Agriculture Committee on May 10th, 2010

[Frédéric Marcoux]

As Mr. Groleau was saying earlier, people rarely transfer their business to anyone other than family. Financial gain is a much stronger motivator and the farmer therefore dismantles the business instead of transferring it. People rarely transfer their farms. I knew a few, but they are the exception.

However, there is a misunderstanding between us when it comes to the programs. Earlier, we were talking about two programs. The transfer savings program is one, but it should not be confused with patient capital. That word slipped in earlier. This program for business transfer is not specifically for young people who are not from the farming sector to avoid speculation or the creation of an artificial value. It is to make it easier for young people who are not part of the family to take over the business.

[The Chair, Conservative, Larry Miller]

Thank you. Your time has expired.

Ms. Bonsant for one quick question.

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

Mr. Groleau, you talked about market price. If the government had a long-term vision for sustainable development in green technology, there would be less dependence on potash, for example.

In 2009, the highest paid CEO in Canada was the CEO of a potash company in Saskatchewan. If you are paying more per ton, now you know why.

If there were less dependence on oil, could green technologies help you cope with the market price of eggs?

[Marcel Groleau]

Reducing our production costs is one option we are constantly working on. Given that market prices are insufficient, we constantly have to work on production costs. Anything that could help us become more green is welcome. Consumers are concerned about the environment. I think that some environmental problems could be solved with agriculture, whether in terms of energy production, recovery, composting, etc.

We are certainly open to that. However, this still will not allow us to make up for the shortfall in market prices because we live in a global village.

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

It is basically a matter of dumping.

[Marcel Groleau]

Yes. That is what is happening. We live in a global village. Trade is done globally and more often through an exchange. In other words, people take goods from a future sale: that is called a futures market. When prices fall, it is not necessarily because there was a poor harvest. Predictions are made that—

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

Like the stock market.

[Marcel Groleau]

Yes, it is like the stock market. Exactly. That is what causes the most price fluctuations in farm commodities. They try to predict whether there will be enough corn or soy on the market in six months. If there is a bad crop, China could buy less. The prices fluctuate, and that has nothing to do with what is happening on our farms.

We must oversee these transactions, which are creating pricing problems on the farms. These transactions cause serious price fluctuations, which require more serious involvement from governments. Once again, the dumping continues to happen because of the subsidies.

That is why the problem in the agriculture industry cannot be solved strictly with Canadian programs or Canadian involvement. It is an international problem, like the environment. Just like we cannot clean up the planet from Canada alone, we cannot solve market problems from Canada alone. However, Canada can play an international role in doing so.

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

Canada can be a world leader.

Could he respond to that?

[The Chair, Conservative, Larry Miller]

Mr. Groleau, we're out of time. I'm sorry. I was very lenient, or tried to be.

I have just one closing question for Mr. Marcoux. You commented earlier that the capital gains should be increased. We had a witness at one of our previous hearings, an accountant, who is a so-called expert in his own right on generational transfers, capital gains tax, and that kind of thing, and he specifically declared that we shouldn't increase the capital gains. His reasoning was that for a husband and wife with a farm, both are allowed $750,000, for a total of $1.5 million, which he thought was very sufficient. He was not in favour of including that from transfers to non-family members.

Any comment on that?

[Frédéric Marcoux]

We are in agreement that if that applies to everyone, it is true that no one will be able to take advantage. We must simply determine who will be able to transfer their business and who will dismantle it.

If it applies to everyone, it means that someone who dismantles his business is entitled to an additional capital gains exemption. This would motivate even more people to dismantle their businesses. If that is the direction we take, it must be targeted only to those who plan on transferring their business, regardless of who it is transferred to. The notion of transferring and dismantling must be separated.

[The Chair, Conservative, Larry Miller]

Okay. Thank you very much.

We are out of time for this session. I want to once again thank all of our witnesses for coming here today. We really appreciate it. There will be a report prepared at some point and tabled in the House of Commons, and we appreciate your input into this.

Could we ask that the witnesses vacate the table and our next round of witnesses move to the table as quickly as possible?

In five minutes we will resume. Members could remember that too.

Thank you.

[The Chair, Conservative, Larry Miller]

Could we have everybody to the table, please? I hate to rush everyone, but every minute we waste is less time we have for presentations and questions.

I'd like to welcome our witnesses to our second session today. Thanks very much to each one of you for taking time out of your busy day to be here.

We will move to Mr. Réjean Leblanc. Because of the numbers here, we're going to try to keep it to seven minutes if we can.

Jacques, go ahead.

[Jacques Gourde, Conservative, Lotbinière—Chutes-de-la-Chaudière, QC]

Mr. Chair, I would like to start with Mr. Laterreur, because other witnesses are participating in his presentation. We could then hear from Mr. Lecours, who will be presenting with Ms. Létourneau. Mr. Lehoux could then make his individual presentation.

[The Chair, Conservative, Larry Miller]

I'm at the committee's disposal. Everybody is going to get a chair. I have absolutely no problem with that as long as no one else does.

Mr. Laterreur, just because of the number of witnesses, if it's possible to keep it to seven minutes or so, that would help. But I will be flexible.

Thank you.

[Rémy Laterreur, As an Individual]

I want to thank the Standing Committee on Agriculture and Agri-Food for inviting me. I am very pleased to be here today. My name is Rémy Laterreur. I have been a pork producer for 31 years in the municipality of Saint-Narcisse-de-Beaurivage, on the south shore, south of Quebec City. My speech today has to do with the fact that in order to ensure the future of farming, existing businesses must be in good financial health.

In my experience, the profit margins in farming are much slimmer, and most producers can feel a considerable amount of financial stress in trying to adapt to regulations or standards. These producers listen to the market signals, which are often accompanied by political signals encouraging them to make major investments to fully development their business's potential.

Agriculture in Canada is, and will always be, a very important economic lever, but because of our northern location, it requires, and will always require, a minimal amount of support from governments.

In my 25 years as a producer, the price cycle has been relatively regular. There were low, medium and high prices, which balanced out when averaged over five years. There were significant health problems related to our production, but they were spaced out over time, which allowed the farm to adjust and recover financial stability.

From 2005 until now, hog farms have seen a lot of action. The circovirus epidemic, which lasted two years, caused losses of 10% to 30% in most herds. The use of corn ethanol increased feeding costs by about 50%. The strength of the dollar has caused a significant decrease in the competitiveness of pork exports, which led to a general decrease in revenue for pork producers. Pork producers saw their usual references drop as a result of the massive investment of money in grain markets. The combination of losses from 2005 to 2008 forced a large number of farms to participate in the federal government's advance payments program, repayable one year later.

The futures markets seemed to get off to a good start in 2009, but then collapsed after the H1N1 virus, initially referred to as the “swine flu”. This is in addition to the world economic crisis, which is not yet over.

We are still waiting for a decision from the government regarding postponing, once again, APP repayments planned for September 2010. Support from the AgriStability program, which is based on a cycle of profits and losses over an average of the last five years. If a farm is operating at a loss for an extended period, the program no longer applies.

The provincial government tightened up support in 2009, which also had very significant negative effects on the profitability of farms. The combined decrease in the amount of money available lowered the value of farms, which reduced the equity accumulated over 20 or 25 years of work to zero, or even below zero in the case of a large number of farms.

Canada will always have to offer minimal support for agriculture through flexible programs that can quickly respond to the reality facing our producers. If the agriculture programs and budgets do not allow existing producers to overcome all the obstacles they encounter, I think that it would make absolutely no sense to waste human capital on agriculture.

To ensure the future of farming, we must first ensure that there are serious agricultural policies. We need long-term agricultural policies that show stability, which will ensure that programs for the next generation will work.

Canada's agricultural heritage is an extremely important resource. Canadian producers are very proud of the high-quality products we consume and export throughout the world. We must ensure the viability and stability of the sector, so that the next generation will also be able to tackle any challenges it is faced with.

There is a group of agro-economist consultants here, who have added up all of the negative effects in recent years. They can give a very detailed picture of the precarious situation our producers are in.

The point of my speech was not to make the next generation of producers afraid. Quite the opposite. I want to show that we need to make some changes if we want this next generation to succeed.

Thank you.

[The Chair, Conservative, Larry Miller]

Thank you very much.

We'll now move to Mr. Turgeon.

[Benoit Turgeon, As an Individual]

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.

[The Chair, Conservative, Larry Miller]

Be very brief.

[Benoit Turgeon]

Lastly, through programs like Growing Forward and PADEA, we must promote and provide even more multidiscipline consulting to businesses. These solutions are rarely limited to management consulting, finance consulting or technical management consulting. The combination and harmonization of these services within the same business can make solving problems easier.

Obviously, I am not claiming to think that every business could be saved in some by these programs, and I do not think we can expect that they all will. But we could at least try to support a minimum number of businesses that will be viable over the next few years, which will maintain a rather solid structure in the production sector.

Thank you.

[The Chair, Conservative, Larry Miller]

Thank you.

I'll remind all our witnesses, if you have written presentations and you don't get them all in, give them to the clerk and they'll be translated and every member will get them. We will have your comments, if possible.

We'll now move to Mr. Leblanc for seven minutes.

[Réjean Leblanc, As an Individual]

Good morning, everyone. Mr. Miller, committee members, I thank you for the invitation.

I will be able to share my views on two main points in the seven minutes. This is related to what the other witnesses have already said.

The key word is “stability” when it comes to the agriculture industry. Although we have already heard about this, I would like to talk about the cost of investments in agriculture and the impact of health problems on the profitability of businesses in the animal production sector. My notes highlight these two issues.

I would like to talk about the cost of investment and the value of assets, either for a transfer or purchase by someone who wants to get started in agriculture, whether or not they have an agricultural background. These assets are very expensive, and output is very low. This has come up many times, but agricultural revenue is very variable. That makes it difficult to acquire these assets. I would even say that, like many agricultural sectors, there is a crisis. It is destroying existing producers who want to continue to keep these assets in place. This is the case with hog production. Because of the crisis, it will be difficult for producers to update their buildings and to be competitive with other countries. We must find a way to enable people to get set up in agriculture with these assets or must find a way to help people who already have these assets to continue to produce.

My recommendations are more of avenues to explore. There are two points related to investments. It would be possible to have assets that belong to a fund or to communities that would take some items off the balance sheet. For example, if a young person does not have to purchase land for agriculture, if he does not have to include it on his balance sheet for a loan, that could help him when it comes to investments.

Furthermore, when a businesses asks for major investments, for example for hog production or dairy production, we must ensure that the businesses' revenues are stable, so that they can amortize this equipment or these assets. Often, people make major investments and the market conditions are very variable. That causes financial instability within the business, which often discourages people from moving forward or makes it difficult to encourage younger generations to take over the farm. This often comes up with hog production. Those are the two points I wanted to cover regarding the cost of investments.

I would also like to talk about the impact of health issues on animal productions. This could be compared to mad cow disease and porcine circovirus. I think we need to find a system that will help people during a health crisis, or if a major disease is found in a country. Mr. Laterreur spoke about the impact porcine circovirus had on hog farms. Producers are already asked to deal with widely fluctuating market conditions, in particular with respect to the prices and cost of input. If we could find a way to reduce the impact of a disease on the herds, we could at least help in that respect. It would also help the country better face the situation.

I recommended that a health fund be created, a health insurance, like what exists for humans, in order to face this situation. If there had been health insurance for mad cow disease or porcine circovirus, the government would perhaps not have had to invest as much money all at once to support businesses. I do not think that all farms will have to face the same disease every year at the same time.

This would be one method. The fund could be used to develop technology, for research.

For example, in the hog sector, research could eradicate diseases or identify certain regions in a country. That would help us continue to export our products or to contain a health situation. In recent years, if hog producers have been lucky enough to avoid the effects of circovirus, that could have helped suppress the fluctuations in the market.

To conclude, I would like to talk about programs. There are risk management programs. They would have to be adapted, and new crisis management programs would have to be created. When a sector is in crisis for several years, the existing risk management programs are no longer effective. We must be able to separate risk management from crisis management and quickly identify the sectors that require different support for several years.

Thank you very much.

[The Chair, Conservative, Larry Miller]

Thank you, Mr. Leblanc.

We will now move to Mr. Lecours.

[Jean Lecours, As an Individual]

Thank you very much, ladies and gentlemen.

I am here today to speak to you about starting a business, and in particular about the difficulties people have getting credit when they are starting a business. This morning, up until now, you have heard about transferring businesses. There were some mentions of starting businesses as well. I will talk strictly about starting individual, non-inherited businesses. This was mentioned a little earlier. I will go into more detail.

I am an agronomist. I invited Ms. Létourneau, who is an agricultural producer and who started up a business. Later on, she will speak to you about the difficulties she had getting credit.

Why am I telling you about this? Simply because there is a federal program that was mentioned this morning by Mr. Lemieux, the Canadian Agricultural Loans Act program, or CALA. This program provides financial loan guarantees to give agricultural producers easier access to credit. Based on the application, loan guarantees are granted through financial institutions.

The start-up assistance I provide deals very little with dairy production, because of quotas. That is done through the programs that Mr. Groleau mentioned this morning. However, when you are starting with absolutely nothing, it is difficult to start a dairy business.

In the hog sector, in light of the reasons mentioned earlier, it is even more difficult to start a business. The poultry and eggs sectors also have programs that operate under quotas. So it is also very difficult to start a business. Except, once again, if you take the options offered by the federation.

Here, in Quebec, there is currently a moratorium on milk-fed veal and grain-fed veal. The Financière agricole du Québec, through the Farm Income Stabilization Insurance, does not want to pay for more animals. So there is currently a moratorium on starting businesses for milk-fed veal and grain-fed veal. There is the same problem with sheep. There is no moratorium now, but it is coming.

There are quotas for rabbits and maple syrup production, which are not the ones you are familiar with. In our jargon, we refer to them as PPAs, the allocated shares of production. This type of quota limits the number of new individuals who want to start a business with this type of production.

So what is left? There is dairy goat, duck, big game, ornamental horticulture, and I am sure you could name a few more. However, these types of productions do not have reference margins.

When I develop a business plan for emerging productions, it is very difficult to find information. But we still create business plans to help these people. When a producer wants to start a business, the first question we ask them—and especially if they are talking about an emerging production—is whether they have money to invest. If they do not, I often encourage them not to do the work. In all cases, I do not draw up a business plan, because it will cost them money, probably for nothing.

There is a federal program, managed by Agriculture and Agri-Food Canada, called CALA—the Canadian Agricultural Loans Act Program. It changed names last year, when it became available to the new generation as well as to co-operatives. The information I am giving you is available on the website of Agriculture and Agri-Food Canada. It comes from a report that was commissioned and was released on October 4, 2004.

The report highlighted some weaknesses of the program. For example:

The administrative processes are too burdensome, which is time consuming for the financial partners; the account therefore becomes less profitable for the financial partner;

Difficulties recovering loans;

Clients' lack of awareness of program;

Fees are too high for the next generation of farmers.

In other words, when an individual goes to a financial institution—either the Financière agricole du Québec, Farm Credit Canada, or other private financial institutions—the first thing they hear about are independent loans or loans guaranteed by the institution. They never hear about CALA. No financial institution currently has the advantage of offering this program managed by Agriculture and Agri-Food Canada, because of all the red tape. We must not forget that the description of the program focuses on the new generation of farmers. They do not currently have access to it.

We cannot blame creditors. They currently have too much work. There are crises in the agricultural world. Honestly, when someone shows up with a business plan for an emerging production, it is easier to say no than to do the work, the analysis and the budgets. There are no reference margins to be able to say yes.

Because, at the end of the day, the financial partner has to recommend to his employer whether or not they should lend the money. However, if he wants to go further and get a loan guarantee, he will think that all the red tape required by CALA and all the work involved will be too complicated, and it would be easier to refuse.

In the document that was released by Agriculture and Agri-Food Canada on October 4, which can be found on its website, there is a statistic that clearly shows what is going on. In 1996-97, 16,250 loans were authorized, and in 2002-03, there were 4,722. I think there is a problem with that program, which perhaps is a bit naive, but I think it would be easy to fix.

Here are my recommendations for the committee. Agriculture and Agri-Food should allow farm business advisors to complete the forms. To do so, they need to have information sessions and must give tools to agronomists working as farm business advisors. Obviously, with respect to the guarantees, it will always be up to the financial partners to fill in the documentation on this subject.

Agriculture and Agri-Food Canada should negotiate with financial institutions to make the terms for recovering loans more clear.

Under the CALA program, for individuals who are starting up an agricultural business, the loans should be guaranteed 100%, as we see in some provinces, for example with the Financière agricole du Québec.

Lastly, Mr. Chair, Agriculture and Agri-Food Canada should set a unique fee for starting an agricultural business or for new farmers. Usually this refers to a business that is zero to five years old. For example, the Financière agricole du Québec charges $300 to examine a file for a new farmer, instead of 0.85% of the amount.

Thank you very much, Mr. Chair.

[The Chair, Conservative, Larry Miller]

Thank you very much.

We'll now move to Ms. Létourneau for seven minutes.