Thank you, Mr. Chair.
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.
