Agriculture Committee on April 11th, 2017

[The Chair, Liberal, Pat Finnigan]

Thank you.

As we conclude this first hour of our witness testimony, I'd like to add that we mentioned a little while ago that the population of the college has increased. I can go back to my time at Nova Scotia Agricultural College. There has also been a big shift in the ratio of men and women who attend the college. There were 300 men—or boys, I guess, at that time, and I won't mention the year—and 100 girls. I think now that has reversed and, again, the population has increased.

I also want to say that I appreciate the role that FCC is playing. As a lifelong customer of FCC, I appreciate the fact that we can sit down and talk about life on the farm and agriculture, so thanks, again.

Thanks, Monsieur Gervais, Mr. Hoffort, Mr. Rosser, and Ms. Beckles.

We shall now break and change the panel.

[The Chair, Liberal, Pat Finnigan]

We will continue our second hour of the meeting.

Today, from the Canadian Young Farmers' Forum, we have past chair, Paul Glenn. Welcome, Mr. Glenn. Also, we have Justin Williams, from the board of directors. Welcome, Mr. Williams.

As an individual, we have Brady Deaton, professor and McCain Family chair in food security, Department of Food, Agricultural and Resource Economics, University of Guelph. Welcome to our panel, Mr. Deaton.

We will give 10 minutes to each party to make their opening statements. Whoever wants to go first may begin.

[Paul Glenn, Past Chair, Canadian Young Farmers' Forum]

Thank you, Mr. Chair.

As you said, I'm Paul Glenn, the past chair of the Canadian Young Farmers' Forum. With me today is Justin Williams, our Ontario and Quebec director.

I would like to thank you for the opportunity to speak to you today about the very important issue of farm debt and its effects on young farmers.

I, myself, am a third-generation farmer from Keene, Ontario, growing soybeans, corn, wheat, and hay.

Agriculture is such a vast industry. Each sector has its own challenges in financing capital and operating capital, especially. With crop production, land values vary, from upwards of $100,000 an acre in B.C. to $100 an acre across Canada. This depends on the region in which you live and what type of climate you need to support the crop production and the cost of land.

On the high end, you have high-value crops, like flowers, blueberries, cranberries, and greenhouse production. That is just the start, which does not include any input or infrastructure costs for greenhouses. On the lower side, you have the cost of pasture land.

We do have some very savvy young farmers creating new farmland in the Yukon and also in Newfoundland, but it isn't easy. Not that much in farming is easy, I have found.

For young farmers transitioning between generations, I find it is more and more difficult with higher debt loads, rising costs of production, variables on crop sales, and also retirement planning for the exiting generation. People are living longer and need more income to retire, which adds complexity to transitions and requires extensive planning to complete successfully. Start-up farms, operating 10 years or less, are still in a growth phase, expanding their market share and clientele, servicing debt, and incurring debt to grow. This is one of the most important times, especially for young farmers. They are starting families and transitioning from previous generations. That's when they need the most support with strong financing, operating capital, and income stabilization programs to continue to operate and grow their businesses.

The ability to grow current operations is also tough because of increasing land input, equipment costs, and lower margins, which make debt servicing more difficult. The economy of scale is also variable for every operation and commodity, so having support for variable operations is a must.

Young farmers are diversifying their agribusinesses to help stabilize income streams. That is why supply-managed sectors are typically very attractive to young farmers, but they are very capital-intensive.

On that note, I'll pass it over to Justin Williams.

[Justin Williams, Member, Board of Directors, Canadian Young Farmers' Forum]

My name is Justin Williams and I am working on becoming an eighth-generation farmer. Our family has been farming since 1814.

I am very happy to be here with you today.

About 12 years ago, I started my own maple syrup business in order to diversify the farm a little bit. Currently, we have dairy, as well as crop farming, and in the last couple of years, we've had the maple syrup business.

With decreasing margins, the younger generations are having to work harder to pay off the debts from previous generations, such as my grandparents who were paying off debts from their fathers. When I take over the farm, I'll be paying off debts that my dad has acquired, even from his grandfather.

Higher debt on farm business has led to less gifting of farms. In previous generations, generally the farm was gifted from the father down to the son or daughter, but now, with increasing debts, it's a business transaction and young farmers are having to pay more in order to acquire the farm from previous generations. Increasing debts for farmers has also meant increases in stresses, both for the previous generations, as well as for younger farmers getting into agriculture.

As Paul mentioned, the economy of scale is variable by commodity. In dairy, I have supply management and these sectors are minimally affected by economy of scale because price paid to the producer is stabilized due to the controlling of supply based on the demand of the consumers. Due to supply management, these sectors of agriculture more easily handle the highs and lows of the economy, without requiring government programs.

With increasing use of technology in agriculture, it is ever more important for farmers to further their education, as mentioned in the previous session. As well, they need to continue to network with sectors within agriculture, whether it be their own sectors or other forms of agriculture. Technology is greatly increasing in the use of tractors and what we're using in the barns to collect data on the animals, as well as for controlling debt.

We'd like to thank you for inviting us here today and we'd like to leave lots of time for questions afterwards.

[The Chair, Liberal, Pat Finnigan]

Thank you, both, from the Young Farmers' Forum.

Now we have Mr. Deaton for up to 10 minutes.

[Professor Brady Deaton, Professor and McCain Family Chair in Food Security, Department of Food, Agricultural and Resource Economics, University of Guelph, As an Individual]

Thank you for the opportunity to share my thoughts and research regarding contemporary issues facing young and start-up farmers who seek to begin or expand their farm operations. I'll also address the associated issue of debt and the transfer of farm operations from one generation to the next.

Before getting into the heart of my comments, I want to recognize that there are many unique aspects of farming, most of which were raised in our previous discussions. Farming requires a unique partnership with nature, and this dynamic relationship poses an ongoing challenge. Second, many farmers and future farmers grow up on farms and come to know farming as a way of life. In this regard, farmers are committed to place and farming in a way that many of us view as important.

Let me begin with a very important question. How do young farmers fare in the agricultural sector? This question poses a bit of a challenge because, to answer it, one needs to find an occupation to compare with farming, and as I've mentioned, farming is unique in many respects. With that caveat in mind, one starting place might be to compare the percentage of Canadian farm operators under 40 with the percentage of Canadian owners of small to medium-sized enterprises under 40.

Using data from the 2011 census and Industry Canada, we calculate that, as of 2011, 10% of the total farm operators identified as the oldest operator on the farm were under the age of 40. Comparatively, in the same year, 12% of majority owners of small and medium-sized enterprises were under the age of 40.

Should we be surprised at the percentage of farm operators under 40? I'm not in a position to answer that question for you, but as you continue to contemplate this issue, keep in mind that farm operations typically involve millions of dollars of assets and hundreds of thousands of dollars in debt; hence, these kinds of capital-intensive industries require unique operational and managerial skills. We need to assess our age expectations in farming against similar capital-intensive businesses in Canada.

As we do this, we should keep in mind farming and its unique partnership with nature. This means that, as one farmer recently put it to me, 80-hour work weeks are a good thing, and during some seasons, they work when the sun shines and enjoy a day off when it is raining. In these times, weekends are just part of the calendar. These seasonal demands may discourage some young people from entering the industry. Also, it is important to recognize that modern farming is not as biased against older folks as it used to be and is less demanding physically than in the past.

Farming requires a broad suite of capital investments, including land and buildings, machinery, and equipment, and in some cases, livestock. Importantly, it is unlikely that the magnitude of debt for any particular farm can be associated with the soundness of the farm operation. Farmers running the highest debt are likely to be doing so because creditors are comfortable that they are in a position to repay this debt. For this reason, there are other measures used to assess the financial well-being of the farm sector. These were gone over in detail in your last session, but they include measures like liquidity and debt-to-asset ratio. In reviewing these current measures, FCC suggests that they are generally in line with or more favourable than historic averages.

For farmers in general and young farmers in particular, incurring debt allows them the opportunity to undertake enterprises that could not be financed by personal wealth. The current debt reflects in part the capital cost of being a competitive farm operation in today's agricultural sector. In addition, some of the increase in debt is due to the decisions of farmers to invest some portion of their net income, which has generally been increasing in recent times, into capital investments. One of these investments has been farmland, which as you all know well, has appreciated in recent years. For example, in Ontario the Municipal Property Assessment Corporation estimates that between 2012 and 2016 the average increase was 16%. The increase in value of land does not, however, as someone recently pointed out, mean a farm is sustainable from a cash flow basis.

It goes without saying that the ability to manage any business and its debt is easier when net income flows are favourable and interest rates are low, a setting that describes the agricultural industry these last several years. The situation becomes more challenging when these flows become attenuated or interest rates rise. This issue emphasizes the importance of making productivity-enhancing investments in good times and making sure that the generation of farmers is prepared to manage the farm, not only from an operational perspective, but also from a financial perspective. We therefore rely on our credit markets to appropriately weigh the risks of lending to young farmers.

This helps to avoid the deleterious effects of incentivizing less productive investments or supporting farmers who can be profitable in good times but not in less favourable times. One challenge here is that young farmers will be more highly leveraged because of their need to make high levels of capital investments and their lower levels of accumulated assets. This implies greater risk.

Given the high capital costs of becoming a competitive farmer, you might ask how these young farmers get in the game, get up to scale, and stay in the game. There's not one answer, but borrowing money from a financial institution will most likely play a role in all of these stages. There are many ways young farmers start out to develop the wealth that allows them access to these loans. I will discuss three: off-farm income, renting in farmland, and support from parents.

On off-farm income, many young farmers, and indeed farm families in general, supplement their income with off-farm work. The average farm operator in Canada has about a 41% probability of engaging in off-farm work, and the probability for the youngest farm operators is higher. Spouses of farmers also often work off the farm.

As for renting in farmland, as noted earlier and discussed earlier, farmland is expensive. In many places, the price of farmland may be such that a moderate return on investment requires continued farmland appreciation. One option for young farmers is to scale by renting farmland or through contract farming. The farmland rental market is well established in Canada. Close to 40% of the Canadian farmland is in the rental market. A long-established exchange between landlords and tenants suggest benefits to farmers and non-farmers alike.

Now I'll talk about support from parents. Farm families help their children get into farming by developing their knowledge of farming. They transfer assets through bequests, gifts, or sale. In many cases, farm families use a combination of all of these approaches. Increased debt can complicate the situation. As an extreme example, in the event that a parent dies intestate, without a will, there may be confusion as to who is responsible for paying the debt, and they go into arrears.

Moreover, the farming operation may suffer as families attempt to clarify how the farm assets should be distributed. Importantly, the appreciation in key assets like land poses a challenge to parents who, on retirement, want to treat themselves and all their children equitably. Children who may want to continue the farm operation at the same scale as their parents have may have a difficult time purchasing farmland from their parents or from their siblings' share of inherited land.

There are presently a variety of institutions designed to support young farmers and the transfer of farms from one generation to the next. There are a variety of tax policies that influence these transfers of assets. Provincial-federal cost-share programs support succession planning. FCC has a young farmers program. Importantly, universities throughout Canada, including the University of Guelph, are actively engaged in preparing the next generation of farmers with the management skills that they will need to effectively manage a farm operation.

Finally, if you will allow me to end this testimony on a personal note, I have spent the last 13 years of my life working with young people. Many have become farmers. Many want to become farmers and many have gone on to research issues relative to our agricultural sector. I'm constantly impressed by their innovative capacity and their work ethic. I have been a beneficiary of their new ideas and our agricultural sector will benefit as well.

Our investment in youth, which needs to be a focus of a broad suite of policies, is our best chance at making the most of the good times, diminishing losses in the bad times, and increasing the likelihood that the former will characterize our future more often than the latter. No generation is better suited to address the future than is the future generation. I'm committed to that. I'm glad you're having these discussions, and I am prepared to discuss this testimony and other questions you might have.

Thank you very much.

[The Chair, Liberal, Pat Finnigan]

Thank you, Mr. Deaton.

Now we will start our questioning round, with Mr. Ritz for six minutes.

[Gerry Ritz, Conservative, Battlefords—Lloydminster, SK]

Thank you, gentlemen, for your presentations here today. They are always interesting.

Professor Deaton, I'm wondering if you have any specs or ideas of the off-farm use that we're now seeing with accountants, legal.... Farming is big business. You can't just do it all sitting around the farm kitchen table like we used to do in my dad's generation.

What kind of percentage of farmers, especially young farmers, are seeking outside information from accountants, lawyers, estate or succession planners, and even financial..., as they make these tough business decisions?

[Prof. Brady Deaton]

I don't have the data for that spec. My anecdotal suggestion would be that the larger operations are having discussions with accountants, particularly tax advisers—that's very common—and also with lawyers in some cases for succession planning. I would imagine it varies with the scale of operation, but I would imagine it's very common.

[Paul Glenn]

Definitely most, if not all, of the young farmers who I know that have gone through transition planning used lawyers, accountants, bank managers, to obviously mitigate any risk in the transition. I think typically now with young farmers, we do operate them as businesses, and we're not just talking to the accountant once a year at tax time. We're talking to them multiple times a year.

[Gerry Ritz, Conservative, Battlefords—Lloydminster, SK]

Do you find these professionals educated enough in agriculture-speak to be able to give you good advice? Or is it just, here's a pamphlet, and go home and take a look?

[Paul Glenn]

It's actually really tough to find institutions that are...besides FCC or some of the ag accounting firms.

[Gerry Ritz, Conservative, Battlefords—Lloydminster, SK]

Universities....

[Paul Glenn]

Exactly, yes. I know I've struggled with that, and I've now moved to very ag-specific companies to work with because of the knowledge base. I had my accountant out to my farm for a tour and he saw my gravity wagon. He said, “Oh, is that how you plant your field?”

So, there's a big disconnect in the knowledge of those professionals. And that makes a huge difference when you're trying to operate your business, to understanding why you're buying a $300,000 planter. It's definitely tough if you don't find that knowledge base with your professional, so seeking that out is tough.

[Prof. Brady Deaton]

Perhaps I could follow up on an earlier question that you asked, and I have the data footnoted in the report that I provided you. Farmers are in a much stronger human capital situation in order to interact with those groups. Of farmers under 35, 65% or so have a post-secondary education.

[Gerry Ritz, Conservative, Battlefords—Lloydminster, SK]

That was my next question, how important that is. In my father's generation, if you had grade 10, you were done. In my generation, it was grade 12, and maybe a year or two of college or a year of technical school—welding, machine shop, all those types of things.

The same holds true now with my dad. If he didn't own the land, he didn't farm it. He didn't even consider renting or so on.

In my generation, we were at half and half, what we owned and what we rented, to give us the land-based economies of scale.

Now my nephew has taken over the whole operation, and the vast majority of what he's farming is on a contract or rental basis. He doesn't care whether he owns it or not. He just wants the ground to run on.

Does that fit into your decisions, as well, and then you machine up accordingly?

[Paul Glenn]

Yes, it's all cost to production, so if you have some big equipment, you need some more land, then renting is definitely a very common answer.

It is tricky being near more urban areas for people who are owning the farmland to rent. That farm rental relationship is a bit tougher as there are more environmentalists and less understanding of what farming today looks like. Some of those things are a bit tougher, but definitely renting land is always an option, and more of an option for young farmers to grow.

[Gerry Ritz, Conservative, Battlefords—Lloydminster, SK]

One of the strengths of the young farmers' organizations is the mentorship, talking to other people. They could be from Saskatchewan or Ontario, but they're still talking about planting and harvesting and those types of things. Do you find that useful, seeking out that knowledge from counterparts?

[Paul Glenn]

Probably the greatest strength of our young farmer organization is the networking. I know I've utilized a lot of information from our friends out west, some from farmers who were growing larger operations, on how they made the transition, or from people who have transitioned from their parents...what worked, what didn't work, learning from their mistakes.

[Gerry Ritz, Conservative, Battlefords—Lloydminster, SK]

How do we educate consumers that farmers do what they do because of animal husbandry? Farming is constantly changing, but how do we stop the people who are not directing it on a science basis? We saw the situation in Ontario with neonicotinoid and bees, and really we were chasing that science, where the rules that came down weren't based on any kind of science.

How do we get the message out to consumers that what we do in Canada is the best way we know how, and that there are proven practices that work?

[Paul Glenn]

Definitely, I think it's going to start in our education system. That's been lacking starting very early in the public school system. It's educating the general public on what modern agriculture is currently. Then there would be less disconnect on how we do things and why we do things for animal welfare.

[Gerry Ritz, Conservative, Battlefords—Lloydminster, SK]

In my generation, we had a mixed farm, so we had 300 head of cows and land and so on. I don't remember a Sunday when we didn't have friends and relatives come out from the city to the farm, and we had a wiener roast in the pasture where we checked cattle, or something like that. There was that connection.

We don't have that anymore. You're down to 2% of the population actually on the ground, doing the job; and 98% are consumers, and they're all smarter than you. There's this huge push against GM products, and there's this huge push against all these different things. I guess the struggle for government is how you make sure that what's done is done on an educated, knowledge-based, science basis? How can we help you do that?

[Paul Glenn]

That's a really great question.

[Gerry Ritz, Conservative, Battlefords—Lloydminster, SK]

Give me your top 10.

[Paul Glenn]

I don't know if I have the answer. Educating the public is the biggest thing, especially in Ontario with the neonic and how that worked out. More regulation for farmers doesn't help us. It's not that regulation is bad. We're all trying to do the best thing for the environment and for animal welfare.