Agriculture Committee on Oct. 31st, 2024

[The Vice-Chair, Conservative, John Barlow]

Good morning, colleagues and witnesses.

Thank you to everybody for being here, bright-eyed and bushy-tailed, on a Thursday morning and to Ms. Murray for being here really bright and early out in B.C.

Colleagues, I call this meeting to order. This is meeting 116 of the House of Commons Standing Committee on Agriculture and Agri-Food.

We have a couple of witnesses who have not been with us before and a few who are no strangers to this committee. I will try to go over a couple of our housekeeping rules for our witnesses.

For our witness Mr. Docherty, you can speak in the language of your choice. I hope you have this figured out. Where it's plugged into the side for the microphone, you can switch to ensure you're hearing the English.

My colleague, Mr. Perron, has access to the French interpretation.

When you're ready to start speaking, you can press the button on your microphone. The red light will come on and then you know that you are up. Just make sure it's off when you're not speaking. Speak slowly and clearly, as best you can, for our interpreters, who are here today as well. All of your comments are to be addressed through the chair.

You'll have five minutes for your opening statement. I'll put up my hand when you have about 30 seconds or so left, just to tell you to wind it up. We do have a good amount of time today, and we will try to make sure you get your statements in.

Colleagues, we are starting the first meeting of our study on the capital gains inclusion rate change and intergenerational transfers on the family farm.

I'd like to introduce our first panel of witnesses. As I said, we have a few who we have certainly come to know.

With us today, we have, from the Canadian Federation of Agriculture, Scott Ross, executive director, and Julie Bissonnette, a director with the CFA.

It's good to see you.

We also have with us, from the Grain Growers of Canada, Kyle Larkin, executive director.

Kyle, it's good to see you.

From Skye View Farms, we have Alex Docherty, president, and Logan Docherty, secretary.

Welcome to all of you who are here today.

We will start with Mr. Larkin for his opening statement for five minutes, please.

[Kyle Larkin, Executive Director, Grain Growers of Canada]

Thank you, Chair.

Thank you, members of the committee, for inviting us today.

My name is Kyle Larkin. I'm the executive director of Grain Growers of Canada, also known as GGC.

As the national voice for Canada's grain farmers, GGC represents over 65,000 producers through our 13 national, provincial and regional grower groups. Our members produce over 280 million metric tons of grain annually for Canadians and over 150 countries worldwide, creating $40 billion in export value. As the farmer-driven association for the grains industry, GGC champions federal policies that support the competitiveness and profitability of grain growers across the country.

We would like to thank the committee for studying intergenerational transfers and succession planning, as this is critical for family farms. In fact, over 97% of farms across the country are family operated. However, due to the challenging realities of farming, Canada is losing 500 to 1,000 family farms each year. This is due to an increase in the challenges that farmers are facing, which includes increasing input prices, changing weather patterns and increasing taxes. When operating a farm is already so difficult, the last thing farmers need is increased taxation from the federal government.

That is why we have opposed the capital gains tax increase since its introduction in budget 2024. In response to this tax hike, GGC, in conjunction with farm tax accountants, conducted research to understand the effects of the policy change on family farms at the time of succession. Our research showed that farmers would generally pay 30% more in taxes due to the increased capital gains inclusion rates. This capital gains tax increase targets farmers' retirement plans, moves the goalposts for the next generation of farmers and prices out many families from their own operations.

With the average cost per acre at $6,900 in Alberta and $19,275 in Ontario, young farmers are already facing significant financial challenges. National farmland values appreciated 11.5% last year alone, further increasing the burden. The capital gains tax increase moves the goalposts for these future farm owners, adding hundreds of thousands or even millions of dollars to the cost of taking over family farms.

In August, the government released draft legislation on capital gains, which included revisions to the Canadian entrepreneurs' incentive, which now allow farmers to access it. Through further research, we noted that the overall changes to the capital gains inclusion rate, even with the addition of this incentive, will continue to represent higher taxes for most farmers, who produce the majority of the food that Canadians and the world rely on.

For example, farms with revenues above $500,000 comprise only around 25% of Canadian farms yet account for nearly 90% of farm revenues. While smaller farms will see some benefit from the CEI, mid-sized farms and larger, which produce most of the food, will see an increased capital gains tax bill.

Lastly, these changes further complicate the tax code at a time when most economists and financial experts are asking for a simpler code. The added complexity introduced by these changes will drive up accounting and legal expenses for all farmers, putting further pressure on their finances. While larger accounting firms will benefit, grain farmers will be forced to spend more in fees.

To protect and support family farms, we're calling on the government to allow intergenerational farm transfers, as enshrined in law through Bill C-208 and clarified through subsequent budgets, to be taxed at the original one-half inclusion rate. This will ensure that government can be an equal partner in supporting family farms, ensuring they remain the backbone of Canadian agriculture.

Thank you. I'd be happy to take any questions.

[The Vice-Chair, Conservative, John Barlow]

Thank you very much, Mr. Larkin. You even gave us some time. I appreciate that.

Now we'll go to the Canadian Federation of Agriculture. We have Mr. Ross and Ms. Bissonnette.

[Julie Bissonnette, Director, Canadian Federation of Agriculture]

Thank you, Mr. Chair and committee members.

Thank you for inviting me here today to talk about a key issue for Canadian agriculture.

My name is Julie Bissonnette. I'm an administrator at the Canadian Federation of Agriculture, or CFA. For the past 10 years, I've also owned a dairy farm in the municipality of L'Avenir, Quebec. I acquired this farm through a non‑family transfer.

Before sharing our recommendations, I would like to set the stage. Over the past 50 years, the average farm size has almost doubled. In 30 years, the average price of farmland in Canada has jumped by 727%. Since 40% of farmers are expected to retire within the next 10 years, billions of dollars in farm assets will change hands.

Whether you're new to the industry or already living on a family farm handed down through the generations, in many ways, the challenges remain quite similar. No model is straightforward.

The first challenge concerns access to assets. Modern farming operations amount to millions of dollars in fixed assets. Farmers invest everything in their operations to innovate, adapt or become more efficient. They rely on these fixed assets to fund their retirement. That said, they must also face climate, market and supply chain risks largely beyond their control. They must be able to count on an effective risk management program to ensure the long‑term financial health of Canadian agriculture. Every dollar lost to uncontrollable risks means a dollar no longer available to support the financial health of the next generation. Remember that cash flow remains a key issue for the next generation of farmers.

In addition to asset limitations, the complexity of farm management can discourage farmers from handing over the reins to the next generation, or even from simply passing on management advice. At the very least, the complexity can delay the process. This may discourage the next generation and create additional risk for the business. Farmers are discouraged by the idea of spending years planning to successfully hand over their farm.

In Quebec, 44% of young farmers work outside the home in addition to being full‑time farmers. The struggle to secure suitable child care means added pressure for farm families. Juggling the realities of working outside the farm and arranging child care, not to mention the human component, while managing a complex farm transition or purchase project makes transferring or selling a farm business a complicated process.

The recent increase in the capital gains inclusion rate has only made matters worse for people preparing to transfer or sell their farms. All business structures, schedules and established plans must be reassessed and adapted. For large farms, the tax owed will likely be much higher than anticipated. This could compromise the financial health of a future business.

Given these realities, the CFA has five recommendations.

Our first recommendation is to review the increase in the capital gains inclusion rate, together with farmers, to avoid compromising the financial health of family farms.

Our second recommendation is to make the rules for transferring family farms more flexible. For example, expand the current provisions on the transfer of family farms to other family members when a working relationship on a family farm can be proven; apply the lifetime capital gains exemption to family farms in the event of a retirement or a transfer to the next generation; and increase the lifetime capital gains exemption for farmers to take into account the significant rise in farmland values and capital requests.

Our third recommendation is to immediately launch a review of the Government of Canada's business risk management programs to ensure that they keep pace with changing risks, while also taking measures to support young farmers. For example, raise the limits on interest‑free cash advances under the advance payments program for new farmers and increase the support provided to new farmers by AgriStability and AgriInvest. This all ties in with the cash flow referred to earlier.

Our fourth recommendation is to work with the provinces to invest in suitable child care in rural areas to ensure the delivery, availability and non‑standard schedules of these services.

Our fifth recommendation is to invest in young farmer networks across the country to promote peer‑to‑peer learning and information sharing and to help prepare the next generation of farm managers.

In closing, the financial health of the next generation of farmers remains a highly complex and multi‑faceted issue. Each of our proposed measures would help to directly support this group.

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

[The Vice-Chair, Conservative, John Barlow]

Thank you, Ms. Bissonnette.

Mr. Docherty, you now have the floor for five minutes.

[Alex Docherty, President, Skye View Farms Ltd.]

Good morning, everyone.

My name is Alex Docherty, and with me is one of my sons, Logan. I am the president of Skye View Farms Ltd. We are a seven-generation seed potato farm in Prince Edward Island, and we're honoured to be here this morning to discuss farm issues as they pertain to our farm and all farmers across Canada. My comments today are on behalf of all of us, including my other son, Jordan, who is home on the farm.

Too often, we wonder who the federal government is really trying to help when it comes to agriculture. Today actually marks 1,085 days since the Department of Agriculture and Agri-Food Canada, with a stroke of a pen, destroyed what it took our farm generations to build. To this day, we still cannot sell our high-quality seed outside of our own province, even though potato wart has never been exported from P.E.I.

Another major issue we are also facing daily as Canadian farmers is climate change, and how too many uneducated Canadians automatically blame farmers for causing it.

Our farm spent over five years being dragged through the court system by the federal government. Why, you might ask? Because a one in 740-year rain event caused disastrous flooding on our farm, resulting in fish being killed. If we had been a small town or a community that experienced this disaster, the government would have tripped over itself for photo ops and funding to say it was there to help. What happened to us? The federal government kept appealing each loss at every level in the provincial court system. Knowing what my legal fees were, I expect the federal government wasted at least $1 million of taxpayers' money.

The two most recent issues the federal government has imposed on agriculture are affecting the future of our family farm and every other one across Canada.

First, in my mind, is the carbon tax. I estimate this new tax has increased our own farm costs by approximately 20% in the last year. This is onside with Dr. Sylvain Charlebois, a professor at Dalhousie University, who stated the number to be 19% on most farms. If this hidden tax were allowed to continue increasing every year, I would have to wonder what the magic number of Canadians forced to food banks and fewer farms operating would have to be for the government to recognize that things have gone way too far.

Second, and even more personal for me, is the capital gains changes on June 25 this year. This change in taxes has affected the succession of our family farm and every family farm across this country. On our own farm, had we sold after June 25, we would have paid an extra 24% in taxes, which, in turn, would mean 11% less income from the sale. This income is what most of us farmers see as our retirement. I often joke that I am on the “freedom 85 plan”, but I cannot afford to retire with returns like this.

Further to the capital gains issue, I want to note a few more situations that this increase has caused.

One, it's just another hit to the viability of family farms, the same farms who struggle with increasing costs and shortages of labour, despite the profession being something they passionately love.

Two, on P.E.I., many generational farms have decided agriculture is too much to deal with. They are now either selling their farms, dividing the land or subdividing the land, for which there is no replacement.

Three, the new Canadian entrepreneurs' incentive is not an option for us. It is only for individuals, not incorporated farms.

Four, most farms carry very large debt, yet if farmers have an asset sale, the capital gains exemption increase will do nothing to benefit the farmers, as they still pay tax on the value of the asset, which may be fully leveraged.

How would each of you feel if, last June 25, you learned that someone reached into your pension or your RRSP and took 12% of it overnight?

Ladies and gentlemen, farming is not an easy way of life, but most of us do it because we literally love what we do. Succession planning is very challenging at best. Instead of adding unnecessary stress by increasing the tax burden on our future farmers, governments should be doing everything they can to inspire our young farmers in generations after them, rather than throwing roadblocks in their way at every chance possible.

Thank you for your time today. Logan has a couple more comments.

Thank you.

[Logan Docherty, Secretary, Skye View Farms Ltd.]

Good morning, everyone.

My father has said everything that I feel needs to be said here except for two things.

As a young farmer who wants to see our next generation continue farming, I have to wonder if any of you care about family farms.

This fall, we harvested our 400 acres of seed potatoes. The machinery and the buildings used to make this happen are worth more than $6 million. Also, you need to know that this does not include any of our land. How do you expect young farmers to buy into an existing or start-from-scratch farm?

My second concern is in some ways more important than my first. It is a comment made by the MP for Malpeque, my riding, who sits on this committee. He publicly stated on March 22, 2022 that nothing comes out of these meetings anyway. We came here to try to make you understand the difficult situations the federal government has put us in, and now I need to understand if you really care.

Thank you.

[The Vice-Chair, Conservative, John Barlow]

Thank you, Mr. Docherty. We appreciate your candid comments.

Now we will turn to the question-and-answer opportunity. We will turn to the Conservatives for the first block of six minutes.

Go ahead, Mr. Steinley, please.

[Warren Steinley, Conservative, Regina—Lewvan, SK]

To answer your question, we definitely do care.

I come from a third-generation farm, a beef farm in southwest Saskatchewan, so we know exactly some of the struggles you're going through.

In this very committee, we had the agriculture minister here, and I asked him point-blank who he talked to about the capital gains increase before the budget. I asked him twice, and he finally admitted that he couldn't talk to anyone, because he did not know that the capital gains increase was in the budget.

My question is for the Docherty family. The Minister of Agriculture is from P.E.I. Has he talked to any producers about the capital gains increase since it was announced? Who do you think he's really listening to?

[Alex Docherty]

I'll answer that.

To my knowledge, no, he certainly never contacted us, but he certainly never contacted us on the seed issue.

Now, he may have had a meeting at a phone booth maybe with a few locals. I don't know. He also went on record saying that the people he's talked to think the carbon tax is a great thing. Now, I'd really like to meet those people. They're obviously not farming, so you can take all that with a grain of salt.

[Warren Steinley, Conservative, Regina—Lewvan, SK]

Logan, you mentioned that capital gains is probably one of the biggest hurdles to young farmers. To your knowledge, has the minister or anyone consulted with the young farmers in P.E.I. about how the capital gains increase is going to affect the intergenerational transfer of a family farm?

[Logan Docherty]

As far as I know, there hasn't been a single meeting with any young farmers of P.E.I. There hasn't been any reaching out to the MP for Malpeque.

Unfortunately—to get back to my question—do they really care? They're all going to have a cushy pension, so why would they worry about us?

[Warren Steinley, Conservative, Regina—Lewvan, SK]

This probably won't make you feel better, but you're not alone in not being listened to.

I have a press release from the Government of Saskatchewan. On August 9, at the federal-provincial-territorial meetings of agriculture ministers across the country, seven ministers, those from Saskatchewan, Alberta, Ontario, New Brunswick, Nova Scotia, Prince Edward Island and Manitoba, all the provincial ag ministers, asked for this to be reversed, because it does nothing to help the agriculture sector in our country. You're not alone with this agriculture minister not listening to anyone in the sector.

I'm going to shift to the grain growers. You have some documentation. If you have any other documentation when it comes to capital gains, I'd love for you to table it for this committee. I want to read one of the line items you have here. It says, before June 25, the capital gains tax would have been $3,020,000. After June 25, on an average farm in Saskatchewan, the capital gains payment went up to $3.9 million, an increase of $924,000.

Do you think any farm can withstand that hit and make the next generation viable in farming in Saskatchewan or any other province?

[Kyle Larkin]

No, absolutely not. As we know and as the Dochertys certainly know, young farmers are already facing millions of dollars in debt to take over their family farms.

What I said in my opening remarks when I mentioned that the government has moved the goalposts for those young farmers is that they've moved the goalposts by either $900,000, $1 million, $2 million or $3 million. It depends the size of your farm and your operation, obviously, but most farmers across the country are going to face a very much higher capital gains tax bill at the time of succession.

[Warren Steinley, Conservative, Regina—Lewvan, SK]

I'll move back to the Dochertys for a second.

I have a simple question. Over the last nine years of this Liberal government, can you think of one agriculture policy that they've implemented that's helped the family farm?

[Alex Docherty]

I certainly can't. I guess my mind gets boggled with the fact that our federal government last year gave $15.5 billion away, not to Canadians but to other countries, yet we have farmers struggling. We're feeding the country, and there's absolutely no recognition for that. I don't know of a thing they've done, but they've pretty well destroyed anything they've touched.

I'm speaking especially on behalf of the seed potato growers in Prince Edward Island.

[Warren Steinley, Conservative, Regina—Lewvan, SK]

You said your costs have gone up by about 20% just because of the carbon tax. Can you share with the committee how much you've received back in rebates on the carbon tax?

[Alex Docherty]

We've received absolutely nothing, zero. I just don't get it.

The problem with the carbon tax is that it's hidden. We have no idea.... I'll give you an example. I bought a bearing for my potato digger this fall at $180. How many times was the carbon tax put on that bearing, from the cardboard it was packaged in to the plastic? We have no idea.

We just know it's 20%. Over the next five years, how much is our cost going to go up, 100%?

There are two million people going to the food banks now. What do they want, 50% of the country starving to death?

[Warren Steinley, Conservative, Regina—Lewvan, SK]

Thanks for that.

Mr. Larkin, you've done some numbers when it comes to the carbon tax as well. Can you tell us what it's going to cost the grain growers across the country when the carbon tax is fully implemented by 2030?

[Kyle Larkin]

That's a great question. I don't have the numbers with me right now, but the research that we just did through the Agriculture Carbon Alliance found that the average grain farmer right now is paying around $18,000. That's going to increase, obviously, exponentially going into 2030.

Throughout the life of the carbon pricing scheme, we see individual farmers paying upwards of $400,000, which could be spent on more innovative technologies, such as the most innovative grain dryers that exist today.

[Warren Steinley, Conservative, Regina—Lewvan, SK]

How much would they be getting back?

[The Vice-Chair, Conservative, John Barlow]

That's time. I'll let Mr. Larkin answer that later, perhaps.

Now we'll go to the Liberals and Mr. Morrissey for six minutes, please.

[Bobby Morrissey, Liberal, Egmont, PE]

Thank you, Chair.

I have a couple of questions to get some perspective here.

Mr. Larkin, you referenced mid-sized, small and large farms. I direct the question to Mr. Ross as the executive director of the Canadian Federation of Agriculture.

What's the asset size of a small farm? Would you know that? If you don't, could you provide it to the committee?

[Scott Ross, Executive Director, Canadian Federation of Agriculture]

The challenge in answering that question is that, depending on the commodity and the form of production, it differs dramatically.

[Bobby Morrissey, Liberal, Egmont, PE]

I understand.