Agriculture Committee on May 4th, 2017

[Lloyd Longfield, Liberal, Guelph, ON]

I'll pull it back if that's okay with you, folks.

It's great to have all of you here. I just came back from the States last night with the industry committee, and agriculture is one of our key industries. We're looking at expanding exports to $75 billion by 2025. It's going to take a lot of financial management in order to do that, as well as technology management.

There's a balance between investing in, say, buying a 300-horsepower tractor with no technology or a couple of 100-horsepower tractors with GPS and all of that attached. The assets are going to be a lot more expensive. They may be smaller assets physically, but they're a lot more expensive.

When we talk about investing and farm debt, the land value is one thing and the investment in technology is another thing, which may start approaching the levels of land values.

It's great to have the University of Guelph in the room. Thank you.

Has the University of Guelph looked at technology investment climbing, or the ratio between hard assets and land assets climbing in the next few years?

[Prof. Alfons Weersink]

I don't believe so, but I think that's a good distinction.

Part of the reason for the increase in land values is the future growth and what it's going to be worth five years, 10 years, and 25 years from now. Technology doesn't have that. Arguably, it can decay very rapidly. It depends. It might be obsolete in a short period of time, especially given the rate of technological innovation. The innovation we're seeing now in agriculture, with big data and the digitalization of agriculture, could lead to real rapid innovations in technology and the consequence that the technology might be obsolete in a short period of time.

[Lloyd Longfield, Liberal, Guelph, ON]

Possibly the grain suppliers or the other suppliers of inputs could be taking some of those costs, to help with partnering.

[Prof. Alfons Weersink]

Definitely.

That's one of the things we've seen a lot of in the agricultural sector, in terms of the machinery or the services that are provided by others, particularly input suppliers on the crop side.

[Lloyd Longfield, Liberal, Guelph, ON]

So there could be some policy development around partnerships between farmers and input suppliers, and maybe some accelerated capital cost allowances that could help with technology investment.

[Prof. Alan Ker]

For sure.

Technology has had a big effect on those rising land values. Technology is allowing that fixed land to be a lot more productive. And it is. It's become a lot more productive. They feed off each other. They move with each other. You wouldn't see the value of technology and the value of the land moving apart in the long term.

[Lloyd Longfield, Liberal, Guelph, ON]

The pressure on the farmer to be a financial and technology expert as well as an agriculture expert, which is where the whole thing started, becomes an issue.

When we look at creating super clusters to try to help support the farmers—and hopefully the University of Guelph will play a key role there to try to share or pool knowledge—have you seen anything around young farmers sharing information across provinces or between Canada and other countries? Is that something that we can help with?

[Ron Bonnett]

I know the Canadian Young Farmers' Forum is fairly active in sharing information. The other thing is that you have to realize that the young generation of farmers live with technology. They grew up with the technology. They're exchanging information by computers back and forth.

The discussion about high investments in technology is balanced with making sure we have really good business skills to understand, if you're investing in technology, what those investments are going to offset. It could be labour, efficiency of applying crop input things, or even making some of the environmental sustainability demands of society. It's your farm management skills, looking at that new technology, and recognizing that in some cases making that type of investment will actually make you more profitable in the long term if you can save in some of those other areas.

[Lloyd Longfield, Liberal, Guelph, ON]

The other side is that cash is king, and you mentioned cash flow. I started a business in the eighties and we bought a house in the eighties. We went through those ups and downs. We didn't know where interest rates were going to go. We didn't want to overextend on investing in hardware.

We only have 20 seconds, so I'm just going to take that time to thank you for your input. I hope, as we look at this cluster going forward, we can continue to rely on your expertise around the table.

[The Chair, Liberal, Pat Finnigan]

Thank you, Mr. Longfield.

Ms. Brosseau, you have six minutes.

[Ruth Ellen Brosseau, NDP, Berthier—Maskinongé, QC]

I'd like to thank the witnesses for their presentations and the exchanges this morning. I want to concentrate on young farmers.

A few months ago, we had a great private member's bill that was put forward in the House by my colleague from Rimouski. It built on previous bills in the House of Commons to help facilitate the transfer of family farms. There was support from coast to coast to coast. So many groups came out to support this bill, including municipalities, farmers, and business owners. It would have facilitated the transfer of a fishing or farm business to somebody in the family. Right now, if you want to sell, it is sometimes more profitable to sell your business to somebody on the outside, a stranger, than it is to sell to your children. Sadly, the bill didn't even get to committee for further study, which was really disappointing.

I was wondering if we could have comments on the importance of making changes to the Income Tax Act to facilitate the transfer of farms. In one of the last meetings we had, the importance was raised of making that bill better, building on it, including selling it to not just your daughter or your son but to other family members.

Could I get comments on the importance of legislation changes that could be made here at the federal government to facilitate the transfer?

[Ron Bonnett]

It's no surprise we supported the bill. We were surprised when it didn't go through. Members from all parties, in one way or the other over periods of time, have tried to approach this issue and recognize that the current Income Tax Act was designed a number of years ago, and it doesn't recognize some of the structural changes there are in businesses moving forward.

We would support the committee trying to take even a broader look, as you're suggesting. What are the issues around succession planning, and what type of tax policy do we need to facilitate that? I don't think we can get into a detailed discussion here, because when you start getting into financial and tax policy you can get into the weeds really quickly.

I think there are a number of core principles. One is facilitating the transfer from one generation to another, whether it's from one generation that's a family or another generation that's not a family, recognizing that sometimes corporate structures have to be put in place to make it work, but also recognizing, as I said earlier, that you have retiring farmers and asking if there is a way that tax policy can encourage them to transfer that farm. I think it includes the items that were in the bill you talked about.

However, the whole issue of succession planning and transferring that to another generation is worthy of discussion, to take a look at what kinds of recommendations can be made to government on how to address that. Again, going back to those export targets that were in the budget, we're going to have to make sure that we have a bunch of young farmers who have the ability to go after those targets.

[Prof. Alfons Weersink]

The only thing I would add is that the tax policy will change the absolute amounts. If you can facilitate the means of how we're going to split that amount, that's a difficult part. As Ron has mentioned, the tax laws involve the dollar. The tough part is actually how we are going to split the absolute amount.

[Prof. Alan Ker]

That's difficult. That's non-trivial. I would agree with that.

[Ruth Ellen Brosseau, NDP, Berthier—Maskinongé, QC]

About how many farmers have a succession plan? In my constituency, a lot of the farmers are aging, and they're looking at retirement and transferring and selling. I guess the majority would have a succession plan, no?

[Ron Bonnett]

We've moved the mark a long way in the last few.... Actually, Alfons and I were at a farm management institute in Ontario together, and that's one of the items that was discussed then; how you increase the number of farms that are doing succession planning. I'm likely not a good example because I had this problem when I took the farm over from my father. It was a very difficult thing. He didn't seem to think he was getting older, but eventually he passed away, and there was no succession plan in place.

It's one of those things in which there's more understanding of a need to do it. Part of that is driven because of the size of the capital assets that are there. One of the things is trying to increase communication on the importance of doing it. There are a few players who would have a role in that. Universities and some of the curriculum encouraging.... It's usually getting the older generation to sit down and have the discussion. Some of the lending institutions, both banks and Farm Credit Canada, have a role to play in that, in ensuring that that type of work is being done, especially for people who are getting to the age when they're going to be looking at transferring that asset. It's not only to the next generation, their kids, it might be to somebody else as well.

[Prof. Alan Ker]

There are a lot of resources out there that the governments, both federal and provincial, have for this. It's more somewhat the utilization, as was mentioned.

[The Chair, Liberal, Pat Finnigan]

Thank you, Mr. Ker and Madame Brosseau.

Ms. Lockhart, you have six minutes.

[Alaina Lockhart, Liberal, Fundy Royal, NB]

Thank you, Mr. Chair, and thank you, each of you, for being here today. It's been very insightful.

In our second hour, we have some representatives from the credit unions. I wanted to talk about FCC—we had them as a witness before as well—the role of credit unions, and FCC versus commercial banking.

What is the advantage from your perspective, knowing some of the challenges that we have?

[Prof. Alfons Weersink]

I was in a commercial bank, and this commercial bank goes in and out of agriculture. I think that's the major difference. There are some operating lines versus long-term loans, but the major difference is that FCC's business is agriculture, and for the commercial banks, it depends on the time. Three or four years ago, they wanted it as much as anybody, and now not so much.

[Ron Bonnett]

I would agree with that. Farm credit has evolved. I can remember back in the day when I was starting out and borrowing from Farm Credit. The saying used to be that Farm Credit would give you a rowboat and one oar, so you were going in circles all the time.

They have evolved. I am extremely impressed with the types of programs they've put in place. Particularly, they're looking at the young farmer issue, but it is a combination of the banks, the credit unions, and Farm Credit. The banks in particular, as Alfons has said, have a tendency to follow the latest sweet spot. That creates some problems for farmers. I know I've changed banks I think five times since I started farming, mainly because of that. You're good for a while, and then, all of a sudden, orders would come up from down high that they didn't really look at agriculture as a favourable investment.

The other aspect of Farm Credit is that the depth of the organization is not just somebody looking at figures. They have agriculture people as part of Farm Credit today, which lends to their ability to analyze the investments that are being made and help provide advice for farmers going forward.

[Alaina Lockhart, Liberal, Fundy Royal, NB]

Very good.

I thought your comments were very interesting. When we're talking about new entrants into farming, the issue isn't so much debt as it is asset levels and those requirements. One of the things that we've heard from the young farmers is that they're looking for alternatives because land seems to be one of the biggest assets that they need to invest in.

That brings us to the conversation of rental versus ownership and also offshore investment. Do you have any commentary on that, any path forward, any cautionary comments or perspective on that?

[Prof. Alan Ker]

I would certainly say that if the rental market weren't there, they wouldn't be able to get their feet in the door, so it's a good thing. I agree that we'd all like to own everything, but the rental market does allow a certain degree of flexibility in and out to weather some of the ups and downs, which young farmers need more than an established farmer does in dealing with risks and things.

A young farmer getting in through the rental market, I think, is a good thing, a good avenue to get into the farming business that perhaps wasn't there 40 years ago.

[Ron Bonnett]

The only thing I would add is that even on our own farm, we still rent about 30% of our land, which is good. It works out cheaper for us to rent it than to buy it, although you do come to a position in your farming operation where you realize that you have to own some of those assets just because of pressure from the neighbours who may take that rental land. That brings up another issue.

If you rent an apartment anywhere in this country, usually there are a bunch of rules and laws about the responsibilities of each party. Right now there are private contracts between the person who owns the land and the renter. Those can vary. One of the things with the young farmers entering into rental agreements is really making sure that there's some solid contract behind them so that everybody understands where they are. In many cases, it's difficult to get the owner to sign a contract. We've had property that we've rented for 10 years and all of a sudden—well, actually, we had property right across the road that we'd been pasturing for 25 years. New owners took it over last year and they came and said that they didn't like livestock on farmland, and they wanted to grow it up into trees. That property is gone, but that was one of the ones we had just a handshake agreement on for years. That demonstrates the importance of having a contract in place.

[Alaina Lockhart, Liberal, Fundy Royal, NB]

So there are no regulations around rental agreements or anything like that?