AGRI Committee Meeting

STANDING COMMITTEE ON AGRICULTURE AND AGRI-FOOD

COMITÉ PERMANENT DE L'AGRICULTURE ET DE L'AGROALIMENTAIRE

EVIDENCE

[Recorded by Electronic Apparatus]

Tuesday, February 29, 2000

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[English]

The Chair (Mr. John Harvard (Charleswood St. James—Assiniboia, Lib.)): We'll begin the proceedings. Sorry for the late start. I thought we were going to be going directly to the House for a vote, but I gather proceedings there are running behind schedule. I don't know exactly—

Mrs. Rose-Marie Ur (Lambton—Kent—Middlesex, Lib.): There is no vote.

The Chair: Do you mean there's no vote at all?

Mrs. Rose-Marie Ur: That's what they said.

The Chair: That's even better. Thank you for that, Rose-Marie.

Today we have three witnesses from the Farm Credit Corporation: John Ryan, who is the president and chief executive officer; Jacques Lagacé, the national director, government and industry relations; and Louise Neveu, executive vice-president and chief operating officer.

How many of you will be making a short presentation? Just you, Mr. Ryan. Following that, I'm sure we'll have all kinds of interesting questions from members. Thank you for coming. Thank you for making this time available.

I understand that we'll be getting together for a short lunch afterwards and that you'll be picking up the tab. My, things are getting better all the time in this post-budget era.

Mr. Ryan, thank you again, and you may begin.

Mr. John Ryan (President and Chief Executive Officer, Farm Credit Corporation): Thank you, Mr. Chairman, and good morning, ladies and gentlemen.

As the chairman has indicated, we're here today to make a presentation, and that presentation will consist of an overview of the Farm Credit Corporation and what we're doing in terms of supporting Canadian agriculture.

I do have a presentation on PowerPoint here, and in a few minutes I'd like to move up to the podium and go to that particular presentation.

I have with me Louise Neveu, who is our chief operating officer, and Jacques Lagacé, who is the national director for government and industry relations.

Mr. Chairman, I would expect that the presentation will probably go close to 30 minutes. We can open it up for questions at any time during the presentation or afterwards, if that time is suitable to yourselves as chair and members.

The Chair: I think it should be done in one block. Just go ahead and do it, and then we'll go straight to questions.

Mr. John Ryan: Before I actually get into the presentation, perhaps I'll draw your attention to the kits that have been handed out. You'll find a hard copy of the presentation in the kit, and you can make any particular notes you may have as I go through that presentation. There is also a bit of a customized look at the FCC portfolio in your respective area in terms of what level of involvement we have with regard to new authorizations in the total portfolio and lending by enterprise. We also have included in our kit a few of our brochures that relate to some of the new programs Farm Credit has launched in support of Canadian agriculture over the last couple of years.

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So with that, Mr. Chair, I'll move right over to the PowerPoint presentation.

Mr. Chair and members of the committee, before I start the formal part of the presentation, I'd like to give you an outline of Farm Credit Corporation, what we're doing to support Canadian agriculture, perhaps a little bit about the past and where we are today, and some of the things we see on a go-forward basis. It is certainly an opportunity to spend some time with you to provide an update. Feel free to ask any questions you may have as we go through the presentation or as we do a wrap-up.

First of all, as you see here—and I think it's no surprise to yourselves—we are a federal crown corporation. We were established by an act of Parliament in 1959, and we are 100% owned by the federal government. The last changes to our act were made in 1993, and at that particular point in time there was an expansion of the services we could provide. In addition to the 1993 act, we abide by the Financial Administration Act, which basically sets out in a broad context what our relationship is with our shareholder, the federal government, and an overall direction and accountability.

In addition to that, we are governed by a board of directors, which consists of 12 members. They are representatives from across the country. All 12 members are directly involved either as primary producer, agribusiness, or support for the agriculture industry. So they have a tremendous wealth of experience around the table when we meet six to eight times a year to talk about Farm Credit and future directions.

I'd like to start with what we consider to be our main driver or direction in terms of the corporation itself, and that's our vision for the corporation. It's not a vision we have achieved today. It's something we are striving to achieve. In 25 words we outline what the essence of the Farm Credit Corporation is. I'll take a few minutes just to go through that and talk about being visionary leaders and trusted partners in agricultural financing, putting the power of our specialized knowledge and innovation to work for farm families and agribusiness across the country. It's a vision we've been working with over the last few years, but it's a continuation of where we were when we commenced operations in 1959.

There are a few key words here, the first ones being visionary leaders. We're 100% focused on agriculture, and we do feel that because we're 100% focused on agriculture, we can take and play a leadership role in providing agricultural financing.

We also look at it from the point of view of trusted partners—also key words. We talk about trusted partners from the point of view of our customers. Our philosophy within the corporation is to work with our customers on a partnership basis. At the end of the day, if they're successful, we're going to be successful. We look at partnerships from the perspective of working with industry associations and seeing what they are contributing to the industry and individual producers in agribusiness and what we can contribute. But we do it in a partnership for the betterment of the agriculture community.

The other partnership we will talk about as we go through the presentation is the working relationship and role we have with other financial institutions, encouraging them to bring their expertise and dollars to the table to support Canadian agriculture.

The third set of key words I draw your attention to is the whole area of specialized knowledge and innovation. What we're really talking about there is the expertise of our people who are on our front lines in our 100 offices across the country. I call that the hallmark or the real differentiation with the corporation. Seventy-five to eighty percent of our employees were born and raised on a farm, received their secondary education, and have come to work for Farm Credit in order to give something back to agriculture. So when the producers in agribusiness are talking about looking for someone who has an understanding of agriculture, clearly, that's the strength of the corporation, because the people have been born and raised in an agricultural environment and they truly understand the challenges and opportunities facing agriculture.

So that, in a nutshell, is the vision that drives the corporation.

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The mission of the corporation comes directly from our 1993 act. There is a very strong emphasis on enhancing rural Canada by providing specialized financial services to the farming operations and the small and medium-sized agribusinesses—personalized service. In short, we have a real role to play to enhance rural Canada. We play that role by providing personalized financial services. As I go through the presentation, I'll give you a better appreciation of exactly what services we are providing.

I'd like to give you just a very quick outline or snapshot of FCC today. We are the only national financial institution that is 100% focused on agriculture. Our portfolio has grown to in excess of $6 billion, which makes us the largest agricultural term lender in the country. We have some 44,000 primary producers in agribusiness in our portfolio, and most significantly, in excess of 90% of those are the primary producers.

We have 100 offices, so we have a tremendous network across the country to be able to support Canadian agriculture. Basically all our offices are located in rural Canada. We have some 900 employees in total. As I said earlier, the hallmark of the corporation is the fact that the employees truly know agriculture and know what the challenges and opportunities are. They are able to work to support the agricultural community.

I talked about 100 offices, but I will very quickly give you a snapshot of the breakdown of those offices. In western Canada, which is B.C. and Alberta, there are 24 offices. In Manitoba and Saskatchewan combined there are 29 offices. There are 20 in Ontario, 15 in Quebec, and 10 in the Atlantic provinces. We have one agri-land office, which we'll talk a little about later, on the agri-land lease side of things. Our corporate office is situated in Regina.

There's a picture of us recently opening a new office in St. George, New Brunswick, an area that's very heavily focused on the aquaculture side of things.

On the financial profile of the corporation, as I said earlier, we are a federal crown corporation owned 100% by the federal government; however, we do not receive annual appropriations, and we no longer borrow from the consolidated revenue fund. All the money we lend out on an annual basis we borrow through our treasury operation in the capital markets, on both a short-term and long-term basis.

Our goal there basically is to borrow the funds as cheaply as possible to lend back to the agricultural community in such a way that at the end of the day we not only cover our costs, but there's a built-in margin for profitability. The corporation over the last several years has been profitable. That's going back to about 1993. In particular, in the last few years we've been generating about $40 million a year profit on that $6 billion portfolio.

When you look at the $40 million profit, you need to ask “Where does that go in terms of future support for agriculture?” That basically allows us to reinvest in agriculture. Our portfolio is growing by about $500 million a year on a net basis. If we generate profits of approximately $40 million, we can lever that by our act by 12 times, which basically allows us to finance our growth on a go-forward basis—or it certainly has in the past.

We generate a return on our equity of somewhere between 6% to 10%. To put that in perspective, other financial institutions clearly have the goal of maximizing profit. They have a return on equity of somewhere between 16% and 22%, with a goal to continue to improve on that. Our goal is not to maximize profits, but to support Canadian agriculture and generate sufficient profits so that we are on a self-sustaining basis.

We operate presently with a debt-to-equity ratio of 9:1 to 10:1. Our legislation allows us to go to 12:1, in terms of the amount of lending we can provide.

We do ongoing surveys in the marketplace on not only what's happening in the Canadian agricultural industry, but what our customers and non-customers are looking for in an ideal financial institution.

We've done a couple of surveys. One of the ones we've done goes back to 1997. We basically asked “What are you looking for in terms of an ideal financial institution?” The first of the top four responses was that they wanted somebody who truly understood agriculture. Second was an institution that was present in good times and bad. In other words, it should recognize there are cycles in the agriculture industry and you need to be able to support the industry through all cycles. Third was customized service: “Don't treat me as a number. Don't provide cookie-cutter approaches when we really need to be looked at on an individual basis. Take time to know my operations. Truly understand what my challenges are, what my opportunities are, and be part of the solution, as compared to looking at it on the `great unwashed' basis.” The last point is “Work in partnership with me”. You can see clearly that had an influence on us in establishing the vision for the corporation to truly understand that our customers are looking to be working in partnership with the financial institution. We take that extremely seriously.

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The other thing here that you've not seen is that we did a follow-up survey in 1999 with some 38,000 of our customers. We asked them a similar type of question, and they basically went back. The top three were: “I want an institution that has a knowledge of my individual farming needs so that as a farmer I can talk to you and you in turn can talk to me; that the institution will be around in good times and bad; and treat me as an individual, treat me as a producer, treat me as a businessperson, as compared to just a number in itself.”

In terms of that political alliance, we also asked them to give us a rating as Farm Credit Corporation. How are we doing there? We are rated 8 and 9 out of 10: 8 out of 10 in the second and 9 out of 10 in the third, in terms of how they felt Farm Credit was matching up to what they were looking for in terms of an ideal financial institution to work with.

I have a little bit more now from a customer perspective. I talked earlier about our 44,000 customers. Well, 94% of them are on the primary production side. That's a wide range. I think we basically operate in all sectors within the producer side. It could be the grain farmer in Moose Jaw, it could be the vineland operator in Kelowna, the hog farmer in Manitoba, or aquaculture on either coast. Basically we operate in all spheres there.

We are also seeing a growing number of our customers truly diversifying. Maybe they've been on the commodity side for years and years. They've been growing, but is there now an opportunity for them to expand their horizons and see what else they can do to improve their overall margins in terms of working in the value-added side?

With that, I'll move right into looking at the portfolio by enterprise. I said a few minutes ago that we basically are involved in all sectors within the agricultural industry. We see here that the largest single proportion of our business is what we call the cash crops: the wheat, the barley, the fruit, the vegetables. That's about 41% of our overall portfolio. That's followed by dairy at 22%, beef at 10%, hogs at 8%, poultry at 6%, and then a smattering of others. There's the value-added, which is really the agribusiness or what we refer to as farm-related, and then we have some special traditional. If you look at the top four as being in cash crop, dairy, beef, and hogs, you get an overall appreciation of where the organization is providing its support today.

We actually do authorizations to the tune of about $1.5 billion to $1.6 billion in new money each year. We are seeing some shift here in terms of volumes. The level of authorizations is pretty consistent, but we've seen in this past year a drop in the new level of lending on the cash crop and a very clear increase on the beef side of things. To me, that is one signal that people are looking at this and saying “How do I diversify? How do I do something else than what I've already been doing?”

The other benefit we see to having a diversified portfolio is that when you're having individual difficulties in one particular sector and the other particular sector is stronger, one helps to balance out the other as it relates to managing the overall corporation.

Mr. Murray Calder (Dufferin—Peel—Wellington—Grey, Lib.): John, is that increase in beef out in Manitoba and Saskatchewan?

Mr. John Ryan: Manitoba, Saskatchewan, and Alberta. I think Alberta would probably be in the lead there.

Mr. Murray Calder: So the hogs would be in Manitoba?

Mr. John Ryan: Yes, most definitely.

Mr. Rick Borotsik (Brandon—Souris, PC): And there's no poultry increase?

Mr. John Ryan: We've seen very little on the poultry side.

Mr. Rick Borotsik: I wonder why that is. We'll talk.

The Chair: Let's hold back the questions until Mr. Ryan is finished so that we can determine time allotment.

Mr. John Ryan: We will move now to look at a portfolio distribution by province. In Atlantic Canada it's a little over $400 million, or 7%; in Quebec it's $864 million and 14% of our portfolio; Ontario has the largest single portfolio in terms of dollars, with about 30% of our portfolio and $1.8 billion; Manitoba has $570 million; Saskatchewan has the second-largest portfolio, about 20% or $1.2 billion; and then Alberta has $914 million or about 15% of our portfolio overall.

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We look at it in terms of portfolio growth. We talked earlier about the portfolio growing and now being the largest agricultural term lender in Canada, with $6.2 billion as of the end of January. Back in 1994-95, we were at about $3.5 billion. We clearly can relate that to the fact that we've had some good years in terms of agriculture, particularly in the mid- to late 1990s. We've seen lots of growth there. We had an expansion to our legislation back in 1993.

Also, as a corporation, we've made it a very clear objective of ours to increase the visibility of the corporation, to let the primary producer in agribusiness truly know what the corporation is doing, and to let them decide whether or not we can support them on a go-forward basis.

Mr. McGuire, did you have a question?

Mr. Joe McGuire (Egmont, Lib.): No. I just wanted to relate the gross since the 1993 election.

Mr. John Ryan: Okay.

Let's look at it now by loan size. I am often asked what type of loans we're doing, what size they are, and so on. I thought it would be good to provide you a bit of a breakdown here.

Earlier you heard me talking about our 44,000 customers. This is presented just a little bit differently because we talk about individual loans. One customer could have two, three, or four loans. What you see here is a round figure of 43,000 for amounts less than $50,000. About 60% of our individual loans are for amounts less than $50,000. If you go one step further, from $50,000 to $100,000, that's another 14,800. The first two groupings really make up about 80% of the individual loans we have on our books.

We have another round figure of 11,000 between $100,000 and $250,000; 3,100 at $250,000 to $500,000; and then about 1,300 over $500,000. I also include in my notes the fact that we can go up to a larger amount, but that's not the area we're spending most of our attention on. Out of the 73,000 loans you see there, about 9 would be for amounts of $5 million and bigger.

What we're really doing is saying let's position the corporation to provide the initial round of financing but be able to grow with our customers. I think this is an illustration or an indication of the distribution of our loans as we have them on the portfolio today.

In terms of financial solutions for the corporation itself, I don't have the time or strength to get into all the details of that, but I'll leave you with the comment that as an organization, we're constantly looking for how we can provide new opportunities and new solutions for our farm community in terms of primary production and agribusiness. The personal property lending basically allows us to make loans on equipment, for quota, and so on.

We have a variety of long-term mortgage lending. We have some special loan programs that were put in place to support the blueberry industry in New Brunswick, working with the provincial government. We have a capital leasing program, which I'll talk about in a few minutes. We have the launch of what we call our AgriStart products, which I'll expand upon in a few minutes. We also have Plant Now - Pay Later and a farm building construction loan.

The summary comment I'd like to make here is that we consistently work with the industry associations and our producers. What do we actually need to do in terms of developing products and services to meet your particular needs?

Mr. Murray Calder: Where are we—

The Chair: Let's hold the questions until the end. We have time allotments for each party. There's no way we can control the timing.

Mr. Murray Calder: Well, it was my understanding that we could ask questions as this went through.

The Chair: That was the suggestion by the presenter. We have rules around here and we're going to follow them.

Mr. Murray Calder: I'm just following the presenter, Mr. Chairman.

Mr. John Ryan: My apologies for that, Mr. Chairman.

I think we'll move right into the AgriStart side of things. What we're looking at there is a group of programs we have developed wherein we have paid very close attention to the number one challenge facing the primary producers today who have been in operation for a period of years. They've developed their operation and they're about to retire. How do they move from one generation to the next? It's the inter-generational transfer. That's the number one issue facing primary producers, based on a survey we did back in 1997.

We've developed the Family Farm loan, which basically allows for the new or beginning development farmer to have a lower down payment than traditionally expected, it allows for the seller to carry a certain amount of debt, and it allows for Farm Credit Corporation to carry a certain amount of debt to help in the overall transfer of that farm.

The 1-2-3 Grow loan basically is intended again for the beginning development farmer. Really what it does is try to reflect the fact that in the early years they're not going to have a lot of cashflow, so they need a loan program that will allow for minimal to no payments, like principal repayments and interest payments, in the early periods. At a later date, as they generate a cashflow, they can start to repay the loan.

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The last one is the Payday loan, which basically recognizes that many of our producers across the country have off-farm income. They would perhaps like to farm on a full-time basis, but really can't afford to make a living at it. They have off-farm incomes, and we do recognize that in part of the overall assessment of the proposals. We're finding the take-up on all three programs since we've launched them in 1998 to be significantly above our expectations.

I'll move along now to the Plant Now - Pay Later program. This was developed with the fruit industry. Basically, what they've told us is they need to invest to renovate or expand their orchards, their vineyards, their berry farms, and so on; however, it does take a period of time from the time they first invest to when they get a cashflow.

So we said let's look at a development predictor program, where we can defer payments for up to three years—both principal and interest—or interest only for the first five years. That makes a tremendous difference for them in terms of being able to carry their debt loads and do their investments in the renovation or expansion of their orchards.

I very briefly touched a minute ago on the CULEASE program, which basically provides an option to our producers, to our clientele in agribusiness, to lease a particular piece of equipment if they're not interested in purchasing it.

We've looked at this from the point of view that the leasing side of things in agriculture has been growing by about 7% a year. It represents about 16% of the agricultural equipment market today. We've looked at it and joined forces with CULEASE, and CULEASE is owned by Co-operative Trust Company of Canada. It's managed by Credit Union Central of Saskatchewan, and in essence, they are the main lessor.

What we are doing is saying that we've got a national network across the country of equipment dealers, and we have our producers going in to buy equipment. All we've been able to do to this point in time is provide the direct lending. If they want the option to be able to lease, let us be the front end for CULEASE.

What basically happens is we do the paperwork. We charge the CULEASE people a fee for that, and in turn the leases go on the books of CULEASE.

It really does, I guess, come down to simply an option for producers that they didn't have before.

We don't propose that CULEASE or leasing in general is the panacea or the be-all and end-all for everyone, but we do say to our producers and our equipment dealers that they now have this extra option. They can decide by looking at the pluses and the minuses of leasing versus purchase.

Cooperation has very clearly been built into the vision, an overall area of partnership—trusted partnerships, as you'll recall from the vision statement. This is just a high-level overview of some of the partnerships and alliances that we have in place now. We have a total of 24 formal alliances or partnerships.

Just to outline 8 or 10 of them here, we have the Farm Credit Corporation working with, in some cases, public sector organizations like the Business Development Bank of Canada, the Export Development Bank, and the Canadian Commercial Bank, and in some cases the private sector, be it the credit union system or the National Bank of Canada, and so on. In some cases, you'll see Agriculture Financial Services and the New Brunswick government.

What we're really doing there is saying, let's take our dollars and expertise to the table. Let's match up their dollars and expertise, and combined, the agricultural industry will be better off.

During the question and answer period, Mr. Chair, I could provide more details if so required.

This next slide my colleague Louise Neveu likes to call her DNA tape, but it's not really that. It is intended to illustrate that the needs in agriculture clearly are changing. Indeed, you cannot look at it and say the input people are over here, the primary producers here, and the output people or the processors over there. Instead, we'd like to look at it as being a whole value chain within the agricultural cycle. Because that's one complete chain now, as an organization, we need to be looking at the complete chain and at how we can support the various parties all the way along.

In terms of a forecast for the future, I think you're all familiar with the Canadian Agri-food Marketing Council. They have targeted a growth of $40 billion in agri-exports by 2005. To put that in perspective, it's about $22 billion today, so we're looking at pretty well a doubling over the next five-year period. That's going to require a significant capital investment, further support for both the producer and the value-added through the agribusinesses.

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The forecasts that go along with this target of $40 billion indicate that from a primary production point of view, the capital investment on an annual basis is likely to double, and the capital investment from an agribusiness or farm-related operation is likely to triple on an annual basis.

The message here, long and short, is that the needs from a capital investment support point of view are going to grow, not shrink, particularly if we're going to get anywhere close to supporting or achieving this overall objective. I think in some respects...if you look back at the growth of our own portfolio from about $3.5 billion to about $6.2 billion, you can see clearly the growth that's taken place over the last five years or so.

In terms of some of the emerging financing needs of producers, there's no question that farming is becoming much more capital intensive, in terms of the farms getting larger, in terms of the primary producer looking to acquire a significant investment into the most modern equipment, in terms of being more diversified in crop or livestock—in essence, doing whatever they can do to be competitive on an international basis. That does require more capital.

In addition to that, farmers truly are looking for access to a wider variety of financial solutions. We do surveys on an ongoing basis to get an appreciation of what they're looking for from a financial institution, as I presented earlier. They're not talking just about term loans or operating credits any more. They're talking about syndicated financing, leasing, and equity capital. They're talking about looking for support on forward contracting. They're talking about looking for support in their endeavours in such a way that it's going to position them in a more competitive environment.

I talked earlier about our new legislation back in 1993 that gave us the ability to move forward to provide financing in what we call farm-related activity—some refer to it as agribusiness or value-added. In essence, though, we see that the Farm Credit Corporation has been involved in the agribusiness side since late 1996, early 1997. We have a portfolio of about $400 million. If you look at that overall portfolio of $6.2 billion, about $400 million is directly associated with the agribusiness or value-added side.

It certainly shouldn't be a surprise to you in terms of where we expect to see some of the growth. No question it's in the food processing side. Many of our producers are looking at it and saying “I'm producing today; what can I do on the production side?”

A couple of quick examples of that would be the cranberry producer over in New Brunswick that decided they wanted to get into processing jams and jellies and so on, so they moved into that and expanded their horizon on the value chain.

A group of dairy producers here in Ontario got together and decided they'd develop their own cheese manufacturing plant.

I could go on about other examples, but to keep things moving, I'll move to the specialty crop and seed processors. We have a group of producers and some private and public sector investment coming together to establish an organic farm outside of Regina.

In the forestry side of things, some of our producers are saying “What more can I do on the forestry side of things to diversify my income, to help in the overall building of a strong, profitable operation?”

Cooperatives are something we've been financing to quite a considerable extent over the years, and I expect we'll continue to do that, because there certainly seems to be more movement afoot to put new-generation co-ops on the table these days, which would suggest that demands for support on the cooperative side will probably grow as we move forward.

I talked earlier about customers looking for a financial institution to support them through all business cycles, and the next part of my presentation is about that.

I think a couple of clear examples of that, at least from a Farm Credit perspective, is how back when we had the hog prices go in the tanks a year ago in the fall, November or December, we made a conscious decision that it was cyclical and we needed to support the hog industry. We were in contact with the Canadian Pork Council. I made it clear to them the approach we would take, i.e. we'd be in contact with our customers and see what we could do in terms of postponements, restructuring, and so on to carry them through that particular down cycle. The Canadian Pork Council in turn communicated that to all their members.

Another example would be last spring, when we had the heavy rains in southeastern Saskatchewan and southwestern Manitoba. We made a conscious decision there that this wasn't their particular problem or fault, so we'd better get out and talk to our individual customers and let them know that if they were having problems, or expecting to have problems, we should talk in terms of how we could postpone payments and make changes to bring them through their particular problems.

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In actual fact, we sent letters to pretty well close to all our customers, if not all of them. In the form of a letter, a telephone contact, or a visit to their farm or at our office, we were there to say that we're here to talk to them about how we're going to be able to work through this particular downturn or cycle.

You'll recall that when I was here in November we talked a bit about it on the arrears side of things. This approach to it is perhaps just a little different. When we look at the three-year average, the three-year trend, followed by what we see on a monthly basis from May last year to January this year, we can see the first couple of months of our particular fiscal...that the three-year average was slightly higher than what it is...and moving on into their balanced year, indeed, on a monthly basis, arrears grew above the three-year average.

Trying to put this into perspective, I guess, we have, at the end of January this year, about 3,200 customers in arrears; that's 3,200 out of the 44,000 I referred to earlier. Out of that 3,200, you need to put it in comparison to the last year, first of all, when we had about 2,700. So we had a net increase of about 500 customers in arrears.

That doesn't tell the full story, though, because what we're finding is that those customers in arrears have not been in arrears for just a month or two; it has been a continuation. They had problems a year ago or two years ago. Now it's the third year running and they've utilized their full resources. The ones who are having problems are having very serious problems, so I don't want to minimize for a minute the degree of problems for the ones who are actually in arrears.

If I look at it year over year, we had 2,700 last year and we have 3,200 this year, in a comparison of January 1999 to January 2000. Go a step further, though, and look at it and say, okay, what's happening in Manitoba and Saskatchewan? About 1,600 of our customers are in arrears in Manitoba and Saskatchewan versus 1,150—in round figures—last year. So if we had an increase of 500 nationally, 400 of it has come from Manitoba and Saskatchewan.

And I believe, Mr. Chair, that you and your members have been there and probably would have heard very clearly from some of those clients who are experiencing problems. The problem is serious for the ones who are actually having a problem.

If I look at it on a national basis, though, and look at other sectors, we're not seeing the problems on the dairy side, the beef side, the poultry side, and so on. We clearly are seeing it on the cash crop side, particularly in the cereal grains and the oilseeds.

If we take a closer look at it—perhaps this is a way of summarizing my comments. I talked earlier about 3,200 customers being in arrears. Well, 61% of those are on the cash crop side, which is the cereal grains and the oilseeds, only 5% in the dairy, 14% in the beef, and 6% in the hogs. In fact, as you're well aware, the hog prices have come back, and are coming back quite nicely, so the problem we had a little over a year ago is just not there today. There's very little in terms of the poultry value-added and so on.

To summarize and put my comments into perspective, there's where the issue is and there's where the problem as FCC sees it, based on its arrears.

I will look at it in terms of agricultural land and the lease side of things. We talked about this the last time we appeared before the committee. There was some concern that we had a number of leases that were coming up to expiry: what were we going to do about them?

The corporation made a decision that our long-term goal was not to be in the land business, that we'd like to return the land to the former owners. We established a particular program on expiry leases to see that the leased land would be moved back to the primary producer or the former owner. You can see that 75% of that was accomplished, that indeed there are some 593 of the 791 for which purchase agreements have been signed, and the land is early in the process of being handed back to the original owners.

For those who don't—and they're still at 25%—they do have, in most cases, the option to first right of refusal. So if Farm Credit does get an offer from another party interested in acquiring and the primary producer who originally owned the land is interested in acquiring, they have a right to be able to basically match that particular offer. I would suspect that over the coming months we'll see a few more in this particular category.

That just didn't happen on its own, though. I guess a couple of points I'd make there is that because we had the goal or vision to be able to return the land to the individual farmers who owned it in the first place, we established a special loan program that required a low down payment in terms of being able to acquire back that land.

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We said we'd have this past fall's lease payment credited to the purchase price, we paid the 1999 taxes, and we also said to the individual producers that if they thought the value we'd established on this land was high and they had information to suggest that we had a high price on it, they could bring it to the table and we would adjust it accordingly.

What we didn't want to find ourselves doing, basically, was influencing the market in terms of driving the prices higher or, in turn, bringing them to rock-bottom. We were trying to find the middle of the road. It took a lot of hard work and many perspectives on the producer's side of things to be able to raise the necessary investment they needed to acquire the properties.

Something unique to Farm Credit in itself, and very active in the late eighties and early nineties but not so much today—but I thought I'd put it together as part of the package anyway—is that we do have loan review boards across the country. They're done on a provincial basis. Their role or purpose is basically to hear any appeals on the client loan applications. It is in all provinces and is comprised of farmers, not FCC employees. It's somewhat unique to Farm Credit Corporation.

Really what we're saying there is that if a producer—and it's confined or restricted to producers at this time—is not satisfied with the decision the corporation has made, they can appeal to this loan review board, and the board can decide or mediate in terms of whether we were right or wrong.

As I said, it was very active in the late eighties and early nineties, but now, Louise, what would we have? We'd have maybe half a dozen situations over the past year that would have gone before the loan appeal boards. We had, at one time, talked within the corporation about whether we should keep it in place or not, and we decided at the end of the day that even though they're not overly active, we would keep the infrastructure in place in terms of having the board, and if things do deteriorate, perhaps it'll be getting more active.

I hope, though, in all sincerity, what it is a function of is that the corporation is looking very seriously at trying to make the best decisions possible, to support the producer wherever possible, and where not, to take the time to explain why not and to find the common ground with our producer.

To move along now, it's the last part of my presentation here but a very important part. It is the whole area of the Farm Credit Corporation looking at being more than just a lender and looking at being part of the community: if we have people working and living in the community and in turn providing financial support there, we need to be giving something back to the individual community.

Perhaps moving into, just by way of some examples, the overall philosophy of the corporation, we do care about the quality of life in our rural communities that we share with our customer. We are the exclusive sponsor of National Farm Safety Week this year. We had been last year, as a sponsor through the Canadian Federation of Agriculture.

We adopt the families, basically, seeing that they're provided with food and special clothing at certain times of the year. Our Chili for Children program is an example of where we are actually providing hot meals in the inner-city schools. On Moisson Québec, I'm sorry, but I'm drawing a blank on that one. I don't know if Louise can help me.

Ms. Louise Neveu (Executive Vice-President, Chief Operating Officer, Farm Credit Corporation): I don't remember, John.

Mr. Jacques Lagacé (National Director, Government and Industry Relations, Farm Credit Corporation): It's a food bank.

Mr. John Ryan: Thanks very much, Jacques.

The outstanding young farmers program is for support of outstanding young farmers in terms of helping them putting infrastructure together. We have our Canadian farmers with disabilities programs: how do we help our Canadian farmers with disabilities in terms of supporting them in the overall community?

I think that should take us to an end, Mr. Chairman. I do thank you very much for the time and attention you have provided for my presentation this morning. I will conclude by saying that we've been supporting agriculture for 40 years. Despite the current problems we see in certain sections, we do take a very optimistic view of this, a long-term view, and we are here to support Canadian agriculture on a go-forward basis. I'm open to any questions you may have, Mr. Chair.

The Chair: Thank you, Mr. Ryan. That was an excellent presentation. I know the members are busting with questions.

I want to thank all members for their patience. I think it's best if we follow the rules, because we do have our time allotments. We'll start with the Reform Party.

Mr. Hilstrom, for seven minutes.

Mr. Howard Hilstrom (Selkirk—Interlake, Ref.): Thank you, Mr. Chairman.

That was a good presentation, although I must comment that you sound a lot like a presentation I could have received from the credit unions in Manitoba and across the country. I have a question as to how much difference there is between the FCC and the financial institutions.

But before we get to that, I would like to put into proper context the conclusions you've drawn in regard to the farm income issue. You seem to indicate there's little or no problem. My question to you is, what percentage of the total agriculture lending in Canada is provided by FCC compared to other financial institutions as a total? If there's $100 billion worth of agriculture lending, how much is yours?

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Mr. John Ryan: I'd make a couple of comments in response.

I did not want to indicate for a minute that there's not a problem in agriculture. Clearly in the cereal grains and the oilseeds there is a problem, and our arrears are indicating that. What I was trying to illustrate, though, is that not all sectors within the industry are having problems.

In terms of how big our exposure or investment in agriculture is, about 16% of the total debt in agriculture in Canada is at Farm Credit. If I look at it from the point of view of term debt, it's about 30%. The first one, at 16%, is both operating credits and term loans. If you just look at the term debt outstanding, it's about 30% FCC and 70% the other financial institutions.

Mr. Howard Hilstrom: Okay. The reason I asked that is we have to have a very active picture on this farm income issue.

I noticed also that in your presentation you referred to forestry co-ops and food processors. I always have a question when it comes to agriculture. I understand FCC to be aimed primarily at the primary producer, i.e. the farmer.

Mr. John Ryan: Yes.

Mr. Howard Hilstrom: My first question then in regard to that is, do you have to be a farmer in order to go into forestry and have your loans, or are you giving forestry loans to other non-farmers?

Mr. John Ryan: No. About 94% of our total customer base is primary production. The other 6% is straight on the value-added. Using forestry as an example, what you'd have to be there is a farmer. There has to be a connection directly to the primary producer. In most cases what we'd see—I think almost exclusively, but Louise may correct me on this—is that they would be full-time farmers and this is diversification for them, versus other people who are not into farming at all.

Mr. Howard Hilstrom: You don't get any money from the federal government for your operations, or very little?

Mr. John Ryan: No. We did get a major recapitalization for the corporation in the late 1980s and early 1990s, but we have not been getting any annual appropriations or grants since then. There was one of $50 million, provided in about 1996 or thereabouts, to further support agriculture itself. But when we received our new mandate in 1993, the message was clear from the federal government that they wanted us to operate on a self-sustaining basis.

Mr. Howard Hilstrom: Okay.

Can you assure me there's no cross-subsidization from the primary producer to this 6% of loans you're giving out to other non-primary producers?

Mr. John Ryan: I'm not sure I can actually give you the assurance that there's no cross-subsidization. I can tell you, though, that they're two separate divisions: the people who are dedicated to agribusiness versus to primary production. We have approximately 25 people dedicated to the agribusiness or the farm-related side. The balance is related to the primary production side.

Our goal is clearly to have both of them standing on their own two feet. We have a different interest rate structure on the primary producing side versus the agribusiness side. Our goal or our intent clearly is that there be no cross-subsidization there, but I don't have the numbers to be able to really say 100%, categorically that's not the case.

Mr. Howard Hilstrom: I raise it as a concern because obviously we don't want any money moving from primary producers over to the further food processors or forestry or whatever.

You mentioned that you make loans to family farms as a special initiative. Can you just give me your definition of “family farm”?

Voices: Oh, oh!

Mr. Howard Hilstrom: Because if you're making loans to them, I want to know who you're defining as a family farm.

Ms. Louise Neveu: The actual program that has been referred to by John is one that deals with the intergenerational transfer of farms or of assets. So in those instances, you are actually talking about a relationship. You're talking about the transfer of the farm assets to a child of the farming couple.

In some instances we will also consider arm's length—in other words, children in the community—but it is usually from.... It's an age. That program in particular is being defined as the transfer from a senior family to a junior family.

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Mr. Howard Hilstrom: Would you provide us with a written definition of the family farm then? That would help us.

Also, you have appointments being made, and of course the government's making appointments to the crown corporation at the top level, but who's appointing these board review people?

Mr. John Ryan: The board of directors themselves. We would bring forward a list of recommendations to our board of directors on an ongoing basis, and in the final analysis the board would approve or otherwise.

Mr. Howard Hilstrom: Who's looking at the efficiency? I look at the number of offices you have and I don't know, it's hard to tell, if there's a relationship between the percentage of loans and your activity in a given province and the number of offices you have there and the number of employees.... Who is auditing and looking at this crown corporation? Does the Auditor General? I should know this, but who's looking at this, and when was the last audit done?

Mr. John Ryan: It's a good question you raise, sir. First and foremost, the senior management has a responsibility to look at the efficiency of its network right across the country and whether or not, in terms of offices and people, we have the people in the right places to be able to support our overall customer base. Having said that, that's reviewed on an ongoing basis with our board of directors, but we do have the Auditor General who does provide on an annual basis a complete review of the operations. In fact, and perhaps I'll put a bit of a plug in here, we did receive the Auditor General's award for excellence in terms of annual reporting and corporate plan this last fiscal.

The Chair: Thank you.

Seeing no one from the Bloc, we'll go then to Mr. Calder. Murray, seven minutes.

Mr. Murray Calder: Thank you very much, Mr. Chairman.

John, I had an FCC loan when I first started out farming. Actually it's what got me through the farm crisis in Ontario in the mid-1980s. That loan was an open mortgage at around 12% over a fixed period of time. In my case it was 15 years, but it was a front-end-load mortgage.

What I'm wondering now, with the different loans you have now that a farmer can access—and right now I don't have any money borrowed from FCC. Is that still the practice in each one of these loans? I always felt at the time I had the mortgage that it's like buying your farm with a credit card, quite frankly.

Mr. John Ryan: I'm not sure, Mr. Calder, if I truly understand when you talk about a front-end load.

Mr. Murray Calder: You pay down the interest first over the period of the loan, and actually, if you want to get into it, the interest you're going to pay down in the front end of the loan sometimes ends up being more than the principal.

Mr. John Ryan: That really hasn't changed, but I do believe there is an option that you can pay principal plus interest. So that means a customer at the end of the day decides whether they want to blend it, which in your case you're calling front-end loaded.

Mr. Murray Calder: Yes.

Mr. John Ryan: Or I can pay interest plus principal.

Mr. Murray Calder: Okay.

Ms. Louise Neveu: We have plus-10 products now where you can actually prepay 10% per year on the principal without penalty.

Mr. Murray Calder: That's good.

The other thing I noticed here is you're going for quota too when you make application for a loan. What percentage of that would FCC be willing to loan money at? One hundred percent of what the value is? For instance, say we have a poultry farming operation and you're talking $1 million. What percentage of down payment would it be? Ten percent? Or is it more than that on this issue?

Mr. John Ryan: Louise, perhaps you can respond.

Ms. Louise Neveu: Again, it's very hard to give you global numbers because any individual producer will bring forward a different financial position. But let's say in an ideal situation we'd probably be lending in the 70% to 75% range.

Mr. Murray Calder: It's 70% to 75%, so 25% down.

Thanks very much, Mr. Chairman.

The Chair: Thank you, Murray.

Mr. Proctor.

Mr. Dick Proctor (Palliser, NDP): Thanks very much, and thanks, Mr. Ryan, for a solid presentation.

You indicated that 75% of the original owners on the agri-land leases have opted to purchase. Given that 61% of the arrears in the previous chart were, as you indicated, oilseeds and grain, would my assumption be correct that most of the original owners, the 25% who chose not to or were unable to purchase their land back, were located in Manitoba and Saskatchewan?

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Mr. John Ryan: Yes. Really I think it is almost exclusively in Saskatchewan, because the agri-land is not something we see spread out right out across the country. It's focused primarily in Saskatchewan actually.

Mr. Dick Proctor: There was a lot of activity around extending the leases in Saskatchewan.

Mr. John Ryan: Yes.

Mr. Dick Proctor: Clearly Farm Credit made a decision that it wasn't something they were going to do. Can you tell us what the rationale was for that?

Mr. John Ryan: Certainly. I think it's a very valid and very good question, and it was asked of us several times over the last while. Long before the leases came up to expire, we made a conscious decision or stepped back and said, are we to be in the land business or was this to be more of a temporary thing that was legislated back in 1994? It was for a six-year period. We looked at it and said, no, our goal is to be able to return the land to the individual farmer or producer, as compared to the organization being in the farm management and the land management side of things.

So we made a decision over a year ago that we would do whatever we could to return the land to the farmers. We took that position, we communicated with all our leaseholders, and I would suspect that we talked to them three, four, or maybe five times, saying this is coming; there's a deadline in this. Many people worked extremely hard to raise the cash through family, friends, and so on, to be able to acquire the land when they did. It was the last several months that people got involved and said, now let's see what we can do for an extension.

We found ourselves in a position of understanding where they were coming from, but also understanding that we've made a commitment to those who have already acquired their land. Had we then reversed our position, there would be a whole new situation we would have to face, with many producers saying “This is not fair at all. Had we thought you guys were going to extend, we would not have made the extra effort.”

So it's a question of fairness and a question of saying it's time to remove or have the lands that were under lease go back to the farmers. In some cases the leases have gone as high as 13 years—that's on the outside—but it went 6, 8, to 13 years.

Mr. Dick Proctor: I have one other question, Mr. Chair, if I may.

In your presentation you said in most instances lessees have the right of first refusal on any offer FCC accepts. Could you explain where they wouldn't have the right of first refusal?

Ms. Louise Neveu: The only exceptions we'd have would have been if the land was either prior to the legislation—some of that would have been pre-1993, and we have very few of those. The vast majority have the right of first refusal.

Mr. Dick Proctor: Thanks, Mr. Chair.

The Chair: Thank you, Mr. Proctor.

Mr. Borotsik.

Mr. Rick Borotsik: Thank you, Mr. Chairman.

I too would echo Dick's comments. I thought your presentation was excellent. Simply because you're a government agency or a crown corporation doesn't mean you're not effective, and I would like to put that on the record. As I said earlier, I have a good feel for the Farm Credit Corporation in my area. It is a local corporation—it seems to be local—and it does deal with people. I appreciate that concept and that mandate you have.

I have a couple of questions—actually a lot of questions, but we'll go through as many as I can get right now. You say what customers want from a financial institution, and you went through a very interesting menu, including “works in partnership with me and takes time to get to know my operation”. I'd like you to touch on that a little bit because I find that fascinating. Unfortunately, now, in the grains and oilseeds, perhaps a lot of farmers we have haven't had that ability to have their financial institution get to know them and their operation.

In terms of their management of the operation, I find that too many producers right now—and I don't mean to be general—perhaps don't have as good a grasp on management skills as they do on production skills. They know how to produce, but they don't know the accounting functions, they don't know the legal functions, and they don't know the management functions.

How far have you taken that, to sit down with your producers and say, here is a management function that you aren't very strong in? Can you take them further than that, and can you, at the very worst-case scenario, talk to your producers or your customer and perhaps suggest that the business they're in isn't the right business for them? Do you go that far?

Mr. John Ryan: Not I.

Mr. Rick Borotsik: Then we'll talk about transition from farming into some other area. It's true, it's a very difficult thing to talk about, but I would like to hear what your concept is and what your mandate is from FCC.

Mr. John Ryan: From our perspective, even though our legislation allows it, we're not into a consultation service.

Mr. Rick Borotsik: We'll talk about that too. There is a great one too. I think it's called the farm consultation service, which is provided by the federal government.

Mr. John Ryan: Yes.

Mr. Rick Borotsik: There is a consultation. Do you get involved in that? It's a great program, by the way. I wish more farmers accessed it so that they would have a better understanding as to what they should be doing as a business out there as opposed to simply saying “I've always farmed for my whole life and that's what I expect to do.”

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Mr. John Ryan: What we do on a file-by-file basis is we sit down with the individual producer and go through their operations. The fact that we have so much volume, be it on the oilseed side or the dairy side, means that we have a lot of comparables we can be looking at to determine whether or not that's within the norm.

When it's outside the norm, we don't disclose the confidentiality. But when it's outside the norm, we're saying, have you looked at this cost or that cost? If they have a forecast that isn't based on anything we've seen before and that doesn't make sense, we send them back to the drawing board, if I could put it in those terms. If we see weaknesses in their individual proposal, we ask, is this really what you want to be doing?

I don't think we've gotten to the point—and, Louise, you can correct me if I'm wrong here—where we're saying, it's now time for you to get out of the business, as an example. We do have, I think, enough expertise and strength in our individual offices so that we feel very comfortable sitting with the producers and talking about that.

Mr. Rick Borotsik: If I could just jump in here, Mr. Ryan, you said you have 30% of the term debt—

Mr. John Ryan: Yes.

Mr. Rick Borotsik: —but you have 60% of total debt. That means there's a lot of trade debt out there that farmers are having great difficulty in managing right now, specifically in the grains and oilseeds. That's part of your business, and here I'll become a little offensive. Should you not be saying to that producer, you have some serious difficulties here? If you give their term debt and you're secured on it, you just simply back away and say, okay, we're secured, so it doesn't matter. But the poor guy could be going down in a number of other areas, the other 70% of the term debt or his trade debt at that point.

Mr. John Ryan: I didn't want to mislead you there. When I look at it as working in partnership with our customers, it's truly meant to be in partnership. If they're successful, we're going to be successful. If they go down, even if we're secured, it's still going to cause us problems. So I don't want to look at this from the position of corporations and organizations that are just worried about security.

Mr. Rick Borotsik: I just want to jump in here, and I want to talk about transitional programs. Maybe I'm getting a little beyond your jurisdiction, but I'd like to hear what your opinions are. You're in the business. You're very successful at what you do. What do you think about a federal transitional program of sorts for a lot of the people who are currently in arrears and who perhaps will never get out of those arrears? What do you think about that?

Mr. John Ryan: Maybe I'll start, and then Louise can expand on it. If we talked to some of the producers today, I think we'd find that they're clearly looking at what are their options. If a program were developed, I think it would very much depend on how attractive it is and who would be involved in it in order to see whether at the end of the day it does make sense for a certain number of producers. I think the producers will have to make the decision as to whether that's for them. If they do make that decision and we can provide some support there, we'd be open to that.

Ms. Louise Neveu: If I might, I would put agriculture producers, very much like mainstream business people, into three categories: you have your leaders; the middle people, who are basically early adopters, average producers, and good business people; and then some at the bottom end who are probably going to have to look at different ways they're going to progress through the next phase of their lives or whatever. The early adopters and the leaders don't normally come to us for advice. They get their own. They know where to go and how to access the advice. In the large group it depends almost on the kind of production they've had.

You mentioned some of the management skills that are required. One of the fundamental ones in transitioning is marketing. If you've had an organization that was responsible or accountable for the marketing of your commodity and all of a sudden you start swinging into something such as lentils and peas, where you're going to be responsible and accountable for doing your own and you're starting from scratch, I think there is a very dire need for that kind of expertise, support, and advice for people to start transitioning so that they don't make mistakes early on, mistakes that today they cannot afford.

When you start looking at the individuals who today are probably facing some serious difficulties and who have maybe the least of resources in terms of being able to consider options, I think there is a need for transitioning. There is a need to work with these individuals to find out what is possible for them in the next step, whether it be to continue farming or to do something other than farming, and if they're going to continue farming, how they can do it in the best way possible.

Our staff does sit down with individuals and they do the number crunching. They say, if this is what you're going to get out of so many acres of growing durum next year and this is what the pros are indicating, figure it out. It's not a big science for people.

Mr. Rick Borotsik: Are they ever referred to the farm consultation?

Ms. Louise Neveu: Yes, they are.

The Chair: Thank you.

Just before we go to Mr. Bailey, Mr. Ryan, about 10 years ago the level of outstanding farm debt was $22 billion. This committee at that time actually did a report on it, and it was called the 22 Billion Problem. Now we're 10 years later, and the farm economy has grown, but so has the level of outstanding debt. It's now $33 billion. Is that a concern to you, especially in light of, say, the possibility of an interest rate rise?

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Mr. John Ryan: Certainly, Mr. Chair, if there is a significant rise in interest rates, then that will make a difference.

But one of the fundamental things I would look at is the equity position of the individual producer 10 years ago versus today. I'm generalizing a bit in my response here, but the equity position is much stronger today than it was 10 years ago. As a consequence, the level of debt that many of the farms are carrying in proportion to the equity they've had in the past is not as heavily leveraged, so there is more of an opportunity for them to take on some increased debt.

I think the other thing I would look at, though, is if the debt was taken on, and that's productive debt in terms of it generating a return, perhaps there's not too much wrong with it. So you have to look at, I think, those two additional things.

The Chair: Mr. Bailey.

Mr. Roy Bailey (Souris—Moose Mountain, Ref.): Thank you very much, Mr. Chairman.

If I hadn't heard what you said, I would have really been surprised. What I'm saying is that the statistics I was looking for were there.

You might know that I happen to come from the southeastern part of Saskatchewan, and I keep track of the phone calls.

I know that Farm Credit wasn't first. AIDA was first—and that doesn't surprise anyone—NISA was second, and now you've come in third, with the farm crisis and basically since the closing off of the leases and so on in November.

I checked this morning, and my office has received 62 calls. At least half of those calls were very heartbreaking, and sometimes there's kind of a tearful eye on the other end, because the foreclosures have in fact taken place. I'm not condemning you for that, sir. I only wish to note that the great flooding disaster was the final icing on the cake, as we sometimes say.

I'm glad you have changed. At one time the Farm Credit Corporation wouldn't look at a client if they had off-farm income.

Mr. John Ryan: Yes.

Mr. Roy Bailey: The survey I did in my constituency indicated there were some 70% who were working off the land, and even with that, sir, I found that some of the commitments couldn't be met, and they were gone and so on.

Of the 1,600 outstanding loans you mentioned, is it possible for me to find out how many of those were actually within my constituency? The reason I'd like to know this is so that I can put it together with some of my statistics.

Of these calls, not all had foreclosures, but as well not all the people who were affected phoned me. So what you're seeing here, and I'm sure this is true for Manitoba as well, is that the foreclosures that took place left the Farm Credit Corporation with the image of living out the cliché “colder than a banker's heart” kind of thing. But we don't know that. I don't know that.

I phoned and sometimes I wrote the corporation on behalf of individuals, begging to have their loans reconsidered, but because I don't know the whole story, it's an extremely difficult thing for me to do.

So one question is, is it possible for me to get some handle on that within the constituency? I'd really appreciate that.

The other thing I wanted to mention is when a farmer does come to you to look at the possibility of purchasing land, you take into consideration his off-farm income, as we have today. For those people who have lost land or who weren't able to come up with the cash, is it possible, because of their love for agriculture, for them to go back to you, or do you consider them to be a poor credit risk and they're forever shut off?

Mr. John Ryan: In response to your first question, Mr. Bailey, in terms of whether we can provide you access to the number of loans in arrears in your particular area—

Mr. Roy Bailey: I don't want their names.

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Mr. John Ryan: No. That's the only thing I would have to indicate, that from a confidentiality point of view, we can't give you names, but we can give you a grouping or a cluster that will give you an appreciation of how severe it is in your particular area.

One thing I didn't touch on when I talked about the arrears in a particular area is that we did in excess of about 800 postponements in terms of people coming to us or us going to them where we restructured the debt and postponed it to a later date. That's kept a lot of people out of arrears and I guess alleviated a lot of their fears and concerns in terms of whether they were going to continue to have the support of Farm Credit.

As it relates to your question of someone who's had difficulty and there's a foreclosure or loss of land, and whether they can deal with it at some later date, yes. In actual fact, when I talked about the agricultural land leases and the number of land sales that have been completed, we put a loan program in place specifically targeted to those people who had problems in the past. We provided them with a lower down payment and allowed the payment of last fall's rental to go against it.

In short, if someone's had difficulty in the past, it doesn't preclude them from dealing with us in the future. We'll look at the proposal and at whether it makes good sense, from a business perspective, now versus what we might have seen x number of years ago.

Mr. Roy Bailey: Thank you.

Thank you, Mr. Chairman.

The Chair: Thank you, Mr. Bailey.

We're going to go to Mr. Steckle, followed by Mr. Morrison, Mrs. Ur, Mr. Hilstrom, Mr. Borotsik, and Mr. Proctor.

Mr. Steckle.

Mr. Paul Steckle (Huron—Bruce, Lib.): First of all, Mr. Ryan and Ms. Neveu, I want to thank you for coming.

Coming from a rural area of western Ontario, in my many years I've seen the image of Farm Credit change dramatically. When I began my farming career in the early sixties, Farm Credit was at that time competing with Junior Farmer Loans of Ontario and was deemed to be a lender almost of last resort. When you couldn't get it at the bank, you went to the Farm Credit organization, although the rates were higher.

So there was an image issue. That has changed, and I think now you're being given your due.

The first question, of course, is relating to the area the three members here represent in Ontario. You indicate in your portfolio profiles that in my area, for instance, we have a $2 million arrears situation. Rose-Marie, in her riding, has arrears of a certain number, and Murray as well, but the total arrears in Ontario are somewhere around $12 million. The three of us here represent $10.7 million of that. Now, it may be because we represent that proportion of agriculture in Ontario; I don't know.

Mr. Roy Bailey: I don't think so.

Mr. Paul Steckle: I'm leaving you guys out of it. Don't you guys get mixed up with me, now.

I'm just wondering whether those numbers.... Perhaps we can speak about this afterwards and deal with it, because I rather doubt the three of us represent that degree of agriculture, even though I realize the degree that I represent in terms of my riding. That's one part of it.

Some other questions come to us from time to time. For instance, how do you treat quotas? When people come to you and ask you the question about quotas, how do you deal with that?

Ms. Louise Neveu: Is that in terms of a lending proposal?

Mr. Paul Steckle: Dairy or poultry, yes, in terms of quota values. How do you factor that in with regard to the value you would lend against the principal sum requested?

Ms. Louise Neveu: There would be a number of things. First of all, you would consider the actual market value at that time. I mean, we consider the value of the going rate as it applies. As I indicated to Murray, given all other circumstances, we would probably lend about 70% to 75% of that value.

Mr. Paul Steckle: You would lend against the value of the return expected.

Ms. Louise Neveu: Yes. We'd be expecting the value of the quota, depending what it was at that given time. For instance, at $100 a hectare or whatever—it's a fictitious number, obviously—we'd expect a $25 down payment and we could lend up to $75 on it.

Mr. Paul Steckle: So it's based on a business decision.

Ms. Louise Neveu: Absolutely, yes. There would be differences in terms of a start-up operation and in terms of an expansion. We would look at the business case differently. It's not just the value of the quota that would be taken into consideration.

Mr. Paul Steckle: There are some who would believe that Farm Credit shouldn't be involved in lending any money pertaining to quota values, but that's part of the business decision that person makes.

Ms. Louise Neveu: Absolutely, yes.

Mr. Paul Steckle: Okay.

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This is, of course, coming from Ontario and the disaster we went through in terms of hogs a year ago, but there isn't a lot of indication on the graphs that hog farmers were requesting a lot of money. I know there are a lot of hog farmers, so obviously they didn't come to Farm Credit for a lot of the lendings. Would you suggest that perhaps a lot of the lending came from vertically integrated sources?

Ms. Louise Neveu: Do you mean in terms of the financing?

Mr. Paul Steckle: Yes, the financing of these large operations.

Ms. Louise Neveu: I think you would have some financing. It's a very aggressive market right now, especially where you're into the so-called pork loops. It's a very competitive market. The banks want a lot of that business. For instance, we have been very active in Manitoba, and we are active in Ontario in a number of these pork loops. I think what you see is there's very much of a partnership developing. A lot of the breeding barns are held by the banks, because you have very heavy equity investment by a number of large producers in some of those.

We actually participate in a number of the finishing barns, where they are again held individually by producers who work in this pork loop. We've been very active in many of those in Manitoba and Ontario.

Mr. Paul Steckle: Do you aggressively seek that business?

Ms. Louise Neveu: Would you define “aggressively” for me?

Mr. Paul Steckle: Well....

Ms. Louise Neveu: In exchange, we'll go that way.

Mr. Paul Steckle: The reason for me asking that is because when one looks at the schemes that are out there today, we talk about 15- and 20-year mortgages with a five-year quota or shared-agreement contracts. Something doesn't factor, given that we already have the experience of going back five years and looking at the renewal of some of those contracts, which come in not quite as good as they did on the first contract.

Ms. Louise Neveu: The only thing I would suggest is that the industry is changing significantly. As much as we also do projections based on historical data, we now have to look at factors like the huge investments in processing.

When you look at the kinds of plants that have gone into Manitoba in particular, and the developments in terms of the purchasing of Schneider by Smithfield in Ontario and that kind of thing, and you look at the continuity and at what markets are available for pork products around the world, I think it's fair to say the game has changed a little bit and we're now facing a shortage of hogs. Unless there is significant investment in the actual production capacity, I think that's going to be beyond the next five-year phase in terms of renewal of contracts.

Obviously people have to pencil that out. They're the ones who are making the large investment, but in five years, with the kinds of contracts that are being offered today, you can pay down a lot of debt.

The Chair: We're out of time, Paul. Thanks.

I should apprise members that lunch is ready, but we'll continue with the meeting. You may want to eat and work at the same time or wait until this is finished—whatever you choose.

Mr. Morrison, you have five minutes.

Mr. Lee Morrison (Cypress Hills—Grasslands, Ref.): Thanks, Mr. Chairman.

Mr. Ryan, before I ask my question, I wonder if you would clarify something you said to Mr. Bailey. You said there have been 800 postponements granted. That's postponements of, what, foreclosures or payments?

Mr. John Ryan: That's a good question, sir. It's really a postponement of payments.

Someone is saying there's a payment coming due—November is a big payment period, for example—and we're not going to be able to make that particular payment. What can we do? Can we take the whole thing and move it to the end of the term?

Mr. Lee Morrison: Like Mr. Bailey, I keep track of the polls I get in my constituency, and among agencies that farmers have to deal with—the grain companies, the railways, and yourself. You also face a strong surge in the number of complaints that come in. One of the most frequent complaints I've heard over the years is an accusation that FCC agri-land manipulates land values—because they have such a huge inventory of land, they can do that if they wish.

I get calls from people who say “Look, I wanted to buy this piece of land and they wanted 14 times the assessment. An adjacent parcel just sold for 11.5 times the assessment. What's going on here?” It's recurring. It's not just a thing that comes before me once in a while; this is regular.

• 1155

Of course, in addition to it being a potential manipulation of the overall land value for the province, it also makes it difficult in the case of these expired leases where people want to buy the land or have the right of first refusal on the land. They can't go to private lenders to buy that piece of land, because you've valued it at far more than a private lender would value it at. Credit unions have been complaining to me about that.

Again, you're going for a buyback at 12, 13, or 14 times the assessment, and the private lender will say, “Ah, but it's only worth 10.5”.

How can we get to the bottom of this? Since you are an independent crown corporation, how can the public have any input or any control on the way you value your land parcels?

Mr. John Ryan: Perhaps I'll start with the response in terms of the presumption that we're manipulating land values. I clearly do not feel we are trying to manipulate land values in any way, shape or form. We do keep a very close eye on all land sales that have taken place and try to arrive at what we consider to be a reasonable price, not to be at the top end of the market or at the bottom, but somewhere in between.

I've had some personal involvement, and a few particular producers approached me directly and said the land values were too high, and they didn't think that was accurate or appropriate. I said, I'll put you in contact with the land agent, and they'll go through and open their books on how we arrived at that particular value. You can take your information to the table, the new information you have, and we'll arrive at what we think at the end of the day is a reasonable price.

To be very honest with you—and I'll ask Louise to expand on this in a minute—I don't know how many times that is happening, but that is available. I guess I've talked to enough producers to know there have been some changes made. I think when we looked at land values, or lands coming to sale on block, we've been very conscious that we don't put a large block of land or blocks of land at any one point in time so that we are influencing prices.

Louise has a direct responsibility for the agri-lands, so perhaps she can comment further.

Ms. Louise Neveu: I guess we start from the basis, first of all, that our folks are accredited appraisers. Most of the individuals who would actually be doing the appraisals and fixing some of the prices are accredited appraisers. They have standards by which they have to put the values in.

When it goes to an individual producer or the tenant, in many instances that price may have been a reflection of a market three or four months prior to the person having to consider an actual price. What we have indicated in some instances has been higher, and in other instances it has actually been lower.

When the individual has to make a decision, we've made it very clear that if you have additional information, like a sale that just took place that was obviously not in our books when we put a price on the document that we sent to the individual, please come and talk to us, because we will revisit it.

So that has been an open book, and Mr. Morrison, if at any time you want to go through the process of how we establish this, we would gladly do so.

Mr. Lee Morrison: What about the tail of my question, that the credit unions say they can't match your values, so it's impossible for these people buying back leases to get perhaps a better deal by going to the local credit union with a lower evaluation on the land? You own the land. They have no way of competing with you there. Is this correct?

Ms. Louise Neveu: I don't understand where the credit union would be coming from on this point, because if the individual is looking for financing, which I presume is what they're saying—

Mr. Lee Morrison: Yes.

Ms. Louise Neveu: —and what they're looking at is the equity position or at the actual value they would put and then be able to establish what they're willing to lend, again, it's the same situation. It's up to the tenant to come to us and say, listen, this is not a fair price; I have evidence of something different in my community. We would definitely look at that as well, and in the same way, if the credit union is aware of sales that have taken place that would put our values in question, we would also look at that.

Mr. Lee Morrison: But you do have the hammer.

Mr. John Ryan: The other point I would make, though, is that we, and particularly the agri-land leases, have put in place a special loan program to help facilitate the sale of that land.

Generally speaking, it's a 20% down payment that we're looking for, but we've credited land sales, so we're talking about a 15% to 16% down payment. We would finance the balance of it, and what we do when we structure our terms of repayment is try to structure them in a way that what they're paying on lease versus what they're going to pay on the new loan would be very similar.

The Chair: Thank you.

• 1200

Mr. Ryan, do you want to break for a couple of minutes to get some food? It's your call.

Mr. John Ryan: It's okay. We're fine, thank you.

The Chair: All right, then we'll go to Mrs. Ur for five minutes.

Mrs. Rose-Marie Ur: Thank you, Mr. Chair.

One of your slides is entitled “Achieving Our Potential in Growing World Marketshare”, and it says “$40 billion in agrifood exports by 2005”. That's a great caption, but can I just add something a little bit different? On achieving our potential and growing, what's the primary producer's market share in that?

Mr. John Ryan: I don't know whether....

Mrs. Rose-Marie Ur: I'm being a bit catty when I say that. I understand that exports are going up, and that's great. But in that equation, the same dollars are not going to the primary producer. These are some of the problems we're experiencing throughout Canada on commodity prices, both in the prairie provinces, as well as in Ontario and everywhere else. I think it's well and good to see that slide, but I can tell you that it's not well received by some farmers. They're not sharing the greatest enthusiasm in those dollar figures.

Mr. John Ryan: At the end of the day, hopefully the message was more from the point of view that there's growth there. Certainly I would not want to try to indicate or illustrate that the primary producer somehow should be indirectly or directly subsidizing what's happening there. I think I've heard from enough primary producers to suggest that if it's going to be exporting, that's fine, but it needs to be profitable for them.

Mrs. Rose-Marie Ur: Yes, exactly. That's just what I'm saying.

Mr. John Ryan: So on that, I fully support and endorse the point you're making there.

Ms. Louise Neveu: If I might, I think the one part that Farm Credit definitely wants to play a part in is being there with primary producers who want to get involved in the processing part, so that they can extract from the next step, from some of the value-added that is also in their income.

Mrs. Rose-Marie Ur: Yes, I recognized that with PPP.

Ms. Louise Neveu: Exactly.

Mrs. Rose-Marie Ur: I was glad to see that. When I met them, my second question to them was about how much FCC is involved in this, and I was also glad to hear what they had to say on that.

We've changed a bit with the FCC service regarding consultation and the mediation process. In one of your slides you noted loan review boards. Are they the same as those other two? How are they worked into the system? What is your evaluation on consultation and mediation? Is that as beneficial, and is it working as you have anticipated it would?

Mr. John Ryan: The loan review board that I referred to here is different from the mediation service or consultation services. It's at what I'll call entry level, where we've made a decision on an application and won't provide financing. There's an appeal process as to whether we have made the right decision. The mediation service is much more on the books. They have a particular problem, so now how do we find a solution that's beneficial from the producer's perspective, Farm Credit's perspective, and that of other creditors?

In response to your question on whether or not farm consultation and farm mediation services are beneficial, there's no question about it. I think some of the people I've talked to who actually sit in farm mediation do a tremendous job there in trying to find the common ground. If it's unrealistic on our part, another creditor's part, or from the producer's perspective, they seem to be able to say they've had the ability to challenge and find that common ground. In fact, just yesterday I was talking to one of the producers, and that was one of my first recommendations after about a half-hour conversation: the next step should really be farm mediation services.

Mrs. Rose-Marie Ur: So you're strongly in support of those programs.

Mr. John Ryan: Yes.

Ms. Louise Neveu: Very much.

Mrs. Rose-Marie Ur: You said 50% of your loans were loans under $100,000, in one of your files.

Mr. John Ryan: It's actually higher than that. I think about 60% of the total loans are under $50,000, so it's a significant number of small loans.

Mrs. Rose-Marie Ur: Would you know where that would be going? Would that be off-farm, ag-related business, or is it specifically farming business?

Mr. John Ryan: As a general response—and Louise will probably have more specifics than I do—it would be to the general farm, the primary producer, versus off-farm. It's certainly not to the farm-related, because in the farm-related or value-added side the loans are significantly higher.

Mrs. Rose-Marie Ur: With the loans going into a specific farming commodity, what would be the most significant number of dollars going into a particular...? Would it be into beef? Would it be into whatever?

Mr. John Ryan: In terms of new authorizations?

Mrs. Rose-Marie Ur: Yes.

Mr. John Ryan: Today, we have about 35% going into what we call the cash crops, meaning not just the grains and oilseeds, but the fruit and vegetable side. That's followed by dairy, which is about 25%—but I'm talking off the top of my head here now. What we've seen this year in terms of new authorization is significantly more going to the beef side. It has gone from about 8% to 18% for new authorizations.

• 1205

Ms. Rose-Marie Ur: You had the Plant Now - Pay Later program with fruits and horticulture. Does that also refer to say ginseng and asparagus as well?

Ms. Louise Neveu: I'm not sure we've ever made loans, but they would qualify in the same area. Anything that would have a long production period for an initial product would definitely qualify.

Ms. Rose-Marie Ur: Thank you.

The Chair: Mr. Hilstrom.

Mr. Howard Hilstrom: Thank you, Mr. Chairman.

I'd like to delve into your relationship with the federal government just a little bit more, of course, and also the one with farmers. Why should I as a farmer choose the FCC as the lender of choice, as opposed to going to my local credit union? Can you give me three reasons for why I would do that?

Mr. John Ryan: The principal reason—and I hear this directly from the producers—is that we do truly know and understand agriculture. That's a prime one that comes back over and over again. I had an opportunity to attend a conference out in Alberta just last week, and I had a number of producers come up to me to specifically give me that response or reaction.

The second thing is that we're prepared to work with the customers through the cycles, through the good times and the bad.

The third thing, from a credit union perspective, is how far they can actually go to support the local producers. As the producers grow and expand, they sometimes can outgrow the credit union.

I say that on one side, but I would also share with you that we're working closely with the credit unions. We see the credit unions doing a good job in the local communities. Our goal or job is not to replace the credit unions, but instead to work with them. In fact, Louise and I are meeting next week with all the credit union centrals across Canada to see what more we can do in working together. I do believe that, at the end of the day, agriculture is better off with more players around the table, with more money coming to the table, and with more expertise than less.

Mr. Howard Hilstrom: I agree that there are more lenders around, certainly. But in the case of a crown corporation, you supposedly don't get money from the federal government. What do you get from the federal government that makes the federal government want to maintain a crown corporation for the purposes of lending?

Mr. John Ryan: I go back to when the corporation was first established. The federal government did put a major capital investment into the corporation in the late 1980s or early 1990s. I don't remember the specific date, but it was to the tune of about $900 million. That's the equity of the corporation, and it did come from the federal government. This is my own view of it, but I guess the federal government is looking at it and is asking whether or not this crown corporation is fulfilling the particular role or purpose it was originally set up to do: to support and enhance rural Canada and to support the primary producers.

The fact that we have 30% of the total term debt would illustrate that we're very active in the marketplace. I've heard producers talk to us from the point of view that one of the benefits of having Farm Credit around is to be able to have an option to go somewhere else and not be forced into dealing with one institution. At the end of the day, from a federal government perspective, we have 100 offices and 900 people dedicated to agriculture, and we support the growth and development of agriculture as it moves forward.

Mr. Howard Hilstrom: I won't put words in your mouth, but I'm going to try to paraphrase just a little bit here. What you're saying is that as a result of this $900 million that was originally put in and the fact that there's still a crown corporation, the federal government does have influence over your operations. Would that be factual?

Mr. John Ryan: I'm not sure how you define “influence”.

Mr. Howard Hilstrom: I'll give you an example then. The federal government, and rightfully so, is concerned with people with disabilities. You have a program specifically for farmers with disabilities. Did you make that decision? I don't mean you personally, but was that made independently of the government, or did the government come to you and say it thought this was a program you should have?

Mr. John Ryan: If you go back and take a look at our act or legislation, it basically calls for the corporation to be operating on a self-sustaining or cost-recovery basis. There is a provision in the act whereby the minister can actually ask the corporation to deliver a particular program or service to agriculture. It is linked, though, and it is very clearly stated: provided it is done on a cost-recovery basis.

So there is the provision there, but as far as new products or services are concerned, I guess a lot of what I have shown you has come as a result of spending time with the industry associations, spending time with the producers, and asking what their needs are and how we can adjust the modus of operation within the corporation to be able to deliver the products and services the customer needs.

• 1210

Mr. Howard Hilstrom: I have your sheets here. Why is over half of the lending in Manitoba going into a riding that's been held by the Liberals for the last two terms, into Steinbach? Is that just business, or is there something unusual about that?

Mr. John Ryan: I don't have all the stats off the top of my head, but I'm very comfortable in saying it has nothing to do with who's in what riding. It has everything to do with the activity that's going on in the respective areas and with us looking at it and saying this would make a good business that we can support.

Mr. Howard Hilstrom: I guess we were awfully nervous given the way this government operates with grants and loans and business deals. Certainly with the board of directors being appointed by the federal government, they have an awful lot of say as to the operation of the corporation, and could in fact even have influence on who gets loans and who doesn't. I'm not saying that's a fact, but it's set up that way, and that's different from the way a normal lending institution operates. I'm just being a bit of a nervous ninny, but you can comment on that and assure me that it's not the case.

The Chair: Final answer.

Mr. John Ryan: I'd like to be very clear on the point that, yes, the federal government, through the minister, does appoint the board of directors, but there are no board members involved in any loan authorizations. All of the authorizations are done by the management, by the operational people throughout the organization. Proposals do not go to the board for approval. The board is much more involved in the overall strategic direction of the corporation.

Mr. Howard Hilstrom: Who hires the employees?

Mr. John Ryan: With the exception of myself, all employees are hired by the corporation's management. I myself am a governor in council appointment.

The Chair: Thank you.

Mr. Borotsik.

Mr. Rick Borotsik: Thank you, Mr. Chair.

I'm not going to go down the road of the conspiracy theory here at all, believe me. I see the FCC as being a business operated as a business. I would draw the parallel with the Business Development Bank of Canada, which was known as the Federal Business Development Bank at one point in time. It has expanded and has evolved outside of an organization that used to be the lending source of last resort. It has now gone beyond that, and I see that the FCC has gone beyond that. I see the FCC as a very positive alternative to bank financing. That's basically all it is. There are no conspiracy theories here.

I have a couple of questions. In your opinion, are the banks getting out of agricultural loans? In my area, I find they've moved a lot of the agricultural people who were very involved in certain agricultural loans. In fact, I believe the Royal Bank moved its regional office from Winnipeg to Calgary. So are banks getting out of agricultural lending at this point in time? Do you see that at all?

Ms. Louise Neveu: If we look at who is at the table in terms of proposals for viable projects, the banks are there. We're not seeing a disappearance. I think you're seeing restructuring and you're seeing different modalities in terms of the presence that might be there physically, but on the access and the availability, we're sure not seeing a lessening of competitors.

Mr. Rick Borotsik: Are your interest rates competitive with the bank rates right now? Are they equal?

Ms. Louise Neveu: We are always a little above.

Mr. Rick Borotsik: What would your rates be right now?

Ms. Louise Neveu: They're somewhere around 8% or 8.25%, depending.

Mr. Rick Borotsik: Is that for a 15-year term?

Ms. Louise Neveu: We would be at 8.5% to 8.75% right now for that.

Mr. Rick Borotsik: Okay, so they're a little higher than what you would normally get at a financial institution.

Ms. Louise Neveu: Yes.

Mr. Rick Borotsik: You've had 800 postponements, extensions, or term arrangements that are being worked on with people. We had this conversation a little earlier. May seems to be another very major payment date in the cycle of agricultural loans. I suspect those 800 postponements were for the November payment. In fact, my area in Manitoba and Mr. Bailey's area in Saskatchewan are the hardest hit. Do you anticipate a substantial number of postponements or extensions beyond that, or did you take that into consideration in November 1999 and postpone to perhaps November 2000?

Ms. Louise Neveu: Some of them have been postponed for more than one payment. You will have instances, and every one of these has been worked out on an individual basis.... We are currently...we have increased. At the end of December, we were in the neighbourhood of some 700. In January, we increased by another 100. We are now talking actively with people whose payments are coming up in May, so we're—

• 1215

Mr. Rick Borotsik: I'd like to talk about that. I'm a little nervous about the arrears, by the way. As I understand it, there are 3,200 arrears out of 42,000.

Ms. Louise Neveu: Yes. It's 44,000.

Mr. Rick Borotsik: That's about 8%.

Ms. Louise Neveu: Yes.

Mr. Rick Borotsik: That's very high in the banking industry with respect to arrears. I would suspect that it's higher than it has been in the past.

I'm thinking of cashflow right now. We're not having cashflow until probably October or November 2000. Are you anticipating severe problems with a lot of those arrears going into the next stage, which is foreclosure, as Mr. Bailey talked about?

Ms. Louise Neveu: We've been very carefully analysing what has been happening for about 18 months in terms of trying to have a predictive tool of what's going to happen. So far we've been pretty close to the reality of what has happened.

What we're finding is that we are getting a not very significant number, but the numbers are increasing. In other words, new people are falling into arrears. What is far more troublesome is that those who are in arrears seem to have far less capacity to recover. In that instance, I think that's where we are going to have to work with a lot of diligence. We'll have to sit down with people and discuss the options. Is it an issue where some assets will have to be sold? Is it an issue where we're going to have to restructure some of the debt a little bit more?

Mr. Rick Borotsik: You're kind of working into my first round of questioning, aren't you?

Ms. Louise Neveu: Absolutely.

Mr. Rick Borotsik: You could have said that then and saved me all this trouble. Good for you.

Voices: Oh, oh!

The Chair: Thank you.

When you say your rates are a bit higher than those of the banks, is that because you're taking on a bit more risk than the banks are prepared to do? If that's the case, do you find that a lot of your clients have gone to the banks first, looking for the lower rates? Are you very often the second choice? Can you just help me on that?

Mr. John Ryan: I wouldn't think we're very often the second choice. The rate structure we do provide is a function of what it costs to borrow our money, what some of our main costs are, and what we build in, in terms of a profit margin, to finance our growth. To put it in context, I expect that if we did a chart on our rates, you'd find us a quarter to a half a percent higher.

The Chair: If I were a primary producer, though, John, why would I go to you if I can get the same amount of money I need from a bank, even if it's a quarter point less?

Mr. John Ryan: The honourable member is answering that question. It does come down to a lot of us knowing the business.

Last week I was at a conference over in Alberta and this individual came up to me. He told me he was a poultry producer in the early 1970s and he wasn't able to get financial assistance then. We provided the financing because our people knew agriculture. This is 30 years ago. He said that since then a lot has changed, as we well know on the supply management side. He does have banks coming to his door today looking to do financial assistance for him and he says “No, I remember”.

That's just one example, but I put an awful lot of weight to the fact that we truly do know agriculture. Yes, it might be a little bit higher at times. I'm not saying it—

The Chair: So price is not the only factor?

Mr. John Ryan: Bingo.

The Chair: Mr. Proctor.

Mr. Dick Proctor: Wouldn't the reason that the government would want to charge a slightly higher rate be primarily so they wouldn't be seen to be in competition with the private sector on this?

Mr. John Ryan: I hope I'm not jumping into territory I shouldn't be here, but in terms of the federal government, they're saying establish a rate structure that's competitive in the marketplace. At the end of the day you need to be looking at whether you are generating sufficient income to cover your operating expenses and cover the profit from a growth perspective.

Mr. Dick Proctor: Madame Neveu, you were talking about appraisers. I'm just wondering whether appraisers always go out and look at the land. Do they see what the going price is? The basis for my question is that it seems to me that I hear complaints from time to time where they're having difficulty getting farm credit people to go out. Farmers say to me that if appraisers would only come out and look at this piece of land, they'd realize that it's not worth what they're saying it's worth.

Ms. Louise Neveu: It's always very difficult, as you well know, if you're the seller. The view would be rather different for the buyer. Again, I hate to put a blanket on this, but our policies are that all the land that has been held by Farm Credit Corporation is at least seen by the land agent once a year. So we do go by. We do ensure that it's being farmed. We ensure that it's being well kept, that kind of thing, on a yearly basis.

• 1220

When we establish the price that goes to the tenant, that is normally done based on the information we extract from the various rural municipalities in terms of recent sales. We will actually take that data and look at market values and establish it in that particular area and say that this appears to be a reasonable market value.

There is a lag factor, because as you well know, if a property was sold last week in a particular area, it might have been lower. What we have faced this year is that we've actually seen some land prices increase in Saskatchewan and we have seen some in the southeast, for instance, that have decreased. That's perfectly normal, because you've seen the types of crops, you've seen what people have in hand to make payments and to purchase land.

Southwest and central Saskatchewan have seen increases in land prices purely because of the land sales that have transpired. Again, as you well know, it is not a science, but we'd sit down with anyone and go through the books on this.

Mr. John Ryan: Mr. Proctor, the other thing I would say is that we have a lot of stress on the land appraisers. Recently I've been going across the country talking about getting a better appreciation of where credit is today and what it might be doing in the future. I've been talking with industry associations, financial institutions, and so on. Does our role need to be changed, enhanced, and so on?

We can always come down to some discussion as it relates to the appraisers the farm credit corporations have and other financial institutions wanting to get access too. I've talked to all the major financial institutions within the last month, and every single institution made that request of the Farm Credit Corporation. It's too early to say whether we'll go that route, but we have those consultation studies going on and this is the feedback we're getting, one of the questions we're clearly getting.

Mr. Dick Proctor: Saskatchewan Lands Branch is also in the business, kind of in competition or whatever. Some farmers have said to me that they use a longer term and their rates are better. I don't know. Can you comment or respond? I'd be interested to know whether there are other provinces that have provincial programs like Farm Credit.

Ms. Louise Neveu: You're talking about leasing?

Mr. Dick Proctor: Yes.

Ms. Louise Neveu: No. To my knowledge, there is no one else doing this in the same way. The provincial program that still exists has just again announced changes. We haven't had the details of what they have in terms of their extensions. I have no idea what the details are yet.

Mr. Dick Proctor: Thank you.

The Chair: We still have to hear from about four or five people. We're going to have to cut this off at a quarter to one.

Mr. Breitkreuz, and then Mr. McCormick.

Mr. Garry Breitkreuz (Yorkton—Melville, Ref.): I just have a brief question. It's a follow-up to a couple of other questions. I also thank you for your presentation here.

I understand that Farm Credit Corporation is arm's-length from government, other than the one appointment.

The other question I'd like to follow up is in regard to the Auditor General. I presume we're talking about the Auditor General of Canada. Is his review mandated by the legislation or is it by invitation that he reviews your organization?

Mr. John Ryan: It's right in our legislation. Every year—and the fact of the matter is that it's not just once a year but throughout the year—we're apt to see various officials from the Auditor General's office. Our year-end is March 31. By the end of May he will have been in a position as Auditor General to be able to sign off on the quality of the financial statements. They also do a five-year special examination where they do a complete review of the operations of the overall organization.

Mr. Garry Breitkreuz: You've already answered my second question. I just wanted to know what aspects he reviews. So he reviews not just the expenses and income themselves, but he does kind of a review as to whether you are meeting the mandate given by the legislation.

Mr. John Ryan: That would be more under the special examination. On an annual basis, I think he's much more concerned with whether the financial statements are accurately reported. He looks very closely, for example, at our provision for losses. Are they accurate or are they not? Obviously when they're reviewing the files, he'd want to be satisfied that we're still operating clearly within our legislation or our mandate.

Mr. Garry Breitkreuz: Are those assessments available to myself or to the public?

Mr. John Ryan: The annual report certainly is. In fact, I think it's included in here. It's shown very clearly with a sign-off from the Auditor General's office.

Mr. Garry Breitkreuz: What about the five-year one?

Mr. John Ryan: I don't know if that's public information or not, to be very honest with you.

Mr. Garry Breitkreuz: Maybe that's something we could research, Mr. Chairman, or maybe you could get that for us.

The Chair: The Auditor General will be here in a couple of weeks anyway, so we can ask him.

Mr. Garry Breitkreuz: Sure. Thank you very much.

Mr. John Ryan: I'll check on that, though, and perhaps come back to it, Mr. Chair.

The Chair: Sure. Thanks.

• 1225

Mr. McCormick.

Mr. Larry McCormick (Hastings—Frontenac—Lennox and Addington, Lib.): Thank you, Mr. Chair.

Thank you, witnesses, for allowing me to come in late from the HRD committee.

Farm Credit is very valuable to our country and to rural Canada. As chair of the government rural caucus, I know we talk about you a lot, and sometimes it's in good terms. I like your slogan, “It's all we do”, and I acknowledge that you're very successful in reaching past the farm gate as much as possible and doing good work and working in partnerships. I've seen it happen here in eastern Ontario with Farm Credit, EDC, CFDC, and the chartered banks.

Here's my question. My concern on behalf of a lot of people seems to be surfacing again. To what extent? Again, the rumours—well, there are never any rumours around Ottawa, but perhaps a concern—and perhaps you will be able to handle it well, Mr. Ryan, because of your background.... We keep changing the name of the BDC. The concern is about the BDC and the Farm Credit Corporation becoming one. I would like to hear what you say about that, Mr. Ryan.

Thank you, Mr. Chair.

Mr. John Ryan: Considering I was at BDC for a number of years, I probably can talk from both sides of the table, if I can put it that way.

Personally I don't think that should be a concern of yours or anybody else's. There was some dialogue, discussion, a few years back suggesting the two organizations should be merged. The decision of both the Business Development Bank and Farm Credit at the time—and I don't think it has changed—is we're serving two different markets. There may be some small degree of overlap when you get into value-added, but with 94% of our business in the primary production and all of BDC's business in the small business side, personally I don't think it makes good business sense that you merge the two.

Mr. Larry McCormick: Thank you very much, Mr. Ryan and Mr. Chair.

The Chair: Thank you.

Mr. Bailey.

Mr. Roy Bailey: This is more of a comment than a question. I have attended two of the farm consultation meetings, as an observer only. My concern is what could be a distinct public relations project for Farm Credit, and it's this. When the farmers around the room go through this program.... We start off with the number of farmers in each of 1936, 1946, and so on. When you get down to the present time, they are left with the concept that it's inevitable that we're going to have another big drop in the number of people engaged in farming.

I look about the room and see some of my own people, who I recognize and who are in trouble with their loans. They will come up to me afterwards and say, “Well, it's a pre-government plan. We are not getting the loans. We're just falling into part of the percentage that we're about to lose.” That is a problem.

I mention it to you, sir, because I really think it's a public relations thing that Ottawa somehow is doing this, cutting the number of farmers because of foreclosures and so on. I don't believe there's any motive or any background information that dictates you in any way, but I mention this because it's a forewarning to Farm Credit Corporation.

Thank you.

Mr. John Ryan: Mr. Chair, I'll just respond to that by saying this. We didn't have it on the presentation here, but a few years back, going back to 1994 and 1995, we were doing about $600 million a year. We are presently doing $1.5 billion to $1.6 billion. So we've seen considerable growth.

We are also looking at and doing some consultations across the country and saying, are we truly filling the two needs, or should the Farm Credit Corporation be looking at refreshing this act, refreshing this legislation, and doing more, not less?

The Chair: Thank you.

Mr. Hilstrom, and then finally Mr. Morrison.

Mr. Howard Hilstrom: Certainly you seem to be filling a niche, or otherwise people wouldn't borrow money from you. So that's just fine.

Getting into a little bit more of the detail—and I guess I'd have to look at your audit reports and your year-end reports and that—besides advertising for property for sale, which is what you have to do when you're selling property in your possession, what are your general advertising costs for promoting FCC from a business standpoint?

You're operating as a business.

Mr. John Ryan: Yes.

Mr. Howard Hilstrom: There are no ifs, ands, or buts about that. So how much do you spend on advertising and on corporate contributions or donations supporting curling or whatever you do?

• 1230

Mr. John Ryan: I'll have to see if I can pick that line out of the annual report. I can tell you, because the numbers are fresh in my mind, on the community relations side of things, when you talk about charities and so on, we have become part of what we call the Imagine program, where we invest or contribute 1% of our net profit before taxes to the community, on a non-profit basis. Last year, I think that worked out to be $412,000. That's the first part of it.

Really, we're just saying we're living and working in the community, so we need to be giving back to the community. I think it's a great way to be able to say to our employees, “You're going to dedicate some of your time and personal efforts. If there's funding required, does that fit into community relations, or community wellness, as we call it? If it does, we're prepared to support it.”

Mr. Howard Hilstrom: I'm all for that too. If you're operating as a business, we want you to be as successful as possible. Certainly our credit unions in Manitoba do exactly the same thing, and it's designed to get business.

So your general comment is that primary producers, farmers, are being well served by the FCC. What changes to the FCC would you recommend to the government in order to better serve primary producers, as we change the smaller farmer...? I don't know what you'd call a viable farm. There's the idea of off-farm income—the farmer subsidizing his own farm with off-farm income. But what do you consider a commercially viable farm? The full-time farmer who isn't working off the farm is going to be changing to larger operations all the time.

What do you foresee in the future, and how are you addressing it as a corporation? What strategic changes are you making to FCC in order to meet those challenges?

Mr. John Ryan: Those are very interesting questions you're posing in terms of future directions. I was trying to address some of that earlier, as it related to capital needs being more intensive. It is not good enough any more to just say “We've got a long-term mortgage for 20 years; here's your interest rate and pay us so much a month”. You must have much more flexibility in setting your terms of repayment to meet the individual needs.

We see a diversification happening, which means the corporation needs to step forward to determine how we can support that diversification. We see more farm reproducers moving into value-added, so we see greater needs in supporting the value-added on a go-forward basis.

On value-added itself, in the local communities in rural Canada we've had a number of instances where people have come to us looking for financial support or loans from the corporation. They were not the primary producers, or they were primary producers, but they weren't the majority that was going to make up the new shareholding group. We've had to say no to that.

One of the things we see as a restriction or limitation in our act today is the fact that if we're going to support the value-added, it has to be farmer-controlled. I'm not sure if, at the end of the day, that's in the best interest of the primary producer. We need to be looking instead at saying “If this is something that's going to be set up in rural Canada, it gives a new market to the primary producer, hopefully increases the return to another market for their product, lowers the transportation costs, and oh, by the way, enhances rural Canada through the economic development side, we should be able to do something there”.

Mr. Howard Hilstrom: It concerns me a little when you start talking like that, in terms of what you, as the corporation, feel is in the interest of farmers. That begs the question, what's your stand on the Canadian Wheat Board? Should it be voluntary or should it continue selling as a single entity? Where do you stand in regard to farmer-owned, new generation co-ops, certainly like the one being proposed by Prairie Pasta?

Those two issues are interrelated. Where do you stand as a corporation on the Wheat Board and on a commercial contract-based transportation system?

Mr. John Ryan: Let me start by saying that as a corporation we don't try to look, in isolation, to see what we think is good for the producer of the future. I touched earlier on some consultation studies we are doing across the country now. We hope to be able to talk to basically every industry association in Canada and say “Here's what we see. What are you seeing?” At the end of the day, we hope to come forward with what we think is most appropriate for the producer. It will come from them and not just be our own half-baked ideas, hatched in our own crown corporation or within head office.

• 1235

As it relates to the Canadian Wheat Board, I don't have a position on that.

As it relates to the pasta plan itself, I can tell you that we've had discussions there. We said we were interested in coming to the table in terms of providing direct financing and as it relates to individual producers looking to have an investment in there—i.e., can we provide loans to them so that they can invest?

Now, it's all subject to whether it makes good business sense at the end of the day, but we have had these types of discussions.

As it relates to the new-generation co-ops, within the last two weeks we've met with the Canadian Co-operative Association here in Ottawa. They asked us about our position on that and whether we were interested in supporting it. Our response to that was yes.

The Chair: Mr. Morrison, Mr. Calder, and that's it.

Mr. Lee Morrison: Thank you.

Mr. Ryan, we all know that originally the FCC was to be a lender of last resort. We know it no longer is.

About a year and a half ago I received quite a rash of complaints from small-town credit unions claiming that FCC was skimming off some of their best customers by offering short-term loans at what were essentially mortgage rates. They were clipping 0.25% or even 0.5% off the going rate and pulling away customers.

Now, if you were a private company, I would say that's great; it's good for the farmer. But you're not a private company. You are a crown corporation.

Don't you think you have some responsibility as a federal entity or crown corporation not to compete in a predatory or very rough fashion—that may be a better way to put it—against these locally owned co-ops, these credit unions?

Mr. John Ryan: I would give perhaps a two- or three-part response, Mr. Chair, to the honourable gentleman.

One, as it relates to our interest rates, as we talked earlier, generally speaking—and I have to generalize a bit—they are 0.25% to 0.5% above.

Two, I think we've made it clear, or at least I've taken a very clear position within the corporation, that the corporation will not compete on price alone. If it's competition from the point of view of the quality of the service we provide, the people we have on the front line, it's a different story. I think there is always the opportunity that someone's going to make that particular complaint, that we lower our interest rates, but that's not the general theme.

I think the other point I'd make in terms of the credit unions is that we see them as partners. In Ontario, in New Brunswick, in P.E.I.—and I can go on to different parts of the country—we have developed working relationships. Louise and I have a meeting on March 7 to sit down with the CEOs of provincial credit union centrals from across the country and say, okay, we've started working in partnership, but what more can we do?

I think if you look at the CULEASE arrangement we have agreed to, the partnership we've joined there is saying we have some common interests to support Canadian agriculture, and now we'd like to see how we can do it together versus being predatory, as you've indicated.

The Chair: Louise.

Ms. Louise Neveu: Mr. Morrison, if you have a particular case that comes to you, I would very much like to take a look at it. In many instances, when I've gone into looking at some of these....

In fairness, the borrower shops for the product. The borrower may currently have a mortgage with a credit union and have come to our office to say “Listen, what can you guys do for me?” We'll work this out and then say, you know, Farm Credit will do this as well.

So I'd very much like to be able to...because we don't want bad feelings at the local level. In large measure our staff does not do predatory hunting for loans. If we could work this out, I'd really appreciate it.

The Chair: Mr. Calder.

Mr. Murray Calder: Thank you very much, Mr. Chairman.

In fact, Louise, I agree with you. As I said previously, Farm Credit got me started and kept me going through the mid-1980s. In our operation now we deal with the Royal Bank. We do most of our banking electronically, through Action Direct. When the cheques come in from a crop of chickens, the money goes immediately into an interest-bearing savings account. We pull it back out again when we need it to pay the input costs.

• 1240

Right now—and this is one thing I've looked at consistently with agriculture—2.5% of the population are actively involved in turning over the soil. Half of one percent produces 80% of the food and the other 2% produces 20%. Have you done any studies on what percent of the population is going to be involved in agriculture in a decade from now? Obviously there should be a shrinking of that 2% if this holds true. How are you, as the Farm Credit Corporation, going to adapt yourself to that?

Mr. John Ryan: I'm not aware of any studies—unless something is going on in the operations side, Louise, and I'm not current with it—in terms of looking at the forecast 10 years out. From our perspective, our basic motto or the approach we take is to say, let's stay close to what's going on and let's adjust accordingly. We are not necessarily looking at it 10 years out. The only way we can do this is to stay close to the producers and the associations, to spend time with them and understand what they see as changes and how we need to change accordingly, and then have the appropriate legislation to be able to do that.

Mr. Murray Calder: Because if that is true, then obviously.... You've already stated that your loan portfolio at the present time has been constantly increasing, so in agriculture—

Mr. John Ryan: Yes.

Mr. Murray Calder: The number of farmers is decreasing and the industry is becoming more intensive and capital intensive.

I guess the next question would be, have you done any studies on the farmers themselves? I know where our operation was when I started back in 1973 and where it is now, and it has grown considerably; we have had to change our accounting practices, the way we do books and everything.

Now, I look at farmers as two classes, and this is my own evaluation of this. You have the individual who is a good bookkeeper and probably would have his books done by November 30. At that point, they know what position they're going to be in by December 31. They can do some pre-buying or whatever to make sure they keep themselves in a situation of the least amount of tax situation. Or you have the other type of farmer, who right now is going through the marathon around the kitchen table trying to get his ledger up so he can file income tax. What percentage of farmers would you deal with right now who are “shoe box” versus those who are of what I refer to as “the new age”?

Ms. Louise Neveu: I would suggest that the dramatic change from the 1980s is in this area. If I had to venture a guess—it would be purely from intuition and what I see—it would be 60%-40%, with 60% now using professionals to support their businesses. There would be 40% that would be in a wide spectrum of the shoe box. Some of them do very well on their own—

Mr. Murray Calder: Sure.

Ms. Louise Neveu: —and some truly would have difficulty.

Mr. Murray Calder: What percent of the 60% who use professionals and what percent of the 40% who doesn't use professionals are in trouble?

Ms. Louise Neveu: That I don't know. I could venture a guess, but I'm not going to do that.

Mr. Murray Calder: Okay. I think I have an answer to that.

Thank you, Mr. Chairman.

The Chair: As chairman, I would like to ask the last couple of questions.

In your annual report on page 31, you point out that your return on equity was 7.5% in 1999, your return on assets in 1999 was 0.72%, and your debt-to-equity ratio was 9.3%—and you indicated that under your legislation you could push that to 12%.

I guess my general question on those three sets of figures, Mr. Ryan, would be this: Are you happy with those numbers, generally speaking? Are you under any pressure from any quarter, particularly the government, say, to improve the numbers? What would be your response to that?

Mr. John Ryan: If you look at the three different sets of numbers you just outlined, as a general response I am comfortable with where we're at. For the return on equity, at 7.5%, I think as an organization we're going to be in a band of anywhere from about 6% to 10%. If we were trying to get significantly higher than that, I think we would be modelling ourselves after other financial institutions, where you're into maximizing shareholder value. I don't think that's our role. I think our role is to be looking at it and saying, how are we financially self-sufficient and how much do we need?

You asked if we are under pressure from the federal government to make major changes there. No. I think the federal government has looked at it and is saying, we've made our initial investment; are you living with the principles of the legislation and so on?

The Chair: Are you earning enough to maintain your own infrastructure, if I can put it that way?

• 1245

Mr. John Ryan: We are, certainly at this point in time. I think a lot will be very dependent on a go-forward basis, on what will be the growth in terms of both primary productions and the value-added. That could constrain us at some future date in the sense that if we get significant demands on our growth, can we generate enough profits that we can lever up 10 to 12 times to finance that full growth? It depends on what forecast we look at. If it's a conservative forecast, yes. If it's a more optimistic forecast and more in line with perhaps some of the projections made by CAMC, we probably will need additional equity.

The Chair: I have a final question. Young farmers, or young to-be farmers, face particular challenges. Speaking of numbers, the numbers are very high, the assets are expensive and extensive. I know you have something called AgriStart, which is particularly targeted at young farmers. Can you elaborate on that a bit?

Mr. John Ryan: Yes. I think it was 1998, to be specific, when we launched the AgriStart program. We did it with the very clear feedback that it was the beginning and developing farmer we needed to focus on. We worked closely with the Canadian Federation of Agriculture and said, identify people across the country we can be talking with who you think would be a good voice for us to get feedback on how we structure this particular program.

For AgriStart we expected to do about $35 million in new financing in the first year. I think, if my memory serves me correctly, we did about $50 million in about an eight-month period. So there has been a take-up there. But I don't suggest that this is the be-all and the end-all. It's a start. It's moving in the right direction, and we continually need to challenge ourselves on what more we can do in that particular area.

Louise, you were directly involved with the Canadian outstanding young farmers program. You might want to touch on that.

Ms. Louise Neveu: One of the things they look at so far in terms of actually transferring assets.... We've in many ways established the way to do things with some of our Plant Now - Pay Later loans, our and 1-2-3 Grow loans. What the outstanding young farmers have told us is more in the succession planning area.

Many of these young people are involved with parents, and there's still a great hesitation, which is not unique to agriculture but is in almost any family-owned business—a great reluctance to talk about how assets are going to be transferred and who has decision-making power over a period of time. They told us that if there was a way any institution can start supporting and helping that dialogue to start, it's where there is a real need.

The Chair: Is it more difficult with every passing year for young farmers to get into the business because of the financial numbers or not?

Ms. Louise Neveu: Regrettably, Mr. Harvard, I was around 30 years ago when we faced this last bubble. We were talking about exactly the same things, that there would never be the numbers, we'd never be able to see the transfer of farms—and we did very well.

I heard a statistician from Stats Canada talking about how every generation has faced this same issue. Every generation has had higher costs. Every generation has had a larger land base or more complex issues to face. Apparently, according to the stats, we have the largest population base today to access in terms of young people. Because today gender is not the issue any more, we don't look just to the young men to take over the farming operation. We have a far larger base and a more prepared base in terms of education to take over the farms. So I guess—

Mr. Garry Breitkreuz: On a point of order, Mr. Chairman. Can we get some stats to back that up? That final comment you made really interests me.

Ms. Louise Neveu: Sure.

Mr. Garry Breitkreuz: I have another point of order, Mr. Chairman. I would like to thank these people for the wonderful lunch, and if you run your organization as well as you make lunch, you're doing great.

The Chair: Thank you. I'm sure you've expressed the sentiments of all of us, Mr. Breitkreuz.

Thanks to all of you for coming. You've given us an excellent presentation and I think we're all a little bit more knowledgeable now than we were a couple of hours ago. I appreciate it very much. Thank you.

This meeting is over.