizes of producers in all areas of Canada and in all sectors. We absolutely are not targeting only the large or high-quality loans. Our average loan size is still under $200,000. We have 50,000 customers, and the gross receipts for over half of them are under $500,000 a year.

[Wayne Easter, Liberal, Malpeque, PE]

I don't want to cut you off, Mr. Stewart, but I do want to get another question in.

In general--and this is a problem in these low-interest times--I know regular mortgage consumers are not getting the benefits of the low interest that they should. I'm wondering if you can answer this in the banking sector on farm mortgages and loans. What's happened is that interest rates have come down. The spread between Bank of Canada prime and lending or bank prime has increased. This is what we're seeing in the general mortgage area. Even though interest rates have come down, they have not come down to the consumer as much as they have come down generally. Is it the same thing in the agricultural loans?

We have heard at this committee--and it's a competitiveness study--that one of our biggest problems is that farmers can be competitive, but what we need is competitive policy. You know the industry that's in crisis right now as well as we do, I imagine, because you're looking at the figures. The hog industry and the Canada Pork Council have asked for an ad hoc payment of $800 million, $30 a hog, based on last year's number. We believe the government should be coming out with it. It's what was done in the beef industry when they were in trouble.

The industry is telling us they can't survive without a substantial infusion of cash. They're tapped out in loans, as you well know. Where do you see this hog industry going if the government doesn't step up to the plate and provide funding that will at least make us competitive with the United States?

[The Chair, Conservative, Larry Miller]

Mr. Wrobel.

[Marion Wrobel]

I believe the interest rate in question was addressed to the banking sector. Again, let me try to put it in context.

Since its peak in the fall of 2007, the Bank of Canada benchmark rate has declined by 425 basis points. The bank's prime rate has declined by 400 basis points. That's about 95% of the Bank of Canada decline. When the banks make loans to households and businesses, they do not source their funds at the Bank of Canada; they source their funds by either raising deposits from customers or by going into markets for either short-term or long-term money. They have the bank deposits, they have GICs, and that sort of thing. On average, the cost of funds to the banks has not declined nearly as much as the 425 basis points. On the long side, five-year money, it has been pretty sticky. It has declined by maybe 100 basis points in some cases, or 200 basis points. Those costs of funds are something that goes into the formula to determine what a customer pays. Customers who have existing prime-plus contracts, mortgages, with banks have seen their mortgages decline by 400 basis points. There has been quite a substantial decline in what customers are paying, on average, for mortgages from banks.

[The Chair, Conservative, Larry Miller]

Thank you very much.

Mr. Bellavance, seven minutes.

[André Bellavance, Bloc, Richmond—Arthabaska, QC]

Thank you very much.

Ms. Skotnitsky, I do not want to misinterpret your comments. Do you feel that the presence of Farm Credit Canada constitutes unfair competition for credit institutions?

[Pam Skotnitsky]

Yes, exactly, as stated in my comments.

We believe FCC is unfair competition. The source of funds they have access to from the Government of Canada is definitely something that credit unions don't have. When we're looking at what kind of lending rates we're able to provide and what type of terms, we have to be cognizant of where we're raising our capital as well as where we're raising our funds and our deposit rates on the other side, so all of this is considered when we're providing a loan to our members. Our income taxes and policies, at the end of the day, also need to be considered in our cost equation. We're not able to compete in the marketplace to the extent that FCC is.

Mr. Easter made another comment about seeing movement into credit that could be granted by credit unions where the member would be qualified for loans from a credit union. Absolutely, so where they used to be a lender of last resort, they're definitely not; they are our biggest competition in the marketplace today. Credit unions are competing as best they can. We are in a circumstance in rural Saskatchewan, or rural Canada--I'll broaden that--where we have the margin squeeze because of the Bank of Canada rates, where we're not able to continue to sustain all our branch network on a go-forward basis. We have a very difficult balancing act to try to maintain the extensive infrastructure we have and honour the reduced rates we're trying to provide to our membership.

[André Bellavance, Bloc, Richmond—Arthabaska, QC]

So, even if you are very imaginative in your attempts to compete, you do not have the same tools. For someone like me who is a defender of agriculture, it is good news that there are a number of players in the market and that agricultural producers can get lower interest rates. That there is as much competition as possible, in a word. That benefits producers directly. Your concern is more with the tools that Farm Credit Canada has and that you do not.

[Pam Skotnitsky]

I guess when we take a look at it, we believe that the crown corporations definitely have a role to play when the needs aren't being met. When it comes to agriculture lending, we want to step up and we want to participate. So we didn't see that as a marketplace where there were needs being unmet. Actually, in trying to address this issue, it would be a number of years ago that we met with Farm Credit Canada because we had pockets of credit unions that were having some success in cooperating with Farm Credit Canada in partnerships. So at that point we determined to encourage credit unions to establish partnerships with Farm Credit Canada. In those instances where there were successful partnerships, the credit union was providing operating credit and Farm Credit Canada was providing the fixed credit. Those were very effective partnerships. Those partnerships have fallen away, where FCC is even providing the operating credit out there.

So they're very aggressive in the marketplace, and it's a difficult marketplace for credit unions to continue to exist in. The fact that they have government backing is really an issue for us. We want to play a thorough role with our agriculture members and we're finding ourselves not being able to do so.

[André Bellavance, Bloc, Richmond—Arthabaska, QC]

Mr. Stewart, I assume that you want to comment. The people from Farm Credit Canada have always told me that the organization wants to offer services to complement the banks, the credit unions and other credit institutions. Now we have just heard another story and I would like to know what you think.

[Greg Stewart]

Thank you.

Historically, many years ago FCC was a lender of last resort, and in fact, they went under and got a large capital injection from the federal government. At that time the government requested that FCC be a self-sustaining crown corporation and be competitive in the marketplace. That is, I would suggest, exactly what we've done since then. We are not out there trying to be the lowest-cost provider. Contrary to that, I would say a few things of evidence.

We have a custom pricing pool in which we track all competitive business. We have a committee, and two-thirds of it are the banks and the credit unions seeking to have FCC clients switch and the other one-third is us attracting new business. In 70% of those cases, on $660 million in the past year, our interest rates were higher than those of our colleagues around the table here. In 23% of those cases we matched the interest rate to retain our customer, and in only 7% of those cases was our interest rate lower than another offer by the other members around this table.

We are not able to take deposits. When we were requested to borrow from the consolidated revenue fund, from the government, we did not change the transfer pricing rate to our staff. So that means we have continued to behave exactly as we have in the years past in terms of our price setting to staff, so that they did not have an unfair competitive advantage compared to the banks or credit unions. Our clients are telling us they deal with FCC because we understand agriculture, our staff are totally dedicated to agriculture and aren't asked to be involved in many other different small businesses, and we are there through their good times and the bad times. In fact, there was a brief mention of the hog industry earlier. We just received a reward from the Manitoba Pork Council, as a friend of the industry in April of this year, for sticking with them if they're not perceiving that others are.

So we are out there to support our customer base and to help them succeed in growing their operations, and 50,000 customers have a choice of anywhere to do business--and we are not a full-service institution--and they choose to do business with us because of our staff's knowledge and dedication to agriculture, not because we're providing the lowest price in town.