Mr. Speaker, I commend the member for Selkirk—Interlake on his presentation and for sharing his time with me. We are here today to debate Bill C-25, an act to amend the Farm Credit Corporation Act.
The purpose of the Farm Credit Corporation, since 1959 when the Farm Credit Act was passed, has been to provide farmers and those involved directly with production access to loan money. A short history of the FCC shows that major changes have happened over the years, but we can see that it has also maintained its original mandate of providing loans to primary producers over the 40 plus years it has been in existence. It was established in 1959 to provide credit to farmers and specifically to primary producers. At that time the loan rate that money was lent to farmers was set at a legislated rate of 5%.
The 1960s saw substantial changes to the FCC from the initiation of an appeal board in 1965 to the introduction in 1968 of a market formula rate that allowed the FCC for the first time to cover the cost of its borrowing. During the 1970s the FCC expanded and in 1978 it posted its first ever surplus. The 1980s, however, were a much different story. This was a difficult time for much of the agricultural farm sector. The FCC found itself caught in the agriculture squeeze and the federal government was forced to put $600 million into the FCC to keep it solvent.
In 1993 the Farm Credit Corporation Act was passed allowing the FCC more flexibility to fund farmer owned, farmer related agricultural proposals. It was not just farm land that money was being lent on, but farm related businesses could also get loans. However those farm related businesses had to be controlled by primary producers.
In recent years the FCC has been self-funded and it continues to grow, but throughout its 40 plus year history its mandate has always been to fund primary producers in their agriculture related endeavours. We are today again debating the future of the FCC in Bill C-25.
The bill makes several changes to the Farm Credit Corporation. It makes significant changes in some areas and not so significant changes in others. One of the changes involves changing the name of the corporation from the Farm Credit Corporation to Farm Credit Canada. This is not a name change that is necessary in western Canada where everyone is familiar with the Farm Credit Corporation, but it is being done to give it a stronger name recognition in the province of Quebec. I hope that the expense can be justified when it comes to changing the name.
More substantive changes are being made to the bill than just the name change. I would like to talk about three or four of them today. The first one deals with equity financing. This change is seen as a positive change if it is properly done. If the FCC is to be involved in agriculture lending then it needs to move carefully in this direction.
If members were to take a look at some of the developments in agriculture, particularly in western Canada with hog barns being built and feedlots being proposed and built, they would see a situation where people do not have a lot of collateral to put up for these projects. For the lenders to be involved in that they need to be able to take out an equity position in it.
The bill would allow the FCC to do those kinds of things and then to develop its loan portfolio from there. These are projects that have a higher than average risk factor to them. It gives people an opportunity to get some financing. It also gives lenders an opportunity to cover their own interest.
The second change the bill proposes is to formalize the lease financing arrangement in which the FCC has already taken part. Lease financing allows producers some good possibilities as well. For different reasons, people sometimes do not want to buy their equipment. Lease financing allows them to lease it. Leasing for some is also a tax decision. Leasing gives the producer the choice of service that he wants to take part in. It is a good opportunity for producers and for the FCC. The FCC's lease financing in the past has been shared with other institutions, for example, the CU lease program. This would give lenders the opportunity to protect themselves.
One of the main concerns I have about lease financing is in the area of land and how land is handled by the FCC. It was because of the situation through the 1980s that the FCC found itself holding in excess of one million acres of land at one point and it had to do something with it. Some of the land was leased back to farmers. Over the years the acreage that it was holding has been dropping off, which has been a good thing, but the bill does not address the issue of whether the FCC would be into land leasing in a big way or not. From the evidence, it seems that the FCC is not interested in that. If that is the case, it should be addressed in the bill.
The legislation, in order to be supported, needs to clarify that area. Farmers do not need more competition, particularly from a government funded corporation.
The main change I see in the bill, and the one that is most important, is in the loan eligibility criteria. Up until this point loans that were given out by the FCC had to be given to people who were primary producers or the majority of people involved in the project had to have been primary producers.
Bill C-25 proposes to change that. It would allow lending to ag-related businesses that are not producer controlled or producer owned. The argument for this change is that it would help develop value added businesses. The benefits of this argument are outweighed by some potential problems. I would like to talk about two or three of those problems.
First, and most important, the legislation represents a basic change in FCC policy and philosophy. For 40 years the FCC has had one mandate, which is to provide primary producers with access to credit. This would change from farmer oriented to agribusiness oriented and the focus would shift significantly because of the legislation.
Second, I have a concern over a potential conflict of interest in the legislation. We have seen in the past that other semi-independent government institutions have given us examples of conflict that we do not want to see in the FCC. The most prominent of these and the most obvious has been the Business Development Bank. We have watched and we have been assured that it is business as usual for even the Prime Minister to call these institutions to influence loan decisions.
To this point the FCC has been free of those problems and accusations, as far as I know, and it should stay that way. The legislation brings in a potential conflict of interest problem that the FCC and producers do not need.
The third concern is the possibility of large agribusiness corporations or co-operatives coming to the FCC for financing. We have seen businesses of different sizes getting in trouble. For the first time the bill would allow the FCC to make large loans to large scale businesses. The problem with that is if that does happen it would remove the possibility of financing for smaller operators and for farmers.
I would like to wrap up my comments today with some conclusions. First, the equity financing provision in the bill is a potentially positive addition. It would be an improvement if it were properly and carefully managed. We will be pushing for amendments, however, in a couple of the other areas that I have mentioned, particularly in the area of restricting lease financing to equipment.
Although the FCC did have over a million acres in its portfolio, it has reduced that. Two years ago it had 360,000 acres and last year it dropped off to 120,000 acres. From what we see here, it is trying to get rid of the land. We need an amendment that would ensure the FCC does not find itself in the same situation that it did 10 years ago.
Most important, we need an amendment that would continue to require that active producers are the majority participants in order to be eligible for FCC loans. This runs contrary to what the legislation suggests but, in the interest of primary producers, needs to be maintained.
For 40 years the FCC has been concerned, first and foremost, with primary producers and their agricultural operations. It is essential that remains the focus of the FCC business. The bill leads FCC away from that. The FCC should restrict itself to its historical mandate and work to do a good job in that area rather than trying to spread itself all over the agricultural landscape. Bill C-25 needs some amendments to accomplish that goal.