Agriculture Committee on May 4th, 2017

[The Chair, Liberal, Pat Finnigan]

Thank you.

Mr. Breton, you have six minutes.

[Pierre Breton, Liberal, Shefford, QC]

Thank you, Mr. Chair.

I would like to thank the witnesses for being here today.

My first question is for Mr. Martin and Mr. Kennes.

How have farm loans changed at credit unions and in the organization over the past 10 years? Has there been an increase in the number of loans? Is the number of farm loans proportional to the number of commercial or other loans? What changes have there been with respect to farm loans?

[Frank Kennes]

There's been a tremendous increase in the number of farm loans that have been written over the last 10 years. Part of it is an increase in the value of assets. I would be remiss to say that 10 years ago a lot of our competitors in the banks weren't interested in agriculture, but over the last 10 years they have become very interested in agriculture again, so they're very open to making farm loans.

Perhaps this is an unparliamentary term, but I've used it a few times: agriculture has become very “sexy”. Food—especially eating healthy and growing good Canadian food—has become very popular, so in urban areas there's interest in food and growing things that wasn't there 10 years ago.

There's certainly been a much greater demand for our products. Returns to farmers have been very good as well, so there's been a great interest in lending to farmers, and farm debts have gone up for sure.

[Robert Martin]

I can just expand on that. Frank is speaking to the specificity of his credit union. In terms of the credit union sector as a whole, I would say the proportion of farm loans is going down, and that's for a variety of reasons.

Our main strength right now, where we're really growing our book of business, is in small and medium-sized enterprise lending. We're up around 11%, and we continue to grow. A lot of that may reflect the decline in the proportion of loans; it may be the larger farm size, which makes it difficult for some of the smaller credit unions to stay engaged; or it may be changing demographics. That said, we still have a core group of credit unions that are dedicated to agriculture, and they will be there for a long time.

[Pierre Breton, Liberal, Shefford, QC]

Very good.

I have a question for Mr. Kristensen and Mr. Stordy.

As part of our agenda, we hope to increase agricultural exports to $75 billion by 2025. Earlier, you talked about the high volume of pork exports. Congratulations on that.

Are pork producers ready for this opening of the market? We know that we will probably need higher yields and have to be ready to respond to this international demand. We know that we have a high-quality product in Canada that is in demand. So that will also require investment and loans on the part of entrepreneurs and farmers.

Can you talk to me about the current opportunity that will be available for the next seven or eight years?

[Hans Kristensen]

While it's true we have emerging markets, and wonderful opportunities continue in Japan and China, we do need to invest in our industry. Our problem right now will be access to capital. Because of the economic troubles of our industry from 2005 to 2010, a lot of our producers had to borrow more money, were very highly leveraged, and it was a very difficult time for our industry.

Subsequently, we've gone through a relatively stable period. We've done quite well financially. We've expanded our markets. With those increased revenues we've paid down our debts and now our lending institutions are comfortable once again, but they remember 2005 and 2010. When I go to them and say I want to double my production base to take advantage of emerging markets, I still find lending institutions nervous toward the hog industry. I understand where they're coming from because of 2005 and 2010 but it's a different world today. Canada is very well poised to supply protein on a world stage.

In my opinion as a producer, one of my single biggest challenges right now is lender confidence in my industry and attracting that capital. That is a significant challenge to us. Anything the federal government can do in the form of loan guarantee programs to help us access capital, raising the limits on the CALA program, for example, to reflect the size of our industry today, would be hugely beneficial. Making sure that any type of programs have the flexibility to allow our financial institutions in times of cash flow issues to convert a loan to interest only without putting the federal guarantees at risk would be hugely beneficial.

If you can get us a free trade deal with Japan, I'll take that too.

[The Chair, Liberal, Pat Finnigan]

Thank you, Mr. Kristensen.

Thank you, Mr. Breton.

Ms. Brosseau, you have six minutes.

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

Thank you, Chair.

I'd like to thank the witnesses for their presentations.

Mr. Kristensen, in your presentation you talked about the business risk management suite. Those are the tools that are supposed to be useful for farmers. You were talking about many of the problems and how they're not very useful for your industry.

AgriInvest has no value. AgriInsurance is not available for livestock. Then you talked about the need for renovation in the construction of new brands. Can you maybe talk about more changes that need to be made to the CALA program?

[Hans Kristensen]

When it comes to the CALA program, one of the biggest disadvantages we have is the limitations on the amount of borrowing. So an individual producer today can only access that program, I believe, to the tune of $500,000. We operate in a very capital intensive industry. Unlike a lot of other agricultural operations, we are not land based. So the vast majority of the value of our assets is not in land. It's in buildings and equipment that deteriorate, that need to be replaced about every 20 to 25 years.

We're in an industry that needs to reinvest heavily in capital. The cost of a hog operation today is well into seven figures. So while a $500,000 loan guarantee is beneficial, it's not reflective of the size of the operations that we have today. So seeing those limits increased would have a huge impact on our industry.

As far as the existing other three stools: AgriInvest, AgriStability, and AgriInsurance, again AgriInsurance doesn't cover livestock. AgriInvest, while we use it, again is of limited value to us. Since we've changed it from an 85% trigger level to a 70% trigger level, AgriStability is useful as catastrophic relief but it doesn't help manage short-term issues in the marketplace.

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

I bring up this often when we're talking on the subject of farm debt. More recently in the House we had a private member's bill that would facilitate the transfer of family farms because right now if you want to sell your business, your family farm, to your son or daughter, it is more advantageous, more profitable, if you sell it to somebody from outside the family.

There have been other comments at committees saying maybe we have to look at enlarging the definition of family member. Could you comment on the importance of amending and changing the Income Tax Act to make it easier to transfer your family farm?

[Hans Kristensen]

Anything we can do that allows a farm to transition from one generation to the next and stay within the family is beneficial to our industry. As our farm families shrink, as indeed families in general shrink in this country, we need to expand the definition of family to include other relatives other than direct descendants. We also need to make sure that the access to capital is there.

Unfortunately in our industry sometimes, farms transition outside the family simply because the second generation does not have the ability to raise the capital to purchase the operations. The only asset the outgoing generation has is the equity value of that farm, so they can't afford to pass it on without realizing on that equity.

Anything we can do in this context to increase the definition and the breadth of family members who can be transitioned to and programs they can use to help access capital would be hugely beneficial.

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

Mr. Kennes or Mr. Martin, do you want to comment on succession planning?

[Frank Kennes]

On my flight from London today, I sat beside a young man who runs a computer business. We got talking about what we both do. I mentioned I was coming here today. One of the issues we were talking about was succession planning. It turns out this fellow is from Montreal but his wife comes from a farm family south of Montreal. The father and mother have a dairy farm operation where they milk 120 cows. They have six daughters, and one of the daughters wants to take over the farm.

He mentioned what a struggle it is within the family to figure out what to do. One thing we agreed on was that one of the last things this generation of farmers who are transitioning out want to talk about is succession planning. They would rather talk about what kinds of crops they're going to grow this year or how much milk their cow gives.

I think that's one of the big challenges, getting farm families to look at succession planning and talk about it early so that plans can be put in place at an early time, so that the transition will be easier. It's still going to be very difficult. I know life insurance companies are looking at helping with transition. I know we as a credit union are encouraging our farm families, through seminars and webinars, to talk about the issue, to consult their accountants and lawyers, to find ways of transitioning to the next generation.

I think it behooves all of us to bring it top of mind to farm families, have them plan early and come up with some workable solution. That being said, it's a daunting challenge that all of us need to work on.

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

Thank you.

That is all.

[The Chair, Liberal, Pat Finnigan]

Thank you, Ms. Brosseau.

Ms. Lockhart, you have six minutes.

[Alaina Lockhart, Liberal, Fundy Royal, NB]

Welcome to all of you.

Mr. Kristensen, being from Fundy Royal, from New Brunswick, I have some specific questions for you. You said in your testimony that government can help producers become more efficient by partnering with producers to invest in the construction of new and efficient barns and farm upgrades.

When you said that I thought of the $1.26 billion in the past budget that's been allocated for the strategic innovation fund. We don't know what that program looks like, but I'm very encouraged that it specifically talks about agriculture and agrifood.

Do you want to elaborate on that a bit, or on what your perspective is?

[Hans Kristensen]

I'm encouraged by that amount of money and that funding, as well. I know that the hog industry is very innovative. We're very quick to adapt new technologies. We're hoping to access part of those funds.

Our biggest challenge right now is that since 2005 there has been very little capital reinvestment in our industry. If you look at the industry, for example, from a processing and retail point of view, you see they reinvest capital at a rate of about 15% per year, which is normal. In the hog industry, because of the financial crisis we suffered from, especially in 2008-09, and not having the liquidity to do so, our reinvestment of capital since 2005 has been almost nil, around 4%, which is very little.

Now, we're in an industry that requires itself to be renewed and reinvested every 20 to 25 years, which means that we need to invest heavily in capital, in existing infrastructure to replace aging equipment today. We love the innovation program. We're adapting new technology. We'll access all the programs that we can.

However, we still have the issue of an industry where 75% of the bricks and mortar that support the economic contribution we make to the country need to be replaced within the next eight to 10 years. That's our single biggest challenge right now.

[Alaina Lockhart, Liberal, Fundy Royal, NB]

Thank you for pointing out that clarification, because I did wonder how the pork industry differs from some of the other commodities that we have in our agriculture sector.

One other thing you talked about, too, and you just mentioned it briefly, was people. It's hard to draw people directly to debt. Could you talk to us about some of the challenges of the workforce and how that's impacting the ability to grow?

[Hans Kristensen]

Again, it goes to confidence in our industry. It's difficult to attract new entrants to our industry due to the historical instability, even though lately it has been very good. It's difficult to attract new entrants to our industry with, again, financial institutions being a little bit more nervous about our industry than they are about, say, the dairy industry. That's always been a challenge.

We need to attract younger producers. I am not an old hog producer; I should be, but I'm not. I'm actually probably just barely on the below side of average, which is difficult to believe. Anything we can do—the reinvestment of capital, the strengthening of our export markets, the continuation of profitable markets, a rebuilding of confidence within the lending institutions for our industry—those are what we need to have happen in order to attract new entrants and younger people. We need to look at it as an attractive career choice.

We often look at farming as a way of life, and it is, but it also needs to make economic sense. I'm very aware that any dollar that comes into our industry from the federal government is an investment and that the federal government is utilizing taxpayers' dollars. I always want to make sure that any dollar that is spent on our industry returns two or three to the provincial economy, and so does every young person investing in our industry. They need to know it's a good investment 10, 20, and 30 years down the road, so they don't choose another career path.

[Alaina Lockhart, Liberal, Fundy Royal, NB]

Just while I have you here, from New Brunswick as well, what about processing facilities? Do you want to speak to that and the infrastructure that's required there?

[Hans Kristensen]

In relation to Atlantic Canada or in relation to the country as a whole?

[Alaina Lockhart, Liberal, Fundy Royal, NB]

Well, speak about Atlantic Canada, if you could.

[Hans Kristensen]

I think there is a place in Atlantic Canada for, I'm going to say, small-scale processing facilities that serve a local market. I'll probably get shot for saying this when I get back home, but I don't think it's realistic that we would have a viable, federally inspected commercial processing facility with the livestock base that we have. We've managed to adapt our industry very well in Atlantic Canada. We're doing well. We're producing specialty products, mostly in partnership with processors in Quebec. We produce antibiotic-free pork, humane pork, and high-health pathogen-free pork, and it's worked out quite well. I think that Atlantic Canada has carved itself out a very innovative and adaptive niche market that we're settling into quite comfortably, the potential of which we are just starting to tap. We have markets we can't fill.

[Alaina Lockhart, Liberal, Fundy Royal, NB]

I appreciate that. Thank you.

Now, on a broader basis across Canada, are there challenges with the processing as well? Is that an area where we need to be investing as well?

[Gary Stordy, Public Relations Manager, Canadian Pork Council]

Absolutely. We have seen some of our processing plants independently make investments on their own. It's usually with some of the manufacturing equipment to adapt to labour issues, which are ongoing. But for the most part, most of our processing plants are running slightly under capacity or substantially under capacity due to the lack of supply of hogs. That comes back to creating an environment where a new producer, whether young, middle-aged, or even old, wants to jump into the hog sector and start raising hogs. That is part of the challenge. We have a very modern industry. We talk about how we raise the animals, and the equipment necessary for that, some of the equipment to deal with labour shortage in a barn, such as automated feeders. So there's that. There's a substantial upfront cost to get in, regardless of size. You can be small or large, and there's still that upfront cost, and that is sometimes a barrier for people wanting to jump in.