Agriculture Committee on Dec. 1st, 2011

[Malcolm Allen, NDP, Welland, ON]

It reminds one of a Buy American program, but it's not actually about excluding folks. It's simply saying that we do good work in this country and you can source it here.

That's what you're doing presently. You're not actually giving an advantage to anybody through a legislative program. You're just simply looking at the competitive market and saying, “You know what? We can buy brake lines that come from Manitoba or Ontario and we can buy steel from here.” It's actually all sourced in this country. What an amazing way to actually create jobs.

I know that my friends across the way want to do that, so it seems incumbent upon us to find a way to make the rail operators in this country understand that it's in their best interests to start making those purchases now, it would seem to me. We're going to have to find a way to encourage them to do that.

But as the chair said, we only have five minutes.

I probably have about a minute and a half left, Mr. Chair.

[The Chair, Conservative, Larry Miller]

You have about a minute.

[Malcolm Allen, NDP, Welland, ON]

Okay. I thought I could sneak an extra 30 seconds as the Scotchman on the team here.

Let me talk to the FCC folks really quickly. I've talked to your folks before in our region. They clearly are trying to help and support farmers, as you've said, through this cycle of ups and downs, all the ups and downs, because there is a multitude of different cycles.

Could you outline two or three things—right across this country really—that you think are really the top pieces for you in engaging farmers when it comes to finance? Are there difficulties, if you will? What are the pieces that you and they are really struggling with?

[Greg Stewart]

I'm having a hard time thinking about the things that we are really struggling with right now with producers. Honestly, the overall sentiment throughout most of the country is that the future of agriculture looks really bright. That's in the livestock industry as well: right now, we're seeing cattle producers looking to expand. Certainly the grain sector is looking very good. Even coming through the latest turmoil, hogs are looking better than they have in the last couple of years, for sure.

I'm not trying to dodge at all. We're not really facing significant struggles with our customers. They're telling us that we're meeting their needs and that in today's environment they're able to grow their businesses, and they are doing that.

[The Chair, Conservative, Larry Miller]

Thank you.

You're out of time, Mr. Allen.

We'll now move to Mr. Storseth for five minutes.

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

Thank you very much, Mr. Chair.

I'd like to thank everybody for presenting to committee today.

I'd like to thank you, Mr. Aziz and Mr. Nicholson, for your presentations.

I'd like to start with National Steel Car Limited. I thought your presentation was very strong. For the last month we've been dealing with competitive issues in agriculture, looking at new innovation.

One of the things that consistently comes up from western Canadians, whether they're shippers, producers, manufacturers, or distributors, is always enhancements to the rail sector. The level of service review is certainly something that gets brought up fairly consistently as something we need to do.

But when we get talking about the innovation and the research side of the rail sector, they often are at a bit of a loss for things we can do, solid programs we could put forward to help out and enhance our rail sector, and the delivery from point A to point B. Helping to unclog the ports is one of the problems we have with grain in particular.

First, you're a Canadian-owned company. You have roughly 1,800 employees, you said?

[Gregory Aziz]

Yes, sir.

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

And 75% of your product is made from Canadian products?

[Gregory Aziz]

Yes, sir.

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

This is a great story, which I hadn't heard before until I met you. I'd like to give you a chance to talk about your company a little, where you are successfully selling your product right now, and where you see your company's ability to solve some of the rail problems we have in our country.

[Gregory Aziz]

As I mentioned in my preamble, we are the leading rail car design, engineering, and manufacturing firm in the world. A lot of the work we do is patented. We have over 250 patents issued to National Steel Car on our rail innovation. We have 50 patents pending at any one time.

We've put an awful lot of thought into this renewal program for the Canadian grain fleet. In this presentation we've shown the tremendous advantage of this new equipment versus the existing equipment.

To go to one of the points you made, how does it unclog the ports? If you envision this equipment as a giant conveyor belt bringing grain to the ports, and you have 200 cars moving through an elevator at any one time and discharging their cargo, each one of those cars is much smaller, has a much smaller capacity, and this all takes time.

This grain all needs to be elevated so it can then be put on a ship to be exported. The amount of time that takes.... You only have a finite amount of time in 24 hours to discharge that grain. If every one of these cars is inefficient and smaller, as we showed in our presentation, the amount of grain that's elevated is much smaller than what could be done with this newer equipment, which has a higher capacity. You're discharging far more grain on a per hour basis and elevating it, which allows you to load ships faster. It gets rid of ship demurrage in the ports and turns ships around more quickly. Speed to market is a tremendous advantage for the grower and for all the members of the supply chain.

The prairie elevators.... It allows the railroads to move much higher tonnage to the ports with each train move, and the result is a lower carbon footprint.

You're moving five existing trains in four trains under this system. So if you can envision five train starts of, say, 200 cars, you're moving those five train starts with four trains with this new equipment. That's where the lower carbon footprint and the higher efficiency come from, and that's where the higher discharge rates at the ports or at the destination occur. That's how it all works.

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

It certainly sounds very innovative, and as you said, there is 23% more capacity with less carbon footprint. It sounds great.

Do you have any ideas on how we should replace the old fleet—10 at a time, the whole fleet at one time? Do you have any suggestions there?

Also, lease or own?

[Gregory Aziz]

That's something that needs to be discussed and explored perhaps at a later date. Our purpose in coming here today is to tell this committee that we have the capability to solve this problem and that there is a finite amount of time for this problem to get solved. We have the solution. It's a made in Canada solution. We're prepared to embark on this, put the full efforts and resources of our company behind it, and work with the entire supply chain, the policy-makers and everyone involved, to get this job done, because it needs to be addressed in the very near future.

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

Thank you very much for your time.

[The Chair, Conservative, Larry Miller]

Thank you, Mr. Storseth.

We'll go now to Mr. Valeriote for five minutes.

[Frank Valeriote, Liberal, Guelph, ON]

Thank you all for coming and for your vital contributions to the agriculture industry.

You wouldn't be here if you didn't expect some tougher questions, so take no offence at some if you consider that.

My questions first are to Farm Credit. These are questions that are a result of my conversations with people who come into my office and speak to me.

I've been hearing from credit unions and other financial institutions in the private sector concern about the rapid growth of your market share, 28% since 1993, and if we keep going up, maybe 50% in the next 10 to 15 years. An advantage you have, of course, is a lower cost of funds, limited regulatory oversight, and no requirement to pay federal or provincial taxes. I'm just wondering how you respond to that, because there are other people who are trying, obviously, to get a piece of the action, who are at a disadvantage.

My other question is this. Your mandate hasn't been reviewed since 1999–2000. We're wondering if it's time for a review of your mandate. Would you be supportive of commencing a parliamentary mandate review?

You spoke of innovation. We all know about the lack of venture capital. I can't tell you how often I've talked to FCC in supporting innovation at local levels—I'll speak for Guelph, at the local innovation centre. As many meetings as are set up, and I'm not criticizing, I'm not seeing a meaningful contribution to innovation and commercialization, so that all our wonderful ideas aren't heading south all the time. I wonder if you could make some commitments to that extent.

But before you do, I want to ask a question of the banking industry, so that I can get all my questions out. Farm debt as of December 31, 2010, is $66.4 billion, up 6.1% over the previous period. I expect there are going to be some problems if our interest rates in fact go up. That could happen. It's very real. People are borrowing 100% of the value of their quota, for instance. I'm going to ask you how you plan to deal with the problem. And how do we insulate ourselves now for that eventuality?

Let's go with Greg first.

[Greg Stewart]

Thank you very much for the questions, plural.

Maybe I'll just quickly take your last question first, in terms of the venture capital side.

To date at FCC, we have invested over $100 million in venture capital, which has also attracted an additional $150 million of venture capital from other organizations, and we have just recently authorized another $50 million to be invested in the industry. So we are committed to trying to do what you said there.

Going back to the first question on competitiveness, we take that question very seriously. We have not changed our pricing practices to our front-line staff since we were mandated to borrow from the federal government. We track our pricing very strongly. In fact, we can say that we know that when it's reported, 88% of the time we are the same or higher than our competitor's price.

We do not intentionally win customers on price. They tell us—and we have lots of evidence to show that—they are willing to pay more to deal with FCC because of our commitment to the industry, because of the knowledge of our staff, because of our products, etc.

We also track how much time we face competition on deals. On deals under $1 million, our field staff only report competition less than 20% of the time, actually. So there is not this big rush of people looking for this kind of business, apparently, other than us. Now certainly many of those individuals who deal with us would come back and deal with us again. But if there were significant interest, somebody would be banging on their door to try to attract that business. They are not telling us that's true. When you get to loans over $1 million, then the competitive rate goes up to 48%. So there is certainly interest in big loans, or more interest, but it's still less than half the time.

Our growth is not a result of FCC pushing its products and services on others. We are growing because our customers are pulling us to serve them and help them grow their businesses and their enterprises so that they can achieve their visions and dreams and expand their operations and create jobs in Canada. That's why that's happening.

[The Chair, Conservative, Larry Miller]

You have 30 seconds.

[Marion Wrobel]

On that issue, I'd like my colleague from the National Bank to answer.

[Bertrand Montel, Market Segment Manager, Agriculture, National Bank, Canadian Bankers Association]

Good afternoon.

Debt is a matter of concern for us and one we follow closely. In the credit decisions we make, the first criterion is the ability to repay the debt. Given the relatively low interest rates at the moment, we make most credit decisions by assuming an interest rate that, in general, is the fixed five-year rate. This is higher than the variable rate, the prime rate.

[The Chair, Conservative, Larry Miller]

Okay, thank you.

We'll now move to Mr. Lemieux.

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

Thank you.

I'd like to ask a question to the Canadian Bankers Association about the hog industry loan-loss reserve program, or HILLRP for short. I'll just explain to my colleagues how this program works. It was established to help the pork industry deal with immediate short-term cashflow pressure by converting short-term loans into long-term loans—basically 10- to 15-year loans. It was established in 2009, and I think all loans have to be repaid by 2025. So we're still in the early stages of the program.

When a farmer took a loan from a financial institution, for example, a bank, the bank would place a portion of that loan into a reserve account and the government would backstop the loan. I think in the first three years it was up to 90%; from three years to six years it was 80%; and from six years to the remainder of the loan it was 70% if there was a default on that loan.

There's a concern, particularly in Manitoba, that because the loss coverage is declining—especially at the three-year mark that is coming up in the next nine months or so—banks might call in some of these loans, because they're better protected by the government's backstop of that loan.

Can you comment and share your thoughts on this?

[David Rinneard, National Manager, Agriculture, BMO Bank of Montreal, Canadian Bankers Association]

I'm happy to comment. Thank you for your question.

First of all, I think the Department of Agriculture should certainly be commended for assembling this program in an expeditious fashion, with significant consultation with industry and all lenders—those represented at this table today and a host of others. They made a really genuine collaborative effort in relatively short order.

The minister asked us to assist with the program in the summertime, and by mid-fall the program was launched and was available to producers to utilize.

I suspect that many of you probably know the hog sector. Up until that point—

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

Sorry, I have two other questions I want to ask, so could you comment specifically on the worry of Manitoba farmers that some banking institutions may call in their loans early because the government backstop is higher in the early years of the program, especially when it's meant to be a 10- to 15-year program?

I want to ask two other questions and I only have two minutes left.

[David Rinneard]

Your deduction is quite accurate on the way the program is structured. Certainly those in my organization, and I suspect everybody at this table, have worked far too hard to earn a sterling reputation in Canadian agriculture. It's the most significant subsector we serve as an organization. We've experienced portfolio growth for at least the decade I've been around. There's no way we would look to circumvent a government program to eke out an extra 10 points on any one customer—guaranteed.