Good morning, Mr. Chairman and the committee.
I'm a partner with Catalyst, a firm of chartered accountants and consultants, and I specialize in the Canadian cattle industry. I'm here today to speak on behalf of the cattle feeding sector.
I'll focus less on strategy in this presentation. My discussion is more to give you a day-to-day perspective of what's involved in dealing with these programs and why they may not work for the cattle feeding sector. I represent clients whose herds range in size from 1,000 to 100,000 cattle. They're all family owned and operated. The primary difference between the cattle feeding sector and what we call primary production is that cattle feeding inventory is being purchased and sold on a daily basis. This is in contrast to a farmer or a rancher who harvests and sells one crop per year.
My concerns about current programs under business risk management start with this fundamental difference. In the cattle feeding sector, an entity may incur losses on inventory sales that happen at the beginning or in the middle of their fiscal year. Programs based on year-end applications are neither timely nor responsive to how these businesses operate. I have producers with December 31 year-ends who have incurred significant losses in the first two quarters of their year, and they then require cashflow to purchase inventory through late summer and fall.
As Russ indicated, the decline in their margins cannot be pushed down to the suppliers of their commodities, which are the calves or the feed grains. Those prices are sometimes influenced by factors that are outside their control, not by what they're receiving for their finished cattle product. They may have qualified for a payout under current programs, but that funding is not received until the following summer, well over one year after the losses are incurred. There are advance program payments, but because of the caps and the size of the producers we're dealing with, it renders them ineffective.
The application process for current programs is extremely complicated for cattle feeders and for other producers as well. There are two components, one to report the production side of the operation and one to report the financial side. You add to this concepts like structural changes, reasonability tests, and reference margins and it gets extremely complicated. Producers have had to invest in new systems and spend considerable time and money with people like me to fill out these applications. It's also difficult to estimate what they can expect to receive in funding. We need to make it simpler for them.
Your records will show that cattle producers in the feeding sectors have received significant payments. Unfortunately, these payments have not been timely; they're not predictable. We can't estimate those payments for banks and make them bankable for the producers. So current caps also restrict funding for some of our larger producers, who, some may argue, are very important producers in the communities in which they operate as they employ a lot of people, as Russ indicated.
Russ will now discuss our recommendations for change.