Mr. Chair and members of the committee, I thank you for having me here.
My speech will be divided into four points. First, I will talk about the precarious financial situation hog businesses are in. Second, I will explain why few businesses in Quebec participated in the two programs, the transition program and the federal government's HILLRP. Third, I will talk about what will happen with the mandatory APP repayments in fall 2010, in a few months. And fourth, I will talk about some measures that could be taken to help more potentially viable businesses keep going.
My first point is the precarious financial situation many businesses are in. Hog production has been one of the most welcoming industries to new producers in recent years, either through the transfer of farms, through the sale to non-relatives, or simply by establishment. However, the financial situation of hog businesses has significantly deteriorated in recent years because of the factors Mr. Laterreur mentioned a few minutes ago.
To combat this, Agriculture and Agri-Food Canada created the APP in 2008. This program gave businesses some cash flow. Unfortunately, the time to repay these special loans is fast approaching, and very few businesses will be able to do so in light of the current financial situation.
In the study conducted by the Fédération des producteurs de porc du Québec in 2008, it looked at a control group of farrow-to-finish hog farms to come up with a projected portrait from 2009 to 2011. It was not promising. The situation in 2008 for this control group shows that businesses had a remaining balance of $36,000. After paying off all of the businesses' expenses, debts and payroll, businesses still cleared $36,000 on sales of about $1,100,000.
If those same businesses were evaluated in 2009, 2010 and 2011, according to the projections of Agriculture and Agri-Food Canada provided as part of the HILLRP last October, the results would be much less promising. The 2009 results are projected. It is much easier to draw conclusions on something that is already over. The $36,000 surplus is expected to disappear and turn into a loss of about $47,000 in 2009, $72,000 in 2010, and about $70,000 in 2011.
Does reality reflect these projections? In order to validate this trend, I followed a group made up of 11 farms specialized in hog production from the Groupe Conseil Agricole Beaurivage. The evolution of this group over two years shows that the profit or surplus in 2008 was $37,000—so virtually the same as the control group, which was $36,000—which disappeared and turned into a loss of $85,000 in 2009.
Moving on to the second point, why so few Quebec businesses participated in the transition program and the HILLRP, the hog industry loan loss reserve program. The transition program has shown that Quebec farms generally have higher short-term debt than other Canadian farms, because this is what Quebec support programs allow for. Under the transition program, the short-term debt, to allow for a stop in production for three years, or permanently, the business had to at least be somewhat stable for the three-year period. That means that even if the producer was transitioning to another type of production or stopped altogether to find a job elsewhere, he had to be in a position to finance some expenses. The submissions for Quebec farms were most often around $2,000, compared to the amount of $1,000, which was the average maximum accepted. I even saw some around $3,000.
With respect to the HILLRP, the hog industry loan loss reserve program, the high level of debt and loss of profitability that businesses have been experiencing in recent years for many reasons—illness, market crisis, H1N1 virus, etc.—severely affected the profitability of businesses. Even with the 2009 projections for 2009 from Agriculture and Agri-Food Canada, it was difficult to prove that businesses were likely to be profitable.
Another factor comes into play here. A significant percentage of Quebec farms are funded by the Financière agricole du Québec. The financial institutions that give out loans were not happy about being second to the primary creditor of most businesses, the Financière agricole du Québec. Therefore, financial institutions did not all agree to participate in the program. In fact, only businesses funded directly by financial institutions had their creditors accept and propose a refinancing program through the HILLRP, if it would enable them to lower their risk, and, obviously, when the possibility of profits, even minimal ones, were likely.
Add to that the next deadline that industry businesses must meet, which is September 30. On September 30, 2010, APP repayments will theoretically be due. Advance payments not refinanced through the last program will theoretically be due the following month. A small percentage of businesses will be able to meet these deadlines. I think it is less than 50%—I would not guess any more. We know that there will not be a huge number of businesses. They do not have the cash to face this situation, and even with their usual creditors, they will have a hard time doing so. There are two inevitable outcomes: the sale of shares or of the business, and a mediation process.
Now, let us talk about potential measures that could help more of these businesses keep going. One thing I think should be done is that APP repayments should be frozen, according to the current structure, which includes maintaining the related interest bonuses. Since our industry has been in a crisis for five years, these measures should ideally be maintained as long as the crisis is still going on, and until each business has been able to accumulate some working capital.
The second measure has to do with the mediation process. The agent for the program or for Agriculture and Agri-Food Canada should be more open to solutions, and should be part of finding a solution to the problem through mediation. The closed door we are getting right now, and their complete lack of presence at the mediation negotiation table makes it difficult for other creditors who must find a sustainable solution to the problems facing these businesses.
Third, if governments were willing to create new programs, the programs could, if possible, be paired with existing programs, like AgriInvest, for example. Governments could simply improve the percentages and focus on very specific productions. For example, there could be a 2010 pork AgriInvest, a 2011 beef AgriInvest, etc.