Evidence of meeting #56 for Agriculture and Agri-Food in the 42nd Parliament, 1st Session. (The original version is on Parliament’s site, as are the minutes.) The winning word was farmers.
A recording is available from Parliament.
Chair, Union des producteurs agricoles
Land allocation should be regulated, especially to ensure long-term loans and leases. It's important.
At this time, since the value of land is increasing quickly, farmland owners who aren't farmers have no interest in leasing their land over the long term. They may have a chance to sell or rent the land at a higher cost.
Small and large producers who farm leased land can't build or develop their company over the long term. They can't make long-term investments in the land.
NDP
Ruth Ellen Brosseau NDP Berthier—Maskinongé, QC
Ms. Baillie, we must work on promoting cooperatives in Canada. Can you tell us about your mentoring program?
Executive Director, Local Food and Farm Co-ops
Do you mean within co-operatives specifically?
Within the co-operative sector, we do a lot of mentoring where we have seasoned, established co-operatives mentoring start-ups. In the ag sector, in particular, we find that this is very valuable because the new entrants really need that kind of guidance from the business management practices of the co-op sector specifically, particularly because—
Liberal
The Chair Liberal Pat Finnigan
Thank you, Ms. Baillie. I'm going to have to cut you off there. You may have a chance to continue this later.
Mr. Peschisolido, you have four minutes.
Liberal
Executive Director, Local Food and Farm Co-ops
Thank you.
I was just going to say that educational supports don't necessarily exist for the governance education of co-operatives, so mentorship programs are really the only way that new entrants are learning the value of the key learning initiatives for governance of co-operatives.
Liberal
Joe Peschisolido Liberal Steveston—Richmond East, BC
Thank you, Mr. Chair.
I want to thank the witnesses for being here.
Ms. Bouchard-Santerre and Mr. Groleau, I first want to apologize because I don't know Quebec's agricultural sector as well as I know British Columbia's agricultural sector. That's why I don't want to ask a general question.
Do you want to elaborate on any issues?
Chair, Union des producteurs agricoles
Okay.
The agricultural sector has many risks. As mentioned earlier, we work with the living and the climate. We're currently experiencing significant floods. We don't control the elements of nature.
The key to investing in agriculture is risk management. For farmers, it's a matter of having access to risk management programs that enable them to invest.
In Canada, risk management programs were cut significantly, especially in 2013. Canadian producers left the AgriStability program. The producers are therefore assuming a greater share of the risks.
However, since 2008, we've had good market prices for grain and meat. The market situation has been good, which means we've done fairly well in this period. Farm Credit Canada mentioned it.
However, prices have dropped in the past and could drop again in the future. If there were a drop in prices, producers wouldn't be able to handle the situation with the current Canadian programs. That's why, in the renegotiation of the agricultural policy framework, we're asking for a greater investment in risk management. Measures could be implemented to intervene only if the markets crash and not each year, regardless of the market situation. By creating a risk management program, we could handle the volatility of market prices, which have increased with globalization.
That's all.
Liberal
Joe Peschisolido Liberal Steveston—Richmond East, BC
Thank you, Mr. Groleau.
Ms. Baillie, as you know, Ocean Spray is headquartered in east Richmond, my neck of the woods. I've had conversations with them to see how or if we could take the co-operative model and apply it to what you discussed, originally produced food. I'm assuming that “originally produced food” is food grown locally, healthy, and so on.
Is that possible? Can you take the co-operative model, expand it from where it is right now, and apply it to other parts of the farming industry, like hogs or cattle?
Executive Director, Local Food and Farm Co-ops
We're definitely seeing, particularly in the production side, more co-operatives that are developing specifically for that purpose and for a couple of different reasons. One is the transfer of assets such as purchasing land, so many producers are able to access the assets that they need. Pooling those resources can be beneficial. As well, being able to have shared production practices as a group of producers can allow them to access markets that they would not be able to access individually.
I can say that the co-operative model has many applications throughout the agriculture sector, and in many cases makes the producer stronger than when working independently. There are definitely advantages there.
Liberal
The Chair Liberal Pat Finnigan
Thank you.
Unfortunately that's all the time we have.
I want to thank Ms. Bouchard-Santerre, Mr. Groleau and Ms. Baillie for participating.
We shall suspend for two minutes and return with a new panel.
Liberal
The Chair Liberal Pat Finnigan
We're going to get going. We'll start with our witnesses.
I want to welcome Ms. Heather Watson from Farm Management Canada. You're going to pairing with Mr. Mervin Wiseman, whom I know very well, and who is on the phone at the other end. His phone, I understand, will always be on, so if there are questions, we can refer to Mr. Wiseman. He's the director of Farm Management Canada. Also, with FarmStart, we have Ms. Christie Young, executive director. Welcome to both of you.
We shall start with a 10-minute opening statement. Ms. Watson, you can share with Mr. Wiseman if you wish.
Heather Watson Executive Director, Farm Management Canada
That's super. I'll warn you that I am a very fast talker, so feel free to interject. My apologies in advance and hello to Merv on the phone.
Mr. Chairman and honourable members, thank you for inviting Farm Management Canada to speak before you today on matters concerning farm debt in the agricultural sector.
By way of introduction, I'm Heather Watson and I've been the executive director at Farm Management Canada for the past seven years. I'm here with my colleague and director, Merv Wiseman, who will introduce himself and speak to you a little bit later.
We're very pleased to speak to today's topic, as we feel economic sustainability is the prerequisite for Canada's agricultural sector, as a whole to not only survive, but to thrive and continue to be a global leader. The farm financial crisis that defined the 1980s caused government and industry stakeholder groups to contemplate how best to prepare the agricultural industry to better manage against risk and uncertainty. They turned to farm business management. In 1992, governments and industry established Farm Management Canada, formerly called the Canadian Farm Business Management Council, as a national body positioned to coordinate farm business management programs and training to equip farmers with the resources, tools, and information to prevent the 1980s from happening again.
Farm business management is the key to establishing a mechanism whereby thinking ahead and proactivity become part of everyday decision-making. It's how farmers know where they are, where they want to be, how to get there, when they get there, and what happens next. Such planning is inherently connected to business continuity and transition planning.
Farm debt is a key consideration when it comes to employing business management techniques to manage risk and seize opportunity. Debt can be used to stimulate innovation, growth, and competitiveness for farm businesses. However, debt can be problematic for some farmers who do not have the working capital or liquidity to remain flexible and resilient in our ever-changing and complex industry.
In general, business has been good for farmers and according to our lending institutions, our industry is in a good financial position. Farm income, debts, and assets present a positive outlook. Key variables include interest rates, exchange rates, and commodity prices. These have all been relatively favourable.
This is good news for the sector, however two concerns do arise. First, one must consider whether these conditions are by default or design. Have we simply lucked out and what if our luck changes? This is Management 101. Are we actively working to create positive outcomes and mitigate risk?
Second, are we taking advantage of these good times to get our business affairs in order to position the farm for the best chance for success when conditions do change? Are we taking the time now to invest in business management practices? Are we identifying what is in our control and working toward solutions? The answer for the majority is no. We continue to use the money to invest in more assets.
One thing in agriculture is certain: change and the uncertainty brought by change. Over the next 10 years, we expect three out of four of Canada's farms to change hands. Agriculture will experience what renowned expert and farm family coach Elaine Froese calls the tsunami of agriculture where today's farmers will transition not only their assets, but their managerial and leadership skills to the next generation.
Our farm management decisions and process for making informed decisions are now more critical than ever. What got us to where we are today will not get us to where we need to be and our young farmers know this. They're taking matters into their own hands, bringing their own business management acumen to the farm. For years, farm business management enthusiasts have believed the success of any farm enterprise is directly related to the business management skills and practices of the farm manager. However, there has been a lack of convincing evidence, making it difficult to convey the value and increase the adoption of these practices until now.
A new groundbreaking study goes beyond existing research and is the first to establish a measurable link between business management practices and financial success. The study, called “Dollars and Sense: Measuring the Tangible Impacts of Beneficial Business Practices on Canadian Farms” is mentioned in the report I gave to you in advance. It reveals the adoption of business management practices on farms and specifically planning activities remain fairly low. Only 26% of farmers have a formal business plan and 33% have a financial plan, 27% have a succession or a transition plan, and 18% have a human resource management plan. There is room to improve and farmers need our support in doing so.
By comparing the management practices of Canada's top performing farms with those at the bottom, the study reveals the recipe for success. There are seven business management practices driving farm financial success. This entails continuous education, financial literacy, using business advisers, and planning. Farmers adopting these practices have an average annual return on assets of 10%, which is 525% higher than the bottom 25%.
Farmers in the top 25% also have much stronger asset turnover scores,100% higher, and the gross margin ratio is 155% higher than for farmers in the bottom 25%.
In an ever-changing industry, the farm business management process provides a solid foothold for farmers to confront change with confidence, manage risk, seize opportunity, and make informed decisions.
I will now invite my colleague Merv Wiseman to provide his comments and perspective as a director on Farm Management Canada's board of directors, president of the Newfoundland and Labrador Federation of Agriculture, past president of the Canadian Agricultural Human Resource Council, and owner and operator of the world's largest silver fox farm in North Harbour, Newfoundland.
Merv, over to you.
Mervin Wiseman Director, Farm Management Canada
Thank you, Heather.
I'll try to enter the eyes of a farmer. I can tell you that, at the age of 60, all the things Heather said resonate a lot more than they did when I was 20 years old, believe me. Also, in wanting to move the farm along to various successors, you'd better have your ducks lined up from a business standpoint, that's for sure.
Historically, a focus on production has dominated the agricultural sector. We know farmers typically do not become farmers because they love business management. However, this is the reality of today's farm operations and those of future generations of farmers.
In the work Farm Management Canada, FMC, does, we find there is room to improve financial literacy among farmers. Many farmers rely on their accountants to produce financial statements for tax or banking purposes. It is infinitely important that farmers know and understand their numbers and know that their decisions will affect not only the bottom line but the business as a whole as well as extending their business beyond where it currently would be.
While the statistics tell us Canada's farmers are in a relatively good financial position, we ask whether this is by default or by design. Certainly when you look at interest rates and where they have been over the last few years, money has been relatively easy to access, notwithstanding many other operatives in the business.
Also, is one commodity or region in a better financial position than another, and why? What does this mean for others and for the true financial picture?
What is the role of our off-farm income in sustaining farm operations? I recall a very telling statistic that came out of the farm census back, I think, in the last report. By the way, we are about to receive a new farm census report, which is going to outline some very important trends for us now to better know where we are. One of these statistics showed that over 40%—almost 48%, actually—of operators of family farms had to go off farm and get an off-farm income to sustain their activity on the farm; and it was all related to debt. That's the consequence we see if they're not properly managed.
Financial literacy becomes vitally important to ensuring the farm's viability for future generations. The focus must not solely be on our young farmers. We need to continue to support today's farmers to transfer healthy farm businesses to the next generation to ensure Canada continues to be part of a world-leading agricultural sector.
When it comes to agricultural lending, we hear of many cases where lending is based on equity. This poses a problem for young farmers and new entrants who are trying to build equity, while it is also a concern for established farms. Equity becomes the main operative in being able to leverage money, and we have to make sure our ratios are properly balanced. When we start talking about farm debt and net equity, it takes on new designs. Having equity does not necessarily mean the farmer is a good business manager. We would love to see more lending institutions taking a look at farm business management practice and taking those into consideration when making lending decisions, to reward farm business management and to help promote that value.
Finally, we know that Canada is uniquely positioned to succeed, and we plan to be there every step of the way to help farmers continue to run healthy farm businesses.
If I could again go off script to conclude, FMC has been around for a number of years, and over these years there's been significant outreach, with good understanding of captured good business practices, great networking, and I think, significant education in various forms as we've reached out. However, FMC's capacity has been a function of funding arrangements that have come through the framework agreement, and now with a new framework agreement coming up in 2018, we have to fit into that formula. I want to leave you with that point.
Thank you very much, Mr. Chairman, members, and guests.
Liberal
The Chair Liberal Pat Finnigan
Thank you, Mr. Wiseman. Good to hear from you again.
Now, from FarmStart, Ms. Christie Young, for 10 minutes. Thank you.
Christie Young Executive Director, FarmStart
Good afternoon. Thank you for inviting me to come speak to you today. My name is Christie Young, and I am the founder and executive director of FarmStart.
For the past 10 years, FarmStart, a charitable organization based in Ontario, has been supporting and encouraging a new generation of sustainable farmers. During this time, FarmStart has worked with over 60 new farmers on our incubator farms and supported more than 30 new Canadian farmers through our seed capital grants. Over 6,000 people have come through our courses and workshops, and 3,500 farmland owners and farm-seekers have registered on our farmlink.net matchmaking website.
Between 2012 and 2015, FarmStart spearheaded a national new farmers initiative with Food Secure Canada. The NFI undertook a range of provincial and national consultations involving over 150 organizations and individuals.
In 2014, I undertook a research project for the McConnell Family Foundation, interviewing over 50 emerging food and farm entrepreneurs across the country to understand the role of debt and investment in their business development. You can find this report online. Through these consultations, we have found that new farmers face two significant and interconnected challenges: first, capital, in particular access to appropriate, risk-taking, and growth-oriented financing; second, land tenure, in particular securing ownership of affordable, productive assets.
According to Farm Credit Canada, from 1981 to 2014, farm debt skyrocketed 362%, and land prices rose 300%. The practice by farmers of borrowing against the speculative value of land and quota over the last 30 years has created very significant succession challenges, which likely have been discussed by other presenters, or will be.
There are also two significant trends that are identified by Statistics Canada that have impact on new farmers and new entrants: one, that the price-to-earnings ratios for farmland are increasing; and, two, more farmers are renting land. We have found that new farmers' access to capital was limited due to the requirement by almost all lenders that operating loans be fully collateralized. This was often directly connected to the affordability of farmland.
In a survey of 250 new farmers, which FarmStart completed with the Junior Farmers' Association of Ontario, the Ontario Federation of Agriculture, and Farm Management Canada in 2013, we found that 77.5% of respondents said that start-up costs were their greatest challenge, while 57.2% said it was access to land. Of the farmers surveyed, only 31% had approached a financial institution, with most financing coming from personal savings, friends and family, or lines of credit acquired before they started to farm. Most of these farmers, 90% of them, were under the age of 55. They were mostly young farmers.
Required down payments, sometimes as high as 50% of the purchase price, can be insurmountable for new entrants. If they can access the funds necessary to buy a farm, they have usually drawn on all accessible equity from friends and family in the purchase of the land. Thus, they have little equity to offer as collateral for intermediate financing from conventional lenders. That echoes a lot of what's been said here today.
There is little interest from venture capital in this space, because the profit margins are too low and scalability is limited. The entrepreneurs who manage to secure operating capital often continue to exist in very tight and chronically underfinanced circumstances. They struggle with cash flow for operations and income, such as for inventory and seasonal upfront costs, necessary equipment investments, and financing to hire on the capacity and skills to help them manage the stages of growth. What they are able access is usually high-cost credit, which further serves to increase their debt and reduce their viability.
In the report I have given you, I've included three examples where new farmers have been able to access what I call “lucky capital”, either from their farm families or from below market purchases of land or quota. I won't bring those up right now, but I do want to point out that not all farmers have access to these family assets or are able to access this lucky equity. Farmland in Atlantic Canada is still affordable in comparison to the runaway prices in Ontario, B.C., or parts of Quebec.
We have found that there are intervention strategies that can really make a difference for a new farmer. For example, Jim Thompson of Notre petite ferme in Quebec started his 4.5 acre vegetable farm on the incubator La Plate-forme agricole de L'Ange-Gardien in Outaouais. After working as farm manager on two organic farms for six years, he looked in vain for land around Montreal. After starting his farm on the incubator, this choice paid off, and he finished his fifth season with profit and no debt.
When they outgrew the infrastructure of the Plate-forme, Jim and his wife Geneviève found a 168-acre property in the same area. They were able to obtain financing from Quebec's Fonds d'investissement pour la rélève agricole, the FIRA fund, which gave them a lease of up to 15 years during which they could purchase that property.
There are also various emerging and non-traditional strategies that are able to separate the farm business from the value of the land, such as co-ops, land trusts, and long-term lease arrangements on public lands. In addition, agricultural condos or smaller parcels of land can allow farmers to buy the right amount of workable acreage for their operation rather than have to finance more than the productive acreage they need. Or they can buy the home farm and rent more extensive acreage. This can reduce their upfront costs and ongoing debt loads while providing the important equity, security, and ownership that farmers need, if they're going to invest in their soil and infrastructure, and if they are going to seek to borrow operating capital.
Farmers have been able to access small pieces of land. For example, Maude-Hélène Desroches, a market gardener in Quebec, runs an intensive vegetable operation on two acres. They report a gross margin of 40% from revenues above $250,000, which provides their family and employees with livable wages. High quality, direct marketing, minimal debt, and low input costs make this sort of balance sheet a reality. Maude-Hélène and her husband Jean-Martin own a total of 15 acres; this property includes their house, their work shed, their greenhouses, their gardens, and a woodlot. They have been running this farm for 10 years now, and they're almost debt free.
Of course, not all farmers will farm on such an intensive scale, but many new farmers are exploring a variety of intensive and higher crop value operations. This includes growing specialty vegetables and new grains and pulses, extending the growing season, and intensively grazing livestock.
Paul Slomp of Grazing Days started his beef operation in Ontario on rented land near Ottawa. He has recently bought 250 acres of land across the river in Quebec, because he found that the land prices were 10% of those on the Ontario side. While there are many factors at work, Paul believes that the provincial policies in Quebec that make it difficult to sell agricultural land for anything other than agriculture are keeping land more affordable for new entrants. This might be a good thing to study.
In summary, here are our recommendations for you to consider.
Farm policies must support small farms, because young and new farmers often start out on small farms. They may aim to scale up, but they will invest strategically over time, minimizing their debt and finding the right balance between their revenue and operating costs.
Rising land prices, speculation, and consolidation are creating significant barriers to entry, and government intervention is necessary. Action must be taken to prevent farmland from being purchased for non-agricultural uses, particularly those that preclude its return to agricultural production. It is also important to examine agricultural zoning policy to allow smaller plots and new forms of farm cluster development, in order to facilitate land access for new entrants and business models.
Farmland trusts and public ownership can allow farmers to steward the land and not necessarily own it. Innovative arrangements of public ownership may help young farmers enter agriculture. They can keep high-value land adjoining major cities in food production.
New debt-minimizing forms of land transfer will allow and encourage farm succession. This could include impact and institutional investment to help transition and protect farmland for future generations of farmers, or a government-funded shared farms savings program to help aspiring farmers save for a down payment.
Other strategies could include an agricultural gifts program, similar to our ecological gifts program, whereby charitable tax receipts are available for the difference of land value for the workable acreage when an agricultural easement is placed on that land.
Seed, risk-taking, and patient capital are needed. Such furnishing of capital could include character-based lending schemes, start-up and establishment grants, and impact investment funds.
New farmers need training programs and accessible, lower-risk ways to enter the sector, or we will lose prospective farmers at the outset. These could include internship and apprenticeship programs, incubator farms, local and flexible training programs, as well as farm business development coaching and access to necessary technical advisers.
We can make room for new farmers by implementing a retirement plan for new farmers that enables existing farmers to pass on their farm to a new entrant or to their children. Ensuring farmers have adequate retirement funds means that these families will not have to sell and refinance their land base each generation.
Farm support, farm income, and supply management initiatives must be more flexible. Current programs and supply-managed systems are inaccessible, do not serve, and often prohibit new farmers.
Liberal
The Chair Liberal Pat Finnigan
Ms. Young, I'm going to ask you to conclude. We're past the 10 minutes.
Executive Director, FarmStart
Okay.
With fewer than 30,000 young farmers in Canada today and the fastest pace of decline in our history, fewer and fewer farmers will be producing food in the future. We need to encourage and support a new generation of farmers today who will be prepared to fill the shoes of our soon-to-be retiring farmers. We need to intervene to support what could be a transformative and dynamic generational transition. These new farmers cannot be saddled with crippling debt, or they will not succeed.
Thank you.
Liberal
The Chair Liberal Pat Finnigan
Thank you, Ms. Young.
We'll start our question round. We'll lead with Mr. Shipley for four minutes.
Conservative
Bev Shipley Conservative Lambton—Kent—Middlesex, ON
Thank you very much.
Ms. Young, you just mentioned something about the particular industries inhibiting new entrants. You particularly mentioned supply management. We just met with groups this morning, for example, that actually have families and people coming along, and each one of them has a young entrants program, whether it's in the feather industry or in the dairy industry. I know it's easy to say that they can't get in, but actually it's quite the reverse. They have a lot of new entrants. They may be family, and sometimes they're outside the family.
I always say it's also hard to get into farming and buy $10,000-an-acre land and make it pay.
Where would you suggest that flexibility might be to improve supply management for entrants to get in?
Executive Director, FarmStart
We actually wrote a paper on this, and I can make it available to the committee.
There is farm succession within farm families, but for a new entrant to enter into dairy, for example—we did a study—it costs about $8 million, and in Ontario the quota is $5 million to start a sizable operation. You can find crop-sharing arrangements or you can find access to quota below market rate. For example, one farmer we interviewed was able to buy his quota in Saskatchewan at an auction. In his lifetime—and he was 50 when we interviewed him—there was one auction in his whole lifetime. He was able to buy that quota below market rate and then was able to borrow against that value of quota.
If farmers are starting out to buy their quota at full market rate and then need to access other capital to start their farms, it becomes prohibitive. We've suggested—
Conservative