Finance Committee on April 23rd, 2020

[Rick Bergmann]

Absolutely. Bob said it well. Guess what? Agriculture has changed from 50 years ago, folks.

At the little farm I'm involved with, we produce 800 little piglets a week, and this last week—the week we're in right now—we've had to give them away. We gave away 800 piglets because nobody was willing to buy them, and they personally cost me $40 each to produce. If you do the math and apply that to some of the programs being offered right now, very quickly you'll understand that the problem is way bigger than the solutions being provided.

[John Barlow, Conservative, Foothills, AB]

Thanks, guys. I appreciate that the scope of what we're talking about with agriculture is much larger than I think was being accounted for.

On the programs you're asking for, Bob and Rick, what would the cost savings be to the government if they were to implement these programs? We've talked about protecting our food supply chain. What could potentially be the cost compared to what you are proposing here?

[René Roy, First Vice-Chair, Canadian Pork Council]

I will step in here—

[Bob Lowe]

I will move this to Dennis. He's more the numbers guy than I am.

Dennis.

[Dennis Laycraft, Executive Vice-President, Canadian Cattlemen's Association]

That's a great question, John. Our industry always wants to bring solutions forward. If we can intervene quickly, we can always manage a problem when we grab onto it sooner. We're looking at when we work with price insurance. Right now it's not affordable. If we can get markets to stabilize, there would be much lower payouts, so the types of savings I'm going to talk about are probably going to be far greater than the worst-case scenario. To work and help manage our inventory so we can do that and backstop our insurance programs is probably somewhere in the $200-million range to do that quickly. If we don't, we could lose half a billion dollars between now and the end of June.

You can imagine what that would mean in terms of AgriStability payments. Now the best thing for everybody is to avoid those losses and have a healthy business environment. Clearly, by moving quickly—and with AgriStability whether they keep it at a 70% reference margin or move to what the industry is asking for, which is an 85% margin—you would have a chance to save between $100 million and $200 million in payouts there just by acting quickly with these programs. What's more important is that when you don't act, it's after the fact with these programs.

For a young producer who goes to the bank to try to get operating credit to continue in business, that becomes very difficult. When they have their cattle insured, then that's a conversation they can have. That's the most vulnerable group in our industry, those young producers who have high debt loads. They are the ones we can protect the most by acting quickly.

[The Chair, Liberal, Wayne Easter]

We're pretty well out of time, but I believe René wanted in.

René Roy, go ahead, please.

[René Roy]

We were talking about $4.1 billion in revenue last year from the pork producers, so you can imagine that if there is help now, we will be able to weather the storm and we will be the ones who will contribute to the economy tomorrow.

We are expecting a loss of a bit more than half a billion dollars at the moment. We are not asking for so much. We are asking for less and leveraging it to be able to weather the storm and go through and help the economy of tomorrow.

[The Chair, Liberal, Wayne Easter]

I'm sorry, but we will have to end it there.

John Barlow, I would just refer you to last week's meeting of the finance committee. We had the UPA and the CFA, the Canadian Federation of Agriculture. You might want to refer back to what they said in that meeting as well.

Just from my own point of view, to CCA and the Canadian Pork Council, I really think this is also an issue—and nobody has mentioned it yet—of food security, and people have to understand the huge numbers. Just one week of piglets there was $32,000, and the huge number on farms is $40,000. It isn't even a drop in the bucket when you look at those numbers.

Next we will go to Mr. Fragiskatos, and then Gabriel Ste-Marie.

Peter.

[Peter Fragiskatos, Liberal, London North Centre, ON]

Thank you very much, Mr. Chair.

Thank you to all the witnesses for their thoughtful presentations.

Mr. Kelly, my question is for you. Are there one or two policy approaches that have been pursued in other countries that you believe Canada ought to consider?

[Daniel Kelly]

Thank you. Yes, there are. Canada is getting there. It is starting to pick up some of the examples that have worked in other countries. Unfortunately, it's doing it really, really slowly.

I want to say, just for the record, that I recognize that civil servants have been working around the clock to put together programs that have never existed in Canada, and that's an incredibly difficult job. I give them credit, but the delay we had in launching the wage subsidy, for example, and on top of that the addition of all sorts of rules and regulations, meant that many are excluded from using the program.

Governments in Europe, for example, were admittedly a couple of weeks ahead of us, and when they took these measures, they put them in place quickly and, for the most part, cleanly, without a million different conditions and attestations that you're going to give your firstborn if something goes wrong. That, I think, is one of the struggles we're having. In England, for example, the program they launched was an 80% wage subsidy, full stop. Every employer, small, medium and large, whether they're ahead, behind or somewhere in between, can gain access to it.

I think we do need to reflect on that as we now design programs for rent, in that if we make them too cumbersome, business owners begin to give up. If we delay the launch of these programs, business owners give up.

The policy mix that the government is pursuing is a positive one. I think the wage subsidy was most important. Some lending was also important.

Rent has been the piece. With the May 1 rent coming around the corner, we just need to deliver something on that quickly. If we do that, I think we have a fighting chance of having the majority—not all, but the majority—of our small business community make it across the emergency phase of this.

[Peter Fragiskatos, Liberal, London North Centre, ON]

Mr. Kelly, I don't want to go back and forth on details, but a thousand applications per minute, when it comes to the Canada emergency response benefit, is what Canadian public servants have been processing. That's a thousand applications per minute. Prior to COVID-19, 45,000 applications per week were the norm. I understand that you want to see businesses supported. We all want to see businesses supported, but this is a monumental outcome and feat, really, that we have seen our public service carry out.

Have there been gaps? Can we respond even faster? Of course, we can do more, but let's look at ways forward and think about the best ways to proceed. There's been a lot that's been achieved.

As I said, I don't want to go into the details, but I'm straying in that direction myself.

Can you tell me your thoughts on rent and recommendations and what the CFIB would like to see? We just heard from restaurateurs. We heard from hospitality associations as well. What would be a good approach to rent, from the CFIB's perspective, to help small and medium-sized business owners?

[Daniel Kelly]

One thing we're hoping is that the government will pick up the tab for the majority of the rent bill from businesses that have essentially been shut down as a result of the pandemic. Of course, provincial governments have ordered many businesses to close, but the costs of rent have been borne by them to date.

We were encouraged when the Prime Minister announced that the rent subsidy would pick up April, May and June. That is good news, but it does need to be substantive. If it's a couple of thousand dollars, that would worry us, because business rents are all different shapes and sizes, of course, depending on the size, structure and location of the business in Canada. We're hoping that it will cover a minimum of 75% of the rent, if not all of the rental expense.

We want to make sure that the program doesn't have a bunch of exceptions to it based on business structure. For a lot of the programs, we talked about how the programs are fairly narrowly targeted. They're excluding some—like those in agriculture—that have big needs and big dollars attached. There are also a lot of programs that are excluding the very smallest of small businesses because they may be unincorporated, or they may not have a payroll of a certain threshold or they may pay with dividends or contract labour.

Ensuring that it's broadly applicable to renters would be super helpful. We're hoping to hear more about that, potentially as soon as tomorrow.

[Peter Fragiskatos, Liberal, London North Centre, ON]

I'm going to.... I thought I could, Mr. Chair, but I guess not.

[The Chair, Liberal, Wayne Easter]

No, you're out of time. You can't.

[Peter Fragiskatos, Liberal, London North Centre, ON]

I tried to push my luck. No problem.

[The Chair, Liberal, Wayne Easter]

I would remind witnesses as well—I don't have all of you on my screen—that if you want to intervene at some point and you have an extra point to add, you can raise your hand and I may see you.

We're going to Mr. Ste-Marie, and then Mr. Julian.

Gabriel.

[Gabriel Ste-Marie, Bloc, Joliette, QC]

Thank you, Mr. Chair.

I'd like to welcome the witnesses and thank them for their statements.

My questions are for Mr. Lachaîne.

The picture you painted makes it seem as though start-ups are falling through the cracks of the existing programs, at least, for the most part. I'd like you to describe the situation for us and tell us what you think should be done. I have four specific points I'd like you to comment on.

First, please explain what a pre-revenue start-up is and why a business like that doesn't qualify for the programs in place and probably won't qualify for the rent assistance measure that is forthcoming.

Second, I'm curious about the problems faced by businesses like yours, with several departments or divisions within a single company. What would you suggest as a solution?

Third, I'm interested in the delay in sales. Clearly, it depletes private capital and increases the risk of bankruptcy. Please talk about that as well.

Finally, I'd like you to comment on why it's hard for you to take advantage of work-sharing and to access supports through the Business Development Bank of Canada because of the requirement that you have to have been in business two years.

The floor is yours.

[Mathieu Lachaîne]

Thank you.

A pre-revenue start-up is a young company that has invested time and private capital but not yet made any revenue. Some may have had sales, as we did in our product division. We used our consulting service to fund research and development for our products.

Our product division is at a complete standstill. What's more, we used our private capital to kick-start production. We received the merchandise, but we can't deploy it, so we can't generate or take in revenue.

We aren't eligible for the wage subsidy. The same is true for other start-ups without revenue, not just those with two divisions. Businesses have to be able to show a drop in revenues, but without revenue, you can't show that you suffered a 15% loss in revenues.

Many of us aren't eligible for the emergency loan measure either, because you have to have a certain date at the beginning and you need to have paid a certain amount in payroll last year. In my case, I don't even qualify for the emergency benefit for individuals because I didn't pay myself last year.

As for the rent assistance program, I don't know what's coming, but most start-ups won't qualify because they're sublessees. It's similar to the WeWork shared workspace model for those who are familiar with it—it's a lease on a lease.

Actually, our competitors are all eligible for the wage subsidy. That puts us in a very unique situation, where the government is stepping in and changing the market rules.

In terms of the innovation assistance program, or IAP, announced yesterday morning, there is absolutely no information. We'll fill out the paperwork and submit an application. We know what the eligibility criteria are, we know there won't be enough funding available, and we know that it's a wage subsidy. We don't know how much it will be, we don't know who will get it, we don't know what the criteria are, and we have no idea why we are filling out the paperwork to apply.

Start-ups usually need about two years before they really start generating revenue and creating jobs. If all of those entrepreneurs no longer have any support and end up going under, the other problem is that they don't qualify for the Canada emergency response benefit, known as CERB, or they'll be penalized if they have some income.

How does that help entrepreneurship rebound and ensure start-ups are around for the recovery to rebuild and grow the economy?

[Gabriel Ste-Marie, Bloc, Joliette, QC]

Thank you.

I'm not happy to hear your answer because it paints a bleak picture for start-ups, which really seem to be falling through the cracks of all the programming announced thus far, even though they're an extremely important part of the economy. It's often said that the greater Montreal area alone is home to 5,000 start-ups. Hopefully, the government will come through.

You mentioned the IAP. I'd like to know about your personal experience with granting agencies like the National Research Council of Canada.

[Mathieu Lachaîne]

The trouble is you have to apply for programs like the IAP, which means working with industry advisers, but there aren't suddenly way more industry advisers out there.

Last year, the National Research Council of Canada was given funding to dole out. Applicants competed and less than 10% of project applications were selected. The projects weren't 100% funded; rather, the support was in the form of a joint investment in partnership with private investors.

We met with our adviser on Monday. We thought we were going to apply for the traditional program, based on government funding for the current fiscal year—in other words, the year that began on April 1—but our adviser told us that all the funding had already been allocated in November and December. The projects and programs had already been chosen.

Even though the government has put $250 million into the IAP, we have no idea right now what we'll be able to rely on. We are trying to lessen the market uncertainty caused by COVID-19. No one knows when the lockdown is going to end, and we don't know the repercussions all of this is going to have. We have a good idea, so we can make some forecasts, but the programs add to the uncertainty. Our competitors are subsidized, but we aren't.

The simplest thing to do would be to give everyone the subsidy by leveraging payroll deductions, without making people apply for a whole slew of programs and fulfill all kinds of criteria. At the end of the year, the government could retroactively tax those who didn't need the support, so it doesn't add to their profits.

The important thing is to make sure that everyone is on equal footing for what comes next and that jobs aren't lost.

[Gabriel Ste-Marie, Bloc, Joliette, QC]

Thank you.

[The Chair, Liberal, Wayne Easter]

Thanks, both of you.

Following Mr. Julian, we'll start the second round with you, Mr. Cumming.

Mr. Julian.

[Peter Julian, NDP, New Westminster—Burnaby, BC]

Thanks very much, Mr. Chair.

Thank you to all of our witnesses. We hope your families are safe and healthy, and we appreciate your being here today.

My first questions will be for Mr. Kelly. I hope that the technology will co-operate and that you will be able to answer them.

As you mentioned, the issue of rent abatement is extremely important. Other countries—France, Denmark and Australia—have put in place programs to help support the small business sector. Gord Johns, the NDP small business critic, and I wrote to the Minister of Finance last week and urged him to put in place for May 1 a rent abatement program that would allow property owners to basically put rent in abatement for small business owners and get 66% of that back from the federal government.

How important is it to have that type of program? One hundred per cent of the rent abatement would be written off, the small business could survive and the property owner would get most of that reimbursed. It's that shared sacrifice that I think we're all looking for to make sure that we can weather this crisis. How effective would an approach like that be?

[Daniel Kelly]

I think it could be quite effective. We are of course looking for a program like that. The design that the federal government has announced so far is that there would be loans to landlords, with a portion of the loan being forgivable, and then the benefit could be conferred upon the tenant.

My worry, though, is that if the program is an option for landlords to take out, it may not work. We need to make sure that the rent reduction is actually passed on to the end tenant and that everyone can gain access to it. If it depends on the landlord taking an action, I'm not sure that the program will be as successful as otherwise.

The NDP has proposed, I think, a good approach. The provincial NDP here in Ontario has also proposed a similar approach, which is to have the provincial government fund a program of up to $10,000 in relief.

We're hoping to see some design principles, but we need to make sure that it is a fairly universal subsidy for renters and that all renters that are in need are going to gain access to it. My fear is that the way the design is shaping up this might not be the case.

[Peter Julian, NDP, New Westminster—Burnaby, BC]

Thank you for that. We just did a panel with the hospitality industry. They also found that the proposal made a lot of sense. In fact, they thought that it was the best suggestion made so far. We continue to press the government to put that into place for May 1.

Another issue that has come up with small businesses, of course, is that of credit card fees, interest charges and lines of credit. Small businesses are going deeper and deeper into debt.

The credit union sector has stepped up. Many credit unions have brought their credit card and lines of credit rates down to zero. The big banks simply have not. There have been only cosmetic changes by them, though they seem to be running ads 24-7 on television. As a result, we're seeing mortgage deferrals with interest, fees and penalties. We're not seeing the big banks step up at all.

How important is it that the federal government take action and use the powers it has to ensure that we bring interest rates down to a level that allows small businesses to survive? The banks have said they'll follow federal direction. They've received none so far. How important is it for the federal government to act in this regard? My question is again for Mr. Kelly.