Agriculture Committee on April 21st, 2010

[Gwen Paddock]

I'd really like to answer number three.

When you think of agriculture biotechnology and clean technology, that's actually pretty exciting when you look at what the opportunity is. For the Royal Bank, we're actually developing a strategy on how we can get ahead of our competition in meeting the needs of companies or individuals who are in that space.

I also think when you put together the topic, being young farmers, the bright light, I think, in the agriculture and agrifood industry is agriculture biotechnology, and some non-traditional uses for agricultural products.

To answer your question, yes, we see it as very much an opportunity, a growth opportunity, for the industry and then also for our portfolio.

[The Chair, Conservative, Larry Miller]

Okay, that's--

[Frank Valeriote, Liberal, Guelph, ON]

Mr. Wrobel--just briefly, Mr. Chair, if I may--I don't mean to be confrontational, but is possible for you to undertake to...?

I'm not satisfied with the answer that you don't feel like you can share that with this committee. This committee actually encourages people to bring that kind of information so that we can share it with the minister and have a discussion in a collaborative way.

I'm wondering if you could undertake to give us that information in a couple of weeks.

[Marion Wrobel]

Mr. Chairman, I don't want to suggest that we don't want to be cooperative on that, but we did not come here... I mean, we don't have an industry position that I could say to you right now, here's what we think of that particular program. We haven't done that. If I were to provide an opinion, I don't know if all of my members would share that right now.

I simply would say, yes, we do deal with officials on a regular basis. Where we have some concerns about particular programs, we do bring that forward.

[Frank Valeriote, Liberal, Guelph, ON]

Would you share those with us?

[Marion Wrobel]

To the extent that we do have concerns that we bring forward, I think we can share them, or if we have a position, we can share that.

[Frank Valeriote, Liberal, Guelph, ON]

So will you undertake to show us that in the next two or three weeks?

[Marion Wrobel]

I don't even know if we will have a position in the next two or three weeks. I'm simply saying that I was not prepared to answer that question right now. If we have something that we can share with you, we will do that.

[Frank Valeriote, Liberal, Guelph, ON]

All right.

[The Chair, Conservative, Larry Miller]

Mr. Storseth, five minutes.

[Brian Storseth, Conservative, Westlock—St. Paul, AB]

Thank you very much, Mr. Chairman.

I'm glad that Mr. Valeriote is happy with and applauding what we're doing. I just wish he'd start voting for what we're doing as well.

At the end of the day, Mr. Funk, you know, I hear you say that we need to think ahead and have a strong business plan. No offence, but I don't know too many people who would look at a strong business plan on a farm and still invest in that farm in today's day and age. But we still need these guys. We still need our agriculture producers. We still need our smaller farmers as well.

We've had the Canadian Pork Council, and everybody at the Meat Council, and the cattlemen, and they all say the same thing: their number one issue is cashflow in today's day and age. We were just hearing today about more issues about cashflow. I'm not trying to be confrontational, but I ask you this: what is it your industry is undergoing to assist in and alleviate this cashflow problem as much as you can, on the good business practices that are undergoing with some of our farms, or many of our farms?

I mean, I sit down with these farmers today, and it is a real misnomer for people to think that farmers go out there and plant their crops and then pick them off and then end up balancing the books at the end of the day. These guys know their input costs down to the dime before they ever plant it. They're some of the best businessmen I have in my constituency, running some of the least profitable businesses.

So what is it that your industry is doing? In conjunction with the government, how effective are some of these programs? We've put out hundreds of millions of dollars to help with transition programs and the APP, but I would like your reaction on how successful these programs have been.

[Bob Funk]

The first part of your question is what do we do to ensure that we are seeing a good business plan, that we understand a good business plan when we see one, and how do we respond to it?

[Brian Storseth, Conservative, Westlock—St. Paul, AB]

No, I have no doubt that you know a good business plan when you see one, but there are fundamental changes going on within this industry. How is your industry assisting in the issue of cashflow right now? We've heard that you're getting ahead of the game. We've heard that you guys have been on top of things. Well, what are some of the details that you are doing, and how successful has it been in conjunction with the government programs?

[Bob Funk]

I think probably a bigger piece of the answer to the question you're raising is this: when we see a business plan, what's our response? Every balance sheet and every business is going to have certain categories of assets, certain categories of liabilities. You have to line up the liabilities with the categories of assets and then set a debt repayment structure that enables the business to flourish as best it can. For example, if you're buying land, you don't want a five-year repayment program. You want maybe a 25-year repayment program.

It's a question of a number of things that we all build into our products. The first thing is what is the useful life of the asset, and how do we best accommodate what the length of the loan should be? A second thing could be that when a business undertakes an expansion, is the cashflow going to be impeded for some specific period of time? I'm adding x number of head capacity to my hog barn and it's going to take me six months to generate the revenue from that. Is it possible that we can defer principal payment for a period of time? That's an example of one of the things.

These are the things we think about. What is the business going to do physically to make happen what it wants to have happen? What are the categories of assets involved? How quickly will the revenue begin to flow against when the costs have to be incurred? Then we line up the loan so that we give a package that gives flexibility at the front end to enable the business to get started.

A business has to be viable. It ultimately has to have the capacity to service the debt that it places against it. But we can do certain things at the outset of some of these projects to expedite getting them moving.

If you're asking me what key thing we would do, I'd say probably it's how each of us address the need to be flexible up front to get the business rolling.

[Brian Storseth, Conservative, Westlock—St. Paul, AB]

I mean, I understand how to assess a business plan, and I understand what a business plan is. But when we're talking about cashflow, what are some of the changes you have made in your industry, up front, to make things more flexible for farmers today so that they will have that cashflow, so that they're not having to worry about whether or not they can access their line of credit or enough of the line of credit to put their crops in?

[Bob Funk]

I thought I'd already said that, but in any case, one of the things we will do when, for example, a new project is undertaken, is that we'll say, okay, for a year there's going to be no cashflow from this, so we need to put a loan into place. What are we going to require in the way of payments? Year one, it would be interest only, or year one, nothing; we'd build it into the rest of the loan.

We have some tools like that, and we can and do use them with projects when they are put together.

[Brian Storseth, Conservative, Westlock—St. Paul, AB]

But you don't do this for all farmers. Let's be blunt; you don't do this for all farmers. What are some of the factors you will look at when you're assessing how flexible you're going to be up front? Age: is that one of the factors you're looking at?

[Bob Funk]

No. We'd be looking at--

[Brian Storseth, Conservative, Westlock—St. Paul, AB]

Value of the land?

[Bob Funk]

--the management capability of the business to physically do what they say they're going to do, at their ability to stay on plan if they set a budget for costs. If you see excessive overruns, then essentially you're not going to get performance the way you wanted it.

[Brian Storseth, Conservative, Westlock—St. Paul, AB]

So then, with Mr. Hoback's situation, where a quarter of land in our area in some places is costing you $200,000 to $250,000, there's no way these guys are walking up and showing you that they're going to plant hay on that quarter of hay land that they're buying.

I mean, where...?

[Bob Funk]

Well, that's the management kind of strategy and tactics that they have to bring to it: what's my best opportunity for revenue from this land? We would look for them to do that. I'm not going to tell you what you need to grow on that acre of land, but if you want to buy it for $8,000 an acre, then I would need to see from you what your revenue generation plan would need to be to make that acre pay.

Now, maybe it's in conjunction with ten other acres that you already have. We certainly see projects like that. If it's a project that's brand new, then it would take something stronger and a little more extraordinary to make it pay.

[Brian Storseth, Conservative, Westlock—St. Paul, AB]

All right.

Thank you very much, Mr. Chairman.

[The Chair, Conservative, Larry Miller]

Thank you.

I had Mr. Tweed next, but I see that Mr. Lemieux is here.

You are next on the list, if you want to be. You're last.

[Pierre Lemieux, Conservative, Glengarry—Prescott—Russell, ON]

Actually, I wasn't prepared for a question; I hope one of my colleagues is.