Agriculture Committee on April 21st, 2010

[Jon Curran]

From TD's perspective, similar to Bob's response on the first part, obviously public policy is your decision. We recognize that there are some nuances within agriculture that need to be dealt with differently. As such, we have a dedicated sales force and dedicated business units that deal specifically with farmers across the country. We find that it helps in having those conversations with both existing farmers and new farmers.

Further to that point, where do I see agriculture growing within our portfolio? Again, I wish I had a crystal ball. But at the end of the day, we are investing in more bodies. We are growing our portfolio. I would like to think that with respect to agriculture, that would continue to be the case.

[Bertrand Montel]

About our vision of the specificity of agriculture, as the TD person said, agriculture is very particular. We have a specialized team and specific policies for agriculture.

As far as the future of farming is concerned, I cannot speak about the total amount of debt in the industry since it depends on the future of supply management. However, relating to credit needs and the need for financial services, these will continue to exist, to diversify and to grow in terms of the diversity of products and services.

[Gwen Paddock]

When you think about the recession we've come through, one reason the Canadian banks came through quite well was because of our strategy of keeping a very diversified portfolio. For that reason, agriculture is a really important component that keeps that diversity in our portfolio. So from a big bank strategic perspective, I think very much that there will continue to be interest in making sure that we're covering all sectors.

Personally, in my role, my mandate is to develop a strategy to grow the business we have in agriculture. It's not just important because of the impact on farmers. When you think of agriculture, it supports rural communities. And that's a very important aspect of the bank, because we have many branches and staff working in rural communities. We see it as being very important, and we will maintain if not grow it in the future.

[David Rinneard]

To be honest, we already treat agriculture differently, recognizing that there are many idiosyncratic aspects to the industry. Some of my colleagues alluded to special personnel, special products, and special policies tailored very well to serve that sector, recognizing there's annual cashflow, there's a lot of capital intensity, and the importance of the production of food.

To address your second question, at my institution agriculture is already the largest core sector that we serve. If I continue to do my job properly, it'll stay that way. The growth that I anticipate within agriculture, at least from our perspective, will be commensurate with the requirements of the industry.

[Mark Eyking, Liberal, Sydney—Victoria, NS]

A short one, Chair?

[The Chair, Conservative, Larry Miller]

No, you're way out of time. But I will allow Mr. Worsley to comment, if he wants to.

[Darryl Worsley]

Thank you, Mr. Miller.

CIBC certainly believes strongly in this business, and does see it growing over time. As my colleagues mentioned, it's a unique business, and we certainly have dedicated resources to meet those unique needs in areas you mentioned, such as renewable energy.

[The Chair, Conservative, Larry Miller]

Thank you.

Ms. Paddock, coming from a very rural community, I did appreciate your comment about the connection to communities and what have you, because their lifeline is related right back to agriculture.

Anyway, Mr. Hoback, you have five minutes.

[Randy Hoback, Conservative, Prince Albert, SK]

Thank you, Chair.

When we purchase assets like land we're starting to see the reality that the crops we grow on it can never pay for the purchase price. Is there anything we should be doing as a government, or anything you guys are doing in the industry, that accounts for that scenario? What I see happening in lots of the areas of Canada--it's happening more in Saskatchewan, which has been later to the game than, let's say, Prince Edward Island or Quebec or Ontario--is that the value of the land is getting so high there's no way young farmers can make the payments on it growing the crop they want to grow or putting on the livestock they want to put on it.

How do we as a committee handle that as a policy issue, to get around that? Any advice?

[Marion Wrobel]

Let me make first an observation about the bank lending to the agricultural sector.

I think I referred to it in my opening remarks, but we are the largest non-mortgage lenders to the sector. About two-thirds of our lending is for operating lines of credit of working capital. And that's not really based on asset values, but on the actual operations of the farm. That's why the credit that's been extended by the banking sector has grown in line with the output of the farming sector. It hasn't been driven by asset prices and things like that.

But to the specific question, I think some of the members may want to talk about that.

[Bob Funk]

I think the issue we see with land values is that, when you are operating farm businesses that are growing and that already have a core operation--in other words, to draw a quick and dirty analogy, you've got a corporate farm where you're going from one generation to the next, you're bringing in sons and daughters and grandsons and granddaughters--it's easier to buy incremental assets and to pay the price you need to get adjoining land and adjoining assets than it would be if you came to an agricultural business fresh; you're the first generation, you want to start, and how are you going to start? The minimum required to have a viable commercial agricultural business means you'd have to have a pretty big bank account to stand the downstroke in order not to be over-leveraged in the business.

Where I think the real challenge going forward will be is where you have intergenerational turnover that goes outside the family and where the senior generation is not in a position to want to or be able to finance the incoming generation. That's where the challenge will be, and that's when the push-back on land values and things like that will have to happen.

[Randy Hoback, Conservative, Prince Albert, SK]

But we're seeing a scenario even now in different parts of Canada where in certain regions, because the asset values have gone so high, even existing farmers are looking it and saying, “This doesn't make sense anymore”, and they're having a hard time staying in business. I think we see that in Prince Edward Island, for example, with the potato farmers.

Mr. Easter gave me an example of a farmer that has $1 million worth of debt. There's no way he can grow enough potatoes to ever cover that, yet somehow he's managed to get $1 million in debt.

How does a young farmer coming into the business do that in such a way that he doesn't take his dad and ruin his retirement and everything else? Because what he has there is his farm. That’s his RRSP. So now as this young guy--his son or neighbour--comes in and buys that farm, if he doesn't pay a fair value for that, his dad can't retire. Yet, in the same breath, if he does pay a fair value, there's no way the son can actually make the payments.

[Marion Wrobel]

I think, Mr. Chairman, one way to answer that is to say that it's important for lenders to the sector to be prudent and to follow sound business practices. As I said, the banks have been recognized internationally for their risk management approach and their prudent lending. That is the approach we take to the agricultural sector, and it's similar to the one we take with other sectors.

[Randy Hoback, Conservative, Prince Albert, SK]

But one beef I do have there is that if it weren't for CALA, the loan guarantees you guys get, would you be into the game as heavily as you are?

[Marion Wrobel]

Mr. Chairman, I would say that more than 95% of the lending that the banks do is outside of government programs. It is done. Oh, yes, the—

[Randy Hoback, Conservative, Prince Albert, SK]

So you're not utilizing the CALA program.

[Marion Wrobel]

We utilize the CALA, and CALA enables us to do lending that we would not otherwise do, because there is that guarantee. The HILLRP enables institutions to give restructuring loans that they might not otherwise have given.

But as I indicated earlier, my members started doing those restructurings before the HILLRP. They were doing that without government support. The vast majority of our lending out there has no government guarantees associated with it. It is done on commercial terms. It is subject to the same prudential standards that we applied to any other loan. It is subject to OSFI looking at the portfolio and saying, “You're doing the right thing. You have the right amount of capital, and you're taking on the right amount of risk.”

While those government programs are important and they do help to foster incremental lending at the margin--I'm just going to repeat this--the vast majority of the lending we do is outside of government support programs, and it is done on commercial terms.

[The Chair, Conservative, Larry Miller]

Thank you, Mr. Hoback.

I'd just like a clarification, Mr. Wrobel. You used a figure of 95%. Was that 95% of your agriculture accounts?

[Marion Wrobel]

Yes, that's the total amount of lending.

[The Chair, Conservative, Larry Miller]

I thought it was, but I just wanted to clarify that. Thank you.

[Bev Shipley, Conservative, Lambton—Kent—Middlesex, ON]

That's the total amount of lending.

[The Chair, Conservative, Larry Miller]

But it's the total amount of lending to agriculture.

[Marion Wrobel]

It's the total amount to agriculture that is done without government loan guarantees or anything like that.

[The Chair, Conservative, Larry Miller]

Thank you. I just thought it was important to clarify that.

Mr. Guimond, you have five minutes.

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

Thank you, Mr. chair.

Good morning, lady and gentlemen.

As my colleague has told you, I am a farmer and a milk producer. Therefore, supply management is a major concern of mine. I have been meaning to ask a question for a long time now. Since we have in front of us such a broad group of bankers, I will ask you the question I have had in mind for about 10 years.

During trade negotiations, for example relating to the Doha cycle, what would be the economic and other consequences for your banks if Canada were to lose supply management? You have certainly considered the issue and thought of a strategy.