Agriculture Committee on April 21st, 2010

[Bertrand Montel]

Briefly, all lenders in the agricultural sector are aware of the business cycles and they take account of the history of the business. We rarely base our decisions on a single year to know if the operation is profitable or not. We are knowledgeable about the industry because we are professionals, we are aware of the business cycles and we take them into account.

In the case of a young farmer launching a new project, we would consider the soundness of the project. The rate is actually based on our assessment of the risk. We also take account of the quality of the assets used as collateral. We make a global assessment of the risk, including both the risk of default and the risk of losses in case of default.

[France Bonsant, Bloc, Compton—Stanstead, QC]

I find that a bit strange. My riding includes 60% of farmers. I have heard of farmers wanting to kill themselves by jumping from their silo because of the greediness of banks. In the case of farms that have been in operation for several generations, I find it hard to believe that you would look at the history of the previous three or four generations and that you would suddenly be very generous because climate change is putting the farmer in difficulty. Banks are not non-profit organizations, they exist to make money.

What is the average rate of bank loans? Is it 7, 8 or 10%? One has to be a banker to understand your decision-making process. There are fixed rates and variable rates, fixed rates that can be converted into variable rates at maturity, and rates guaranteed for 45 days. Your young farmer only wants to operate his or her farm, not try to understand the Byzantine subtleties of the banking business.

I want to know what you can do to help those people working in agriculture. We hear all the time people talk about food sovereignty, climate change and greenhouse gases. We absolutely have to keep our farmers here. I do not want to have to buy chicken from China. What is it your plan to help farmers with loan rates and management?

[Bertrand Montel]

I will give you a brief answer. First of all, in Quebec, banks represent about 35% of farm loans, the caisses populaires about 50%, and Farm Credit Canada about 15%. So, we are not the only ones lending money to farmers.

Furthermore, generally speaking, the average rate for our agriculture portfolio is less than prime plus 3.

[France Bonsant, Bloc, Compton—Stanstead, QC]

Prime is the preferred rate plus 3?

[Bertrand Montel]

The average rate of our portfolio.

[France Bonsant, Bloc, Compton—Stanstead, QC]

My colleague is a farmer.

[The Chair, Conservative, Larry Miller]

You have 30 seconds.

[France Bonsant, Bloc, Compton—Stanstead, QC]

He is a farmer, I am not.

[Claude Guimond, Bloc, Rimouski-Neigette—Témiscouata—Les Basques, QC]

Recently, we have seen reports on Chinese holdings coming to Quebec and Canada to buy land. As a banker, how do you react when you see those reports?

[Bertrand Montel]

At first, we were very surprised because we had not heard of that on the ground. Later, it appeared that in that specific case, it may be a case of real estate fraud since the verifications carried out by the parties to the transactions did not provide definite answers. There is some doubt about the partner really being a Chinese investor. The issue is to know if non-farm investors intend to invest in farmland in Quebec and Canada. It is probable. Some investment funds have already done so.

[Claude Guimond, Bloc, Rimouski-Neigette—Témiscouata—Les Basques, QC]

What is your position about that?

[The Chair, Conservative, Larry Miller]

Your time is...

[Claude Guimond, Bloc, Rimouski-Neigette—Témiscouata—Les Basques, QC]

Do you approve of that or not?

[Bertrand Montel]

It really depends on who the partners are and what their intentions are in the context of funding the agricultural industry.

[The Chair, Conservative, Larry Miller]

Thank you.

We'll now go to Mr. Atamanenko for seven minutes.

[Alex Atamanenko, NDP, British Columbia Southern Interior, BC]

Thank you very much for taking the time to be here.

You mentioned, Monsieur Montel, that, in a rough breakdown, the banks have roughly 35% of the loan business in Quebec, and credit unions 50%, and Farm Credit Canada 15%. I'd like to know if the percentages are roughly the same in other parts of Canada.

[Marion Wrobel]

Nationally, it's about 38% for the banks.

[Alex Atamanenko, NDP, British Columbia Southern Interior, BC]

Do you know how much credit unions would take up?

[Marion Wrobel]

Farm Credit Canada has about 24% or 25%, and the credit unions, the caisses populaires, would have the rest. That's across the country.

[Alex Atamanenko, NDP, British Columbia Southern Interior, BC]

Okay. I was just curious about that, because I wasn't sure.

My next question is about Statistics Canada data showing that farm debt outstanding amounted to a total of $59.1 billion in 2008, or 5.9% more than it was in 2007. Does this growing debt make it harder for young farmers to get credit, even though there are credit programs in place? These are tough times for many farmers. It's very difficult, as we've heard before when the committee has travelled, for young farmers to get into the business. Is this making it more difficult? Are you offering anything special to young farmers vis-à-vis people in the cities? Is there something that is encouraging farmers to stay in the business and to keep our rural communities alive?

That's just an open question.

[Jon Curran]

I have no problem speaking to that question.

I don't think the amount of debt within the industry is impacting the availability of credit at this point in time. There is certainly credit available where the situation warrants. As we mentioned previously, we assess credit applications on a case-by-case basis. If the individual, be they an existing farmer or a new farmer, comes to us seeking credit, we will review their business plan.

There are certainly programs. For example, the CALA program provides a higher loan value and minimizes the down payment requirement. It only requires a 10% down payment for new farmers, so it's a great avenue for new farmers to get into the game.

Certainly every situation is evaluated individually, and I don't think the $59 billion is limiting the availability of credit to new farmers at this point in time.

[Alex Atamanenko, NDP, British Columbia Southern Interior, BC]

Would anybody else like to comment on that?

[Gwen Paddock]

I would say that what we can provide to young farmers in a lot of instances is business and financial advice. That's key to setting up a commercially viable operation and to helping them meet their long-term goals. I think that's key.

So when you ask if there are different programs or different criteria for our young farmers as opposed to established farmers, the answer would be no, to the extent that when we assess credit, the operation needs to be viable. We're not doing anybody any favours if we provide credit yet the operation doesn't have a high likelihood of success.

I think where we really do a good job as lenders is in talking to that individual and finding out what their goals are, and helping them work through some of the decisions that will allow them to establish an operation that has a high chance of being successful.

[Alex Atamanenko, NDP, British Columbia Southern Interior, BC]

The other question that goes along with that is regarding the Farm Credit Canada program for young farmers called the accelerator loan, where there's apparently no down payment. Is there something similar that the banks offer to young farmers?

[Gwen Paddock]

Actually, my advice to a young farmer would not be to go the route of no down payment, because I think when you look at the cycles in agriculture and how prices go up and down, you need to have some equity so you can withstand some of the bumps and the things that don't always go as planned. I think our approach is more about providing good advice around proper capitalization of the operation, so people don't get so far in debt they can't withstand any bumps in the road.