Agriculture Committee on May 4th, 2017

[The Chair, Liberal, Pat Finnigan]

Hello, everyone.

Pursuant to Standing Order 108, the study of debt in the agriculture sector and its effects, I want to welcome all our witnesses.

First, we have Mr. Alan Ker, professor and director of the Institute for the Advanced Study of Food and Agricultural Policy at the University of Guelph, and president of the Canadian Agricultural Economics Study.

We have Mr. Alfons Weersink. Mr. Weersink is a professor in the Department of Food, Agricultural and Resource Economics at the University of Guelph.

Also, last but not least, and fresh from a trip south of the border, we have Mr. Ron Bonnett, president of the Canadian Federation of Agriculture.

Welcome to all of you.

Welcome to all of our members who are also with us. I think we're all the original or the genuine members of the committee.

We will start with an opening statement from Mr. Ker. You have up to 10 minutes.

[Professor Alan Ker, Professor and Director, Institute for the Advanced Study of Food and Agricultural Policy, University of Guelph; President, Canadian Agricultural Economics Society, As an Individual]

Thank you for having me.

Let me thank the committee for the invitation to testify on debt in the agricultural sector and its effects.

I am the current president of the Canadian Agricultural Economics Society, and professor and director of the Institute for the Advanced Study of Food and Agriculture Policy at the University of Guelph. The society's mandate is to further our understanding of the economics that govern the food, agricultural, and resource sectors. While the institute has multiple mandates, its primary one is to attract students into the food and agricultural sector. Prior to joining Guelph, I was a professor at the Department of Agricultural and Resource Economics at the University of Arizona. While I have not published specifically on farm debt, I have in the past two years published peer-reviewed articles on closely related topics, including crop insurance, price volatilities, economic impact of disease outbreaks, and yield resilience and climate.

The ability to obtain a managed debt is critical to a sector's economic success. This is very true in the farm sector. In fact, because of the growing concern about increases in both farm debt and land values, in May 2015 the institute held a conference titled “Are we headed for another farm financial crisis?” The consensus, which included speakers Dr. Gervais and professors Weersink and Deaton—all of whom you have or will have heard from—was that we are not headed for another farm financial crisis.

Currently, the debt-to-asset ratio is relatively low, and farm cash receipts are strong. Hence, many have testified that debt is not a significant issue for the sector at this time, and I would agree. That said, the complexity of managing debt rises as risk increases, and I expect risk to increase in the future. I will focus my comments today on risk and the efficacy of the government programs that are meant to assist producers in managing risk. I will break risk into three categories: those related to production, those related to the market, and those related to policy.

Production risk can arise from such things as mortality, disease, genetics, weather, etc. Part of my research program deals with modelling crop yields. This research has revealed a number of interesting points related to yield risk. I will focus on corn yields. First, year-to-year yield volatility has doubled over the past 50 years. Second, the increased volatility has not been symmetric. That is, low yields are becoming relatively more volatile than higher yields. Third, this increased volatility can be mostly attributed to innovation rather than a change in climate.

Consider the following example. Over the past 50 years, seed innovations have allowed the planting density per acre to double, thereby increasing average yield per acre. However, the distribution of precipitation has remained constant during this period. While precipitation rarely limited crop yields in the 1960s, given increased planting densities, it does today. Our research shows that insufficient precipitation is now an order of magnitude more likely to cause lower yields because of innovation. As new technologies are adopted, the climate-yield relationship changes. At least historically, that change has increased yield risk, making the management of debt more complicated.

Market risk can arise from input and output prices, interest rates, and exchange rates. Interest rates appear to be relatively stable and low for the foreseeable future, but that can quickly change with changes in monetary policy. Increases in non-food uses, coupled with growth in global population and income, will increase long-run demand for agricultural goods. Long-run supply will be a function of expected returns in productivity growth, the latter driven by research and development expenditures. Overall, I expect long-run output prices to be constant or marginally increased as growth in demand is likely to outpace supply. Short-run prices will fluctuate with current supply, current income, and stocks. Exchange rate risk will continue as in the past, affecting both output and input prices. Our exchange rate is, and will continue to be for the foreseeable future, highly correlated with world crude prices.

Currently, policy risk is at the forefront, given rhetoric regarding a NAFTA renegotiation and component pricing and supply management.

Sometimes rhetoric turns into reality, as in the case of the softwood lumber countervailing duty. As an agriculture sector that depends heavily on trade or protection from trade, policy is perhaps the biggest risk facing Canadian producers right now.

The impacts of changing policy are most often manifested in changing prices as seen from mandatory country-of-origin labelling. Policy changes can have dramatic effects on producer income and, consequently, their ability to meet debt obligations. Moreover, policy changes can rapidly alter the value of assets such as land quota and machinery. Given the increasing global sentiment for stronger borders and the uncertain behaviour of the U.S., I expect policy risk to remain high in the short to medium term.

Business risk management programs like AgriInvest, AgriRecovery, AgriStability, and AgriInsurance assist farmers with the financial consequences of poor production outcomes. In fact, the suite of programs offers producers a significant amount of coverage in this respect. Moreover, the public sector has natural endowments that allow it to deliver protection more efficiently than the private sector.

While these programs shield producers from production risk, they do very little to shield producers from price risks caused by market or policy shocks. In this respect, producers' ability to make debt payments are vulnerable. It is noteworthy that Ontario and Quebec have provided farmers with a commodity-specific gross margin-based insurance program that assists producers in managing price risk. Also notable, the U.S. crop insurance program provides commodity-specific revenue insurance, which covers producers against both price and production risk.

In summary, I believe the current level of debt is not a cause for great concern given current asset levels and farm cash receipts. The greatest risks to the producers' ability to meet their debt obligations in the short run is policy risk related to stronger or weaker borders, always-present exchange rate risk, and interest rate risk. In the long run, greater attention in developing a business risk management policy, which assists producers to manage risk while not incentivizing risky practices, is needed.

Designing this policy, which provides adequate risk without incentivizing producers to adopt riskier practices, is challenging. That challenge will be exacerbated by uncertainty with respect to changing climate, consumer demands, and policy.

Thank you for the opportunity to speak to you today. I look forward to answering your questions.

[The Chair, Liberal, Pat Finnigan]

Thank you very much, Mr. Ker.

We now have Mr. Weersink for up to 10 minutes.

[Professor Alfons Weersink, Professor, Department of Food, Agricultural and Resource Economics, University of Guelph, As an Individual]

I very much appreciate the opportunity to testify to the House of Commons Standing Committee on Agriculture and Agri-Food. It is an honour, and I hope I can justify the invitation with information that is useful to your deliberations.

Today I will speak about the effects of debt on the ability to expand any farm and to transfer an operation between generations. To begin this discussion, I would like to give you a brief personal background that relates to issues of debt and young farmers.

My parents immigrated to Canada from the Netherlands in the late 1950s. As many who came from the Benelux countries after World War II, they came seeking the opportunity to farm, an opportunity that was not available to them due to conventional rules for intergenerational transfer at the time, in which the eldest son was gifted the farm, and to the relative economic opportunities outside of western Europe.

They came to Canada with very little, but thanks to good fortune and hard work, they achieved their dreams and built a successful farm operation. As I will argue later, they may have been one of the last generations able to move into commodity agriculture without significant capital behind them.

Along with one of my younger brothers, I had full intentions of taking over this family farm. We both came back to the farm in 1984 after graduating from university. He had an undergraduate in agricultural mechanization, and I had a master's in agricultural economics. He took over the dairy end of the operation from my parents, who then focused on the cash crops. I worked part-time on the farm and had a full-time job as a credit manager with a major bank.

The timing of this job coincided with a farm financial crisis. Since my portfolio was largely farm-based, I saw first-hand the effects of debt beyond the repayment capacity of farmers. This experience was partially responsible for my decision to pursue a Ph.D., which was likely in the best interests of both me and my brother. As I will discuss later, the circumstances of this farm financial crisis of the 1980s are unlikely to play out today, but there are policy lessons to be learned.

I was fortunate to obtain a faculty position at the University of Guelph upon graduation from Cornell in 1989. A constant over my time at Guelph was teaching a fourth-year class of students in the food and agricultural business major, in the bachelor of commerce degree. There have been two trends in this major over time, reflecting the changing perceptions about agriculture in general, and farming in particular.

One is the increasing number of students from non-rural areas, who are attracted by the employment opportunities in the agrifood sector.

The second is the increasing share of students from farms who want to go back and take over the family farm. The number of students with a farm background who are enrolling has not changed due partially to the shrinking number of farmers, but more of that number want to return to the farm. I think this reflects the excitement about the long-term prospects for agriculture and the challenging skill set required to be a successful operator.

However, there are significant challenges facing the transition of a business that has become so capital-intensive. Family members, including my brother and two brothers-in-law, are now facing these challenges.

The committee has been asked to deliberate on three points with respect to debt: young farmers and intergenerational transfer; start-up farms operating 10 years or less; and the ability to expand farm operations. I will start with the latter, debt and the ability to expand.

Debt is incurred as a means to pay up front for investments deemed to be profitable for the operation, without having to use personal funds. The likelihood of borrowing increases with the annual returns to the farm business from the purchase of that asset, while demand for credit falls with increases in borrowing costs. Thus, the increase in debt level alone can be a sign of strength in the agricultural economy. It signifies the sector reinvesting in technology to increase its productivity and competitiveness. Financial institutions, such as Farm Credit Canada, are providing loans based on a similar assessment on the value of purchases made through credit.

The debt levels alone are not a measure of financial stress. As noted by several other witnesses to the committee, asset values have increased at a faster rate than liabilities, resulting in an increase in equity to the sector. In addition, arrears on loans at FCC at least are at low levels, suggesting no major concern at the current time about the repayment ability for the majority of operations.

This could change with production, market, and policy risks, as outlined by Dr. Ker. There will be continued downward pressure on agricultural returns in the short run, I believe, but the long-term prospects are bright.

I would concur with Dr. Ker that the biggest risk on repayment capacity is associated with an unexpected and dramatic change in policy. The farm financial crisis was arguably brought about by such a policy change. Negative real interest rates had become the norm in the 1970s. Inflation was greater than the nominal interest rate. The U.S. Federal Reserve's attempt to reduce inflation through a dramatic cut in the money supply resulted in record high rates in the space of a short period of time. For example, the Bank of Canada prime rate nearly doubled in 1982 to nearly 22% in less than a year. We were charging 2.5% to 3.5% above that for operating lines to customers who were so-so.

The rise in interest expense, in combination with lower commodity prices, pushed many farms into farm bankruptcy. There were 550 in 1984, for example, whereas the average annual number has been approximately one-tenth that over the last several years. One of the lessons from the farm financial crisis that I observed as a lender is the importance of distinguishing between social policy and farm policy. In the 1980s, the two were interlinked. For example, interest rate reduction policies for all did little to help the farmers really struggling financially and arguably slowed the adjustment within the sector. Farm policy should ensure a competitive sector that is efficient and able to weather the inevitable storms. In contrast, social policy should help the disadvantaged. There were many distressed farm families during this crisis and there were some very important and effective efforts to provide counselling to aid farmers in that difficult transition away from the farm. Hopefully, there is no need for such policies in the future, but if there is, the distinction between farm and social policy is important.

Another lesson from the farm financial crisis was the need for the farm sector to distinguish between the owner and the operator. It used to be that the farmer felt it necessary to own all assets necessary to operate the farm. Purchasing, rather than leasing, puts the farm at greater financial risk. One of the major discussion points in the 1980s was how the sector could attract outside equity. The growing farmland rental market provided by non-farmers is an example of the provision of outside equity that reduces the financial risk to the farm business. This type of market can also help new farmers enter into the sector.

Regarding debt and young farmers, while debt levels are not acting to constrain existing farm operations, I would argue that access to sufficient credit can serve as a barrier to some entrants, but it depends on the type of new farmer. Christie Young of FarmStart, who will be a witness to the committee next week, has identified four types of new entrants: first, young people moving into an existing family operation; second, young people seeking entry into a niche market; third, the middle-aged looking for a second, supplemental career; and fourth, new Canadians. I think the distinction is important. Each of these groups has differing interests and needs. For example, the first group tends to have issues with intergenerational transfer; the middle groups, with obtaining equity; and the latter, the new Canadians, with understanding institutions to produce and serve a growing ethnocultural market. It is not equity that is an issue for them. I'm assuming Christie will discuss the latter three groups and I will focus on the traditional new entrants.

For new entrants looking to transition into a family farm operation, the issue is asset levels, rather than debt per se. The asset value of most commercial farm operations is in the millions of dollars. The financial worth complicates the means of transferring the operation, as a single unit, to the next generation. The transfer needs to balance the desires and financial requirements of the retiring parents, the new entrant or entrants, and other family members. At the extremes, the farm debt could be passed on free to the new farmer with no debt and no compensation to the parents or siblings, or the new entrant could have to pay the full market value of the farm and incur significant debt. The financial viability of the operation revolves around how the farm is gifted to the next generation and subsequent debt levels. Thus, it is the market value of the farm assets and how it is transferred that influences the financial success of the operation, rather than debt levels directly.

While the growing net worth of farmers has enhanced their financial well-being, it has also complicated the intergenerational transfer of their operations.

It was simple for my grandfather. The farm went to the oldest son, who was not my father, and it left my parents with no choice except to move to Canada if they wanted to farm. They were able to do so because—

[The Chair, Liberal, Pat Finnigan]

Sorry. The 10 minutes are done. Please quickly conclude.

[Prof. Alfons Weersink]

Sorry, it's just the last few sentences.

They were able to farm because asset values were significantly less, and the returns were generated through their labour, rather than through capital. It is much more complicated for my brother and brothers-in-law. Successful transfers in a capital-intensive sector involve clear communication between all parties. Policies that aid the conversation would be more beneficial to the majority of operations than direct financial assistance.

Thanks for the opportunity to speak, and I'd be happy to discuss the issues further with you.

[The Chair, Liberal, Pat Finnigan]

Thank you, Mr. Weersink.

Mr. Bonnett, you have up to 10 minutes.

[Ron Bonnett, President, Canadian Federation of Agriculture]

Thanks to the chairman and committee members for inviting me to present.

Before I get into comments, Alfons was sitting on the banker side of the desk in the 1980s. I was on the other side of that desk, and I think it gave me a real understanding of how policy changes could impact the farm. The figures are embedded in my head: we had an $85,000 loan, we expanded the farm from 1985 on. It was supposed to be a five-year term, at one point, I was making the $1,600 a month payment, and the principal was going up $400 a month. Things like that make you think about what the impact is of debt, interest, and repayment abilities. The situation in the 1980s isn't the same as it is now, but I think there are some lessons to learn from the policy side during the 1980s that have some importance today.

As has been said earlier, rising farm debt in itself isn't necessarily a problem. Producers' demand for credit tends to increase with asset values, and it can provide an important source of proactive investment in productivity, risk mitigation, and to capture emerging opportunities. Meanwhile, the availability of credit in the sector speaks to increased financial health and low interest rates. As we have seen in the recent ambitious growth targets set by the Barton report and the most recent federal budget, there is optimism in Canadian agriculture and its future potential.

In fact, one area we believe needs to be looked at more closely is the influx in capital toward assets like farmland that this optimism has generated. While relatively modest to date, we need to take steps to ensure that farmers maintain control of strategic assets like farmland, and that when farmers invest in their operations they are building long-term equity. Nonetheless, we need to look beyond relatively high debt-to-asset ratios when examining farm financial health. These ratios provide insight into the current state of farm solvency, but years of double-digit increases in farmland values—particularly in places where farmland value increases have outpaced farm income—illustrate why they can be a bit deceptive when looking at overall financial health.

Producers managing debt first have to monitor their cash flow and its sensitivity to interest rates. With increased input costs, generating enough operating capital can be a real challenge. This is particularly true for young farmers or those looking to expand. The advance payments program provides critical assistance in this regard, but increasing farm sizes and rising costs require that the advance limits be increased and indexed to inflation to keep pace. In addition, beginning farmers should have access to greater interest-free advance limits to help them address the unique operating capital constraints involved in getting a business up and running. Producers also need to understand how debt affects profitability. Understanding your return on assets is critical to making informed decisions about debt or future investments. Ultimately, a key measure of debt servicing capacity is farm income.

The historic highs we've seen in commodity markets are declining, leading to a dramatic reduction of farm income in the United States. So far, Canadian farm incomes have avoided the brunt of these declines due to favourable exchange rates. With prices declining and asset value growth beginning to moderate alongside ever-present weather and market volatility, investments in productivity and innovation are critical for long-term growth.

With a global population exceeding nine billion estimated for 2050, Canadian agriculture faces a unique opportunity to define itself as a global leader in sustainable production. Capitalizing on this opportunity will require considerable investment on the part of Canadian farmers and will, for most, unavoidably involve taking on more debt to do so. Effective business management skills are essential to ensuring that this is the case. CFA continues to work with Farm Management Canada to promote a comprehensive, strategic approach to risk management, but believe more must be done by industry and governments to promote business management skills in the sector.

Despite the wealth of opportunities we see for the industry, agriculture continues to face a unique range of risks that in many instances are increasing in their frequency and extremity, while climate change and changing dynamics in the industry continue to pose new risks. Some of these can be managed and adapted to through strategies or new technologies, but others undoubtedly extend beyond the capacity of on-farm management.

Investing in increased productivity, sustainability, and farm business growth requires access to business risk management tools capable of navigating risks beyond their control. Canada's current risk management programs have been around for 10 years now with the basic structure of some dating back multiple decades prior to the emergence of these risks and the investments needed to address them. At this point, we believe it's critical that government and industry step back and do a more fundamental review of whether these programs are effectively contributing to the management of risks that producers face today.

The investments made by current businesses are essential to the growth and continued development of the sector. However, young farmers and new entrants are critical to the long-term success of Canadian agriculture. Young farmers provide new ideas, skills, and energy to the sector that are going to be instrumental in demonstrating Canada's global leadership in sustainable agriculture. The young farmers I meet continue to amaze me with the level of education and business acumen they bring to the table. Not only do they introduce innovative approaches, they are also more likely to invest in growth and expand their operations. Yet they must now contend with record farmland values and increased debt loads associated with today's larger, more capital-intensive farms, making transitioning the farm more challenging than it ever has been before. The steep costs associated with taking over a farm are among the primary challenges for young farmers and new entrants when trying to get started in the business.

Estimates suggest that up to $50 billion in farm assets will be transferred over the next decade. Just using a rough estimate with a debt-to-asset ratio of around 16% and approximately $100 billion in total Canadian farm debt, $8 billion in debt needs to be dealt with in these transfers. We believe effective succession planning is paramount. Developing a plan that ensures the financial viability of both parties requires getting started years in advance, maintaining communication, and bringing expertise to help. However, Canada's Income Tax Act has not kept pace with changes in the sector, such as increased incorporation, larger multi-family farming operations, and reduced gifting of farms from one generation to the next due at least in part to the increases in farm debt. To ensure sustainability of family farms, the provisions of the Income Tax Act originally designed to assist with family farm transfers must be reviewed and amended to ensure they still remain accessible to today's farmers.

Finally, the increased capital tied up in farming operations means access to capital poses a critical hurdle for many new entrants who lack the credit histories or capital available to purchase or launch an operation. At the same time, young farmers looking to take over the farm are increasingly expected to pay more for operations than ever before and the associated farm debts that have in some instances accumulated across generations. Farm Credit Canada offers support to young producers, as do some private lenders, but current programs do not fully satisfy the need. We strongly support FCC's offerings in this area and encourage continued exploration of how it can expand its scope in this area. With the next policy framework approaching, the CFA also encourages governments at all levels to develop and adopt multiple flexible programs in order to ensure they offer assistance that is relevant to a range of situations confronting new entrants. In addition to new capital, new entrants also require assistance in accessing land and knowledge in order to launch their new endeavours.

In conclusion, Canada's rise in farm debt reflects an industry that's seen record prices and incomes alongside historically low interest rates. The sector is primed for further growth, but we cannot assume the same favourable conditions. To position the sector for continued success, we have the following recommendations.

One, we recommend better collect data on outside ownership of agricultural land to inform potential policy responses.

Two, we recommend increasing advance limits to assist with operating capital constraints, particularly for young farmers.

Three, we recommend having industry and government further promote business management skills development.

Four, we recommend taking a look at whether BRM programs meet modern risk management needs required to facilitate investments in future growth.

Five, we recommend updating provisions of the Income Tax Act designed to assist with family farm transfers to ensure they remain conducive to family farm transfers.

Six, we recommend ensuring there's access to a wide range of programs providing new entrants and young farmers with access to capital, land, and knowledge.

Thank you again. I'm looking forward to your questions.

[The Chair, Liberal, Pat Finnigan]

Thank you, Mr. Bonnett. You are right on the money at 10 minutes.

We shall start our question round. To lead us off is Mr. Shipley, for six minutes.

[Bev Shipley, Conservative, Lambton—Kent—Middlesex, ON]

Thank you, witnesses.

First of all, Alan, is there a difference in the concern of levels of debt between non-supply and supply-managed groups?

[Prof. Alan Ker]

Would I be concerned about the levels of debt between the two groups? Is that what you're asking?

[Bev Shipley, Conservative, Lambton—Kent—Middlesex, ON]

No. On those levels of debt, sometimes there may be more in supply management, but not necessarily always. Do you see a change in concern about the level of debt that is held by those in supply management, as opposed to those in non-supply, and the ability to repay?

[Prof. Alan Ker]

Yes, certainly supply management.... About a year ago I met with a gentleman at the TD Bank working in the ag loans there, and there certainly is a greater appetite to lend to supply-managed producers, for sure. That's obvious because there's a lot more security there, a lot more certainty there. I'm not sure about the numbers, but I would expect that debt could be higher with supply-managed farms. But I wouldn't see that as a problem because you have a more secure income, and so I would expect to see that.

[Bev Shipley, Conservative, Lambton—Kent—Middlesex, ON]

As it relates around cash flow....

[Prof. Alan Ker]

Yes. So, I'd certainly expect to see that, and I wouldn't see that as concerning at all. That's the market saying that this is a less risky cash flow, and so we're willing to lend more to that sector.

[Bev Shipley, Conservative, Lambton—Kent—Middlesex, ON]

Ron mentioned in his comments...and I was also a part of that what you might call crisis. It was quite an education and management experience in the eighties, and so I go back to that. We're talking now about 2% and 3% interest. We were talking then about 17% on a mortgage maybe, 20%, 21%, 22% on an operating...depending. The numbers are totally different. In terms of interest rates, what would actually be a tipping point for the commodity organizations and the farmers, to put a number of them into a financial crisis?

[Ron Bonnett]

I could take the first crack at it. I think it depends on your commodity, how sensitive you would be. Some of the supply management commodities that have a fixed cash flow, I think, might be able to respond a little more. The other commodities are subject to shocks to the market. You mentioned that in your presentation. I was in the U.S. last week, and when that “pull out of NAFTA” announcement came out, corn prices fell 2% almost immediately. Those shocks to the marketplace would affect the ability and how much the interest could go.... But a gut feeling is it wouldn't be in the range of interest increases that we felt in the 1980s. Even a doubling of interest rates right now would be pretty critical to a number of operations, but it would depend on the commodity.

[Bev Shipley, Conservative, Lambton—Kent—Middlesex, ON]

If it went up a couple of points...?

[Ron Bonnett]

Yes.

[Prof. Alan Ker]

It would be just like any business. Ag's really no different.

[Bev Shipley, Conservative, Lambton—Kent—Middlesex, ON]

One of the things we find is that succession planning is actually a lot more than making a will. One of the things we talked about earlier with some of the witnesses is ownership. There's something about farming—and I think in any business—that you want to own. But in real life, when you look at the farmers I'm familiar with around our area particularly, you see there's a great combination of a land base maybe that they've owned. But to lease or to have separate agreements on how to run someone else's land, how is that looked at in terms of the ability...? That isn't really what we want to do. We want to be able to own the land. I think all of us likely know of others who started off with no ownership, but had an agreement with a farmer. This is a point I've noticed happening. We have farmers who want to retire. They may or may not have family who want to be a part of it. They have a great asset level. They may carry some debt. But they also have a passion for this incredible industry that we have, and they are looking to have someone come alongside who they would be able to mentor, and then have a buy-in, some sort of an arrangement...to take over and operate a farm.

What kind of a policy would you see being best looked at to help encourage that? I think there's a lot more of it than we think. In my case we had three children. None of them decided to farm. I'm still considered a farmer. I think that's why the age limit is 55 and over. What kind of a policy would we put in? I think it's really an advantageous thing to look at.

Ron.

[Ron Bonnett]

There are a couple of things.

One is that we've been asking budget and finance to take a look at the tax on transition and make sure that the corporate structures are treated in a manner that is equivalent to some of the transfer provisions that were there before.

The other thing there's been a bit of discussion about—and it goes to your talk about the retiring farmer—is looking at tax policy to see if there's a way, if that person holds back a substantial mortgage, that possibly some of the income from that mortgage would have a preferred tax status. Instead of having to charge a high rate of interest because he knows he's going to have to pay a high rate of tax on it, they could actually provide those assets at a lower rate of interest.

This is where we're taking a look at this whole issue of succession planning. It's not one tool that's going to fix it. I think it's going to be a number of tools that are going to fix it. It also goes back to the business planning aspect of taking a look at how to manage those assets.

The other thing that comes into this discussion is off-farm investment.

[The Chair, Liberal, Pat Finnigan]

Thank you, Mr. Bonnett, I'm going to have to cut you off. Sorry about that.

We now have Mr. Longfield for six minutes.

[Lloyd Longfield, Liberal, Guelph, ON]

Mr. Bonnett, I'd like to continue with your sentence.

This is a good discussion we're having. If you could finish it off, that would be great.

[Ron Bonnett]

Just finishing off on that, there are the individual transfers.

The other thing we see emerging is investment farmers taking and putting capital in place, buying farmland, and leasing it back. It could be a tool to help young farmers who don't have equity get into it. This issue was raised in the States when we were talking to them down there last week. It's making sure there's the ability at some point for that young farmer to then buy out that shared position. Having that investment capital there might be good, but if they just leave it frozen for the lifetime of that farm, that takes away the incentive to try to bring it back.

I'll turn it over to some of the other guests.