AGRI Committee Meeting

37th PARLIAMENT, 2nd SESSION

Standing Committee on Agriculture and Agri-Food

EVIDENCE

CONTENTS

Thursday, October 2, 2003

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1535

The Chair (Mr. Paul Steckle (Huron—Bruce, Lib.))

The Chair

Mr. Larry McCormick (Hastings—Frontenac—Lennox and Addington, Lib.)

The Chair

Mr. Larry McCormick

The Chair

Mr. Larry McCormick

The Chair

Mr. Larry McCormick

The Chair

The Chair

Mr. John Ryan (President and Chief Executive Officer, Farm Credit Canada)

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1540

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1545

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1550

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1555

The Chair

Mr. Gerry Ritz (Battlefords—Lloydminster, Canadian Alliance)

Mr. John Ryan

Mr. Gerry Ritz

Mr. John Ryan

Mr. Gerry Ritz

Mr. John Ryan

The Chair

Ms. Janet Wightman (Executive Vice-President and Chief Operating Officer, Farm Credit Canada)

Mr. Gerry Ritz

The Chair

Mr. Dick Proctor (Palliser, NDP)

Mr. John Ryan

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1600

Ms. Janet Wightman

Mr. Dick Proctor

Mr. John Ryan

Mr. Dick Proctor

Mr. John Ryan

Mr. Dick Proctor

Ms. Janet Wightman

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1605

Mr. Dick Proctor

The Chair

Mr. Dick Proctor

The Chair

Mr. Larry McCormick

Mr. John Ryan

Mr. Larry McCormick

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1610

Mr. John Ryan

Ms. Janet Wightman

Mr. Larry McCormick

Mr. John Ryan

Mr. Larry McCormick

Mr. John Ryan

Mr. Larry McCormick

The Chair

Mr. Howard Hilstrom (Selkirk—Interlake, Canadian Alliance)

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Mr. John Ryan

Mr. Howard Hilstrom

Mr. John Ryan

Mr. Howard Hilstrom

Mr. John Ryan

Mr. Howard Hilstrom

Mr. John Ryan

Mr. Howard Hilstrom

Mr. John Ryan

Mr. Howard Hilstrom

Mr. John Ryan

Mr. Howard Hilstrom

Mr. John Ryan

Mr. Howard Hilstrom

Mr. John Ryan

Mr. Howard Hilstrom

Mr. John Ryan

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1620

Mr. Howard Hilstrom

The Chair

Mr. Dick Proctor

Mr. John Ryan

Mr. Dick Proctor

Mr. John Ryan

Ms. Janet Wightman

Mr. Dick Proctor

Ms. Janet Wightman

Mr. Dick Proctor

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1625

Ms. Janet Wightman

Mr. Dick Proctor

Ms. Janet Wightman

Mr. Dick Proctor

The Chair

Mr. John Maloney (Erie—Lincoln, Lib.)

Mr. John Ryan

Mr. John Maloney

Mr. John Ryan

Mr. John Maloney

Mr. John Ryan

Mr. John Maloney

Mr. John Ryan

Mr. John Maloney

Mr. John Ryan

Mr. John Maloney

Mr. John Ryan

Mr. John Maloney

Mr. John Ryan

Mr. John Maloney

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Mr. John Ryan

The Chair

Mr. Gerry Ritz

Mr. John Ryan

Mr. Gerry Ritz

Mr. John Ryan

Mr. Gerry Ritz

Mr. John Ryan

Mr. Gerry Ritz

Mr. John Ryan

Mr. Gerry Ritz

The Chair

Mr. Dick Proctor

Ms. Janet Wightman

Mr. Dick Proctor

Ms. Janet Wightman

Mr. Dick Proctor

Ms. Janet Wightman

Mr. Dick Proctor

Mr. John Ryan

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1635

Ms. Janet Wightman

The Chair

Mrs. Rose-Marie Ur (Lambton—Kent—Middlesex, Lib.)

Mr. John Ryan

Mrs. Rose-Marie Ur

Mr. John Ryan

Mrs. Rose-Marie Ur

Mr. John Ryan

Ms. Janet Wightman

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1640

Mrs. Rose-Marie Ur

The Chair

Mr. Howard Hilstrom

Mr. John Ryan

Mr. Howard Hilstrom

Ms. Janet Wightman

Mr. Howard Hilstrom

Ms. Janet Wightman

Mr. Howard Hilstrom

Ms. Janet Wightman

Mr. Howard Hilstrom

Ms. Janet Wightman

Mr. Howard Hilstrom

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1645

Mr. John Ryan

Mr. Howard Hilstrom

The Chair

Mr. Claude Duplain (Portneuf, Lib.)

Mr. John Ryan

Ms. Janet Wightman

Mr. Claude Duplain

Ms. Janet Wightman

Mr. Claude Duplain

Ms. Janet Wightman

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1650

The Chair

Ms. Janet Wightman

The Chair

Mr. John Ryan

The Chair

Mr. John Ryan

The Chair

Mr. Claude Duplain

Mr. John Ryan

The Chair

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CANADA

Standing Committee on Agriculture and Agri-Food

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NUMBER 045

l

2nd SESSION

l

37th PARLIAMENT

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EVIDENCE

Thursday, October 2, 2003

[Recorded by Electronic Apparatus]

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[English]

    The Chair (Mr. Paul Steckle (Huron—Bruce, Lib.)): Ladies and gentlemen, I'll call the meeting to order.

    Before we get into the routine business, I have two small matters that need to be addressed. First, since we have not circulated this for the purpose of approval, and since there's urgency on the issue of having a budget approved for our travel to the U.S., I wonder if I could seek approval of the committee to deal with this, waiving the 48-hour period.

    Some hon. members: Agreed.

    The Chair: The budget proposal is that there would be nine members going to Washington--four from the opposition, one of each party, and four from the government, plus the chair.

    The names as they are now are myself as chair, Rose-Marie Ur, Claude Duplain, Bob Speller, and Larry McCormick. That is not to say those names may not change if something happens, but there is one from each party. From the Alliance, we have Mr. Ritz. From the Bloc, I believe Odina is going. From the Progressive Conservatives we have Mr. Borotsik...Dick, you have committed to going. Those will be our nine members.

    The proposed budget is for $39,063.26 for the committee's travel to Washington from October 19 to 21.

    An hon. member: So moved.

    (Motion agreed to)

    The Chair: In a second budget, we also require.... As you know, we had three emergency meetings this summer, which were done without budget approval. We have to go back and ask for money, begging for forgiveness. We have a budget here for $18,300. Of that money, $10,820 has already been spent. The other money we're asking for here is for future witnesses, until the end of this particular session.

    We have another budget for $18,300. Do I have a mover?

    Mr. Larry McCormick (Hastings—Frontenac—Lennox and Addington, Lib.): I have a point of order.

    The Chair: Yes.

    Mr. Larry McCormick: I'm trying to keep the smile off my face. I always am in favour of paying the witnesses' expenses with their tax money, but I just want to clarify it. We're paying the expenses of the packers coming here, are we? They came in the summertime. I just want to get a yes or no on this.

    The Chair: Yes, I understand where you're coming from, but in fairness to those people who were coming in from out of town--

    Mr. Larry McCormick: Thank you very much, Mr. Chair. I just needed to get that straight.

    The Chair: I'm answering you with a straight face.

    Mr. Larry McCormick: Thank you, Mr. Chair.

    The Chair: We have to pay their travel. I'm asking if this meets with the committee's approval.

    Some hon. members: Agreed.

    The Chair: Thank you very much, members.

    We will continue on the work to put this together, the agenda for our trip to Washington.

    This afternoon we want to continue our overview of what's happened with BSE. We've met with very many sectors of the farm community. We also want to look at the financial community to see how those agencies have impacted the farm community, whether we've had positive responses or negative ones, and how we've responded to either one of those two.

    This afternoon we have, from Farm Credit Canada, Mr. John Ryan, president and chief executive officer. He is no stranger to this committee. He has been here, but I guess not for about two years.

    It's time to bring you back. Perhaps along with the other comments you have, you might want to give us a bit of an overview of where Farm Credit has gone and come from in the past two years.

    We also have with us this afternoon Janet Wightman, executive vice-president and chief operating officer. You're a new face to us, Janet. Welcome to the committee.

    John, we'll give you your time now.

    Mr. John Ryan (President and Chief Executive Officer, Farm Credit Canada): Thank you, Mr. Chair.

    Good afternoon, honourable members. It's certainly a pleasure for me to be here to represent Farm Credit Canada to talk about BSE and its impacts, as well as how Farm Credit has been performing since the approval of the new legislation in June 2001.

    The chair has already introduced Ms. Janet Wightman. She's our executive vice-president and chief operating officer and she has overall responsibility for national operations. She'll be assisting me in terms of the questions following my presentation.

    I understand we have some time, so I really look forward to the opportunity to talk not just about BSE but also about how things have evolved over the last couple of years.

    We've provided a short handout in terms of giving detailed information as it relates to FCC's portfolio and its lending activity, including the arrears levels within the corporation. We've also put in that handout an excerpt of our annual report, just to give you some appreciation of how things have evolved over the last couple of years, particularly in the new areas we received approval for in terms of the new legislation in 2001.

    As you well know, as members here, the agriculture industry as a whole is incredibly diverse. It encompasses everything from grain to dairy farmers, from equipment manufacturers to woodlot operators, from food processors to biotech companies, and so on. At any given time, as you can appreciate, we'll see some sectors thriving while others may face economic challenges.

    For our most recent year-end, which was March 31, 2003, we released our annual report in June of this year. For those who have had the opportunity to review that particular report, you'll see we had another very successful year, and our lending hit a record high of $3.1 billion, certainly the highest ever in Farm Credit history.

    We also continue to grow our business in other ways. In addition to providing our customers with loans and advice, we offered more training--business and financial solutions on the training side of things--venture capital, and specialized farm management software, and we can talk about those later.

    As a member of the standing committee, you'll recall our new legislation was approved in 2001, and really the basis behind that was to help FCC address and support the changes going on in the agricultural industry.

    The Farm Credit Canada Act of June 2001 basically opened the door for Farm Credit to broaden its support in terms of providing a wider range of products, service, and delivery channels. First, it allowed us to work with a broader range of value-added businesses, which are so critical to primary production. They include everything on both the input and output side of primary agricultural production.

    A second outcome of the new act was our new venture capital division. FCC launched its venture capital division in 2002 to offer a source of capital to producers and agri-business operators. You may recall when we introduced the legislation we indicated it would be a $50 million fund that would be focused on small and medium-sized firms in areas such as value-added processing, commercial-scale farming, and agriculture biotech.

    We set out a plan over five years to invest the $50 million, and we're pleased to report to the committee that we've had an impressive number of business plans in the very first year. We have so far approved four deals totalling $8.5 million. In addition to that, we've attracted investment from other venture capital to the tune of about $16.8 million. So between the two, there's some $25 million in equity capital that was not there prior to 2001 because we didn't have the mandate to do so.

    A third key result of our new act has been our business services line. As operations become larger and more complex, farmers and agri-business operators need the tools and the managerial assistance to help them continue in their success. To address that particular need, our business service division offers a range of insurance products, management and education programs, and other tools to assist them.

    I think one prime example of that is what we refer to as our agri-success program. The program actually began as a partnership of private and public sector organizations dedicated to helping producers build their management skills. In the first two years we've had more than 2,000 participants take part in some 80 workshops across the country. Those workshops were focused on primarily business and succession planning, two areas that have been critically identified as areas we need to be working on.

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    I think the results over the last couple of years are very evident in our portfolio. Our portfolio actually grew by over 14% last year, finishing up the year on March 31, 2003, with a record high of $8.8 billion. Currently, it's sitting at about $9.3 billion, so we're seeing continued growth. In fact, our portfolio has been growing consistently over the last 10 years.The quality of the portfolio remains very high; at year end, our arrears were at an historic low rate of 0.36% of our outstanding portfolio.

    I'd like to think that our approach, of working with our customers as partners through good times and bad, has a lot to do with that. In fact, we were able to track all of the customers who had utilized our customer support strategy over the last few years, and we found out that 95% of them were in good standing long after the postponement period. So it does actually attest very clearly to the fact of how important it is to work with your customers through difficult times.

    I think that's a good-news story, not just for Farm Credit, but also more importantly for the individual producers and the agriculture industry as a whole. I also think that the growth we've been seeing is a sure sign that our customers are growing, diversifying, and prospering.

    Of course, there will always be the unforeseen setbacks in agriculture. We know that the industry is cyclical in nature and that producers have faced much adversity from time to time, due to factors beyond their control in many cases. The BSE crisis, which began on May 20 with the discovery of a single infected cow, as you are all aware, is a prime example of that.

    Mr. Chair, I'd like to now move to talk specifically about BSE, and then later we can talk about how things have evolved over the last couple of years with Farm Credit.

    Since May 20, Farm Credit has been closely following the market developments and monitoring the impact, both from a customer perspective and from a portfolio perspective. We'll share with you in a few minutes what our beef sector is actually comprised of in terms of our total portfolio.

    We have approximately 6,600 customers with beef as their primary enterprise. Loans to these customers currently make up about 10% of our national portfolio, equating to outstanding loans of approximately $900 million. About 70% of these loans are for the cow-calf operators, while the other 30% is financing for the background and finisher operators. We have another $800 million to customers where beef is a secondary part of their business. So in total, we have the $900 million, plus an initial $800 million.

    I think the majority of the lending is really focused on western and prairie areas, but BSE has clearly had an impact in all provinces across the country. It adds up to a very significant exposure to Farm Credit across the beef sector. We've been keeping a very close watch on the performance of these loans.

    Here's what we've seen in terms of actual arrears in the beef sector. As I mentioned a minute ago, we measure our arrears as a percentage of our total dollars outstanding. As of August 31 this year, our beef portfolio stood at 0.67% of our portfolio, which is up from 0.49% last year. The percentages are a little hard to follow, so maybe I'll put it in dollar terms. At the end of August of this year, we had $6.1 million in arrears in the beef sector, compared to $3.9 million a year ago. So we have seen an increase in our arrears there.

    We recognize, however, that simply looking at accounts in arrears is not a reliable indicator of what is currently going on in the portfolio. We truly look at it as a lagging indicator, and perhaps as a sign of things to come in the future, in terms of difficulties that show up somewhat after the fact or some months down the road. So our opinion at this point in time is that the full impact from BSE is not evident in the numbers I've just shared with you.

    I think a more timely source of information is the regular feedback we get from our customers. Our account managers are out there day in and day out in the fields, talking with individual producers to get an appreciation of just how difficult things are. Through these contacts, they get a good sense of the health of our loans and where the difficulties may be developing.

    Quite frankly, we had not expected that we'd see any serious impact on our portfolio over the summer months, given the fact that the majority of our beef customers are cow-calf operators, many of whom do not have payments due until November and December of the year. So if we look at our payments coming up over the next several months, particularly in November and December, we have something like $55 million in payments coming due—and very little in the last few months. So quite frankly, I think we need to wait to see that before we have a full appreciation.

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    With the fall calf run now upon us, we recognize that many of our producers are facing challenges; there's no question about that. I think the immediate challenge, as you've heard before, is the backlog in the cull cows. Currently, as you know, there's an insufficient market for these animals. I'm certainly aware that's a priority, with beef industry round table focusing on trying to find alternate markets for the cull cows.

    In spite of these challenges, there are also some encouraging signals. For example, steer prices have strengthened and are running anywhere from $1.10 to $1.20 per pound now. That's still below the break-even mark, which the most recent stats I have received indicate is something like $1.39 per pound for a 550-pound calf. I've taken these stats from a study recently done by the agriculture departments in Alberta, Saskatchewan, and Manitoba. The prices are stronger than what many producers had originally anticipated at this point in time. We do all hope that the border will open soon, particularly for the live-animal exports to the United States.

    That being said, we know it does take time for the markets to normalize and that there will be some difficult times ahead of us this fall and throughout the winter. I think the difficulties, quite frankly, will be amplified quite extensively or many times over if there's a significant delay in that border opening—certainly for the live cattle.

    Whatever the case may be, Mr. Chairman, we're prepared to work very closely with our customers through this difficult period of time. Certainly that's the belief we've held to within Farm Credit, that we need to be working with our customers. We have a public policy mandate to enhance rural Canada and to stand behind our customers in good times and bad. Quite frankly, that's a way of life within the corporation itself.

    Shortly after the BSE crisis began, we activated what we call a customer support program to assist the customers who are going to be adversely affected. I note that's not new to BSE specifically, because we did implement that strategy some time in the past to assist the operators impacted by the drought, the floods in Manitoba, the ice storm in eastern Canada, and so on. Really, at the end of the day, my message is that it's a way of life how we work with our customers through difficult times.

    The current number of applications we received under the customer support strategy is certainly above the number we received a year ago. And we've also seen a shift. A year ago under the customer support program, we were seeing many more producers coming forward, looking for payment relief in the grain sector. Clearly, this year it has shifted from grain to the beef sector, which should not be surprising.

    Through our beef support strategy, we've asked our account managers to begin proactively contacting customers who may be facing difficulties. These customers are given an opportunity for flexible solutions in terms of payment rescheduling—or maybe it's only interest-only payments. Many of our districts throughout the country have already sent out letters to our producers clearly outlining that we do understand there are difficulties out there and that we do want to be working with them. According to the last number I received, something like 4,500 letters had gone out. In addition to the letters going out, our employees and account managers on the front line are talking to our customers on a daily basis, visiting the farms face-to-face, or talking to them on the telephone to talk about the customer support strategy. We've also attended many of the producer meetings across the country, so we've stayed very close to this.

    If I may sum it up, I think the ultimate goal is to help our customers manage through this difficult time while maintaining their good credit records. Clearly, I think a more difficult question that we had to face and address was how do we process applications for new loans in the beef sector? I'd like to talk to you about that over the next couple of minutes.

    We very carefully considered that question, and we developed and implemented what we refer to as our beef strategy, to help guide our employees on the front line on how they are to deal with loans coming in from the beef sector. The overriding message that we wanted to convey, which I hope we conveyed well, is that we believe in the underlying strength of the sector, that we are taking a long-term view, and that we will continue to do business with the beef operators. At the end of the day, I think that if agriculture is all we do as an organization, we clearly need to be taking the long-term view.

    We continue to evaluate each new loan application on a case-by-case basis, to look at the long-term viability, the current projected-market conditions, and how they may affect the customer's ability to repay, because that's always part of the equation itself.

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    We happen to think it's all about balancing our support for the industry with the responsibility we have to apply due diligence and manage our risk in a self-sustaining financial institution.

    That being said, from May 20 to August 31 we approved something like $68 million in new loans to the beef sector, which is very similar to the type of lending we would have done a year ago. We carefully monitor the markets and we'll review our strategy in the future, but I wanted to share that with the members of the committee.

    We certainly all do hope that the beef crisis is coming to an end and that we'll see a full recovery in the beef sector. It's not just the beef sector, there are other components, other parts of the rural economy that have certainly been impacted here. The pork industry and the poultry industry, for example, are feeling the impact of the rising beef consumption in Canada. As the domestic supply of beef has gone up, consumers have rallied around our producers, as you're well aware, by eating more beef and filling their freezers with the sale-priced beef. That has put pressure, as you can appreciate, on both the poultry and the pork industries, and I think the impacts go well beyond the meat producers to the many suppliers who provide inputs, such as the truckers, the processors, and the export companies, at the end of the value chain.

    Across the board, the impact on the agricultural economy has been so significant because of the BSE, in our opinion, that rebuilding businesses will be a long-term process. It won't be an overnight thing.

    Mr. Chairman, let me conclude by stating that from a farm credit perspective, we certainly intend to be doing our part to actively support not only the beef sector but agricultural industry in rural Canada as a whole. That's our mandate, that's our responsibility, and we take it very seriously.

    Thank you very much for listening, and I look forward to your questions and comments.

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    The Chair: Thank you very much, Mr. Ryan.

    As we always do around here, we go around the table, and we will start with you, Gerry.

    Mr. Gerry Ritz (Battlefords—Lloydminster, Canadian Alliance): Thank you, Mr. Chairman.

    John, Janet, thank you for coming today. It's great to see you.

    All of the issues you deal with and we deal with as MPs revolve around primary production in agriculture, especially in my area. The grain sector and oilseed sector were really hit hard three years ago--you guys saw that--and we were constantly on the phone to our Farm Credit guys and they back and forth with us. Now we're seeing it in the beef sector.

    When you do the reanalysis of these loans and the new loans that are going out, have you noticed changes in the debt load farmers are carrying now? Have you done a bit of a sliding scale as to what it was five years ago, what it is today, and how it got there? Are you seeing some changes in those numbers on debt load and net worth of primary producers?

    Mr. John Ryan: Perhaps I'll start, and I'll ask Janet to help you on this, because I'm not aware of any particular study that was done. If you look at agriculture as a whole, the debt levels are going up. There's no question about that.

    The difficulty I have is that it's hard to generalize. Look at some of the individual operators in the grain sector, for example. If they happened to get the right rains at the right time, they've had a good year or a great year, but not too far down the road, if they didn't get the rains, things haven't been so good.

    Clearly, the debt levels have gone up, but in an equal number of situations you'll also find the equity levels have strengthened too. Farms are getting bigger for the most part. We see a shrinking in a number of farms, but the average-sized farm is getting bigger.

    Mr. Gerry Ritz: Are you tracking the cost of land? I know there's not a lot of land moving at this point, but are you tracking that? Has the value gone up, has it gone down, or is it maintaining itself? We're seeing some drastic drops in land prices.

    Mr. John Ryan: We probably have the best tracking of land prices in Canada. I think it goes back to about the 1970s. Through our Agri-Land Division, every six months we do a review of land prices. Again, it varies from province to province, but for the most part we're seeing land prices go up. Now, I don't know what the last six months--

    Mr. Gerry Ritz: That's on a national scale.

    Mr. John Ryan: Even on a provincial scale. In Saskatchewan--I'm going from memory now, honourable member-- we've seen a plateauing or flattening of prices for a period of time over the last few years but then a slight increase over the past year. I say a slight increase; it might be less than one percentage point.

    Janet might be able to help you, though, in terms of studies that would have been carried out that would give you more detail.

    The Chair: Ms. Wightman.

    Ms. Janet Wightman (Executive Vice-President and Chief Operating Officer, Farm Credit Canada): Thank you.

    Yes, we do track both debt load carried by our customers and their net worth. When John referred to the changing demographics and the changing sizes of the farms, that's where we have to be very careful when we track that to make sure we are tracking similar circumstances. As our customers are expanding, certainly, their debt load is increasing.

    When we track customers who have maintained a relative size and have not taken on expansions, we're not seeing a great shift in either debt-to-equity levels or net worth levels. With respect to the land prices increasing, as they are in general and in some areas, certainly where we are, very minimally, that is also one of the drivers for where we see our average loan size increasing. As the land values increase and as the value of other assets that are being purchased increases, we're seeing our average loan size increasing as well.

    Again, there are a number of factors that lead to debt load increasing, whether it's from purchases, acquisitions, or expansions, but we certainly do track that and monitor for differences.

    Mr. Gerry Ritz: Thank you.

    The Chair: Mr. Proctor.

    Mr. Dick Proctor (Palliser, NDP): Thanks very much.

    It's nice to see both of you today.

    Mr. Ryan, in your overview you filled in a bit of a picture for us about the situation across the country. It has been an unusual year in terms of too much moisture in eastern Canada, too little in western Canada, and too much heat, frankly, in western Canada. I want to get to the beef industry in a minute, but I just wondered if you could fill in the blanks and paint a bit of a picture for us about which areas of the country are feeling more distressed than some others at this point in time.

    Mr. John Ryan: I guess we'll be a tag team here today, Janet, in terms of a perspective.

    We'll start in our own province of Saskatchewan as an example. Last year we very clearly had a drought situation in the northern part. Well, the rains were better this year, with more moisture content there, but conversely, on the southern side we didn't get the rains we'd had in other years, so that made a difference. In talking to some individual producers, and they could be within fifty miles of one another, I met a group on Friday night and they said they'd had a fantastic year. But for the next group you might talk to, the next producer, it's not so. It's always difficult to be specific about any particular area.

    When I look at the southern part of Saskatchewan this year, I see I'm going to have some challenges there. When we move into Ontario, we're not seeing it--or at least I haven't seen it. In Quebec and the Atlantic, in some spots and down the valley, we've had some challenges. P.E.I. seems to be getting along; in fact, they're talking about a bumper crop of potatoes this year. When I move farther west, in Alberta, part of Alberta fared pretty well this year but other parts didn't fare so well. I'll get Janet to give you the specifics. And you know how hot and dry it's been in B.C. with forest fires this year.

    Janet, you might be able to give more specific information on the tracking of....

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    Ms. Janet Wightman: Keep in mind that for the most part we went into this production year coming out of a drought. This year, as John said, we have a variety of moisture levels across the country. The critical question is, of course, and those of you in the farming business know this, it's all about the timing of when those rains come.

    In B.C. we have this sort of central strip north-south, where it's been particularly dry. However, with the B.C. industry and its diversification, there's still an awful lot of activity in British Columbia. In Alberta, generally speaking, southern Alberta has been drier than average again this year. In Saskatchewan, again generally speaking, it's southern Saskatchewan that's been drier, although there's this central strip that's actually fared very well. In Manitoba it's more the eastern side of Manitoba. Ontario is an absolute catch-all. In one area of Ontario you have too much moisture and in another area you don't have enough. It's very spotty. Quebec and the Atlantic are less problematic from just a moisture perspective.

    In Alberta this isn't the first or second year of drought; in some areas this is the third or fourth year of drought. That of course impacted feed prices dramatically coming into this year, and then producers in the beef sector now deal with BSE and the requirement in some cases to keep their animals on feed longer. All of these things tend to ripple out and then pile up one on top of the other.

    Mr. Dick Proctor: Thanks for that.

    I'd like to zero in a little bit on the beef industry itself. You expressed the hope all of us have, namely that the border will reopen in a hurry. The question is, if it doesn't, what will the impact be on those cow-calf operators and backgrounders, and will they need some kind of government assistance over and above what Farm Credit and other lending institutions can send their way?

    Mr. John Ryan: It's going to be speculation on my part, because, as you've indicated, Mr. Proctor, we're very clearly hoping that the borders are going to open. If they don't, we have a very different industry when we look at it because we no longer have that market to deal with. The market needs to be open in terms of live cattle, or we have some real problems on our hands.

    I don't think we're going to have enough domestic consumption to actually absorb the supply out there. It's really just going to force prices down. If we have producers who individually happen to carry beef over the winter months and supply feed, there's a cost associated with that. The gap is going to get wider, not narrower.

    Mr. Dick Proctor: When you have your account managers out talking with producers, is there a sense that, for example, with the cow-calf operators, most of them did not benefit, I would submit, from the BSE recovery program? That money is gone, it has been spent, but the program has ended and now there are no additional funds. Are they aware of that? What is the mood?

    Mr. John Ryan: In preparing for this, Janet did ask for feedback from our account managers across the country. So if you don't mind, Mr. Proctor, I'd prefer that Janet provide the direct feedback.

    Mr. Dick Proctor: Perfect.

    Ms. Janet Wightman: In fact, specifically, you've touched on the cow-calf sector. The overwhelming response by these producers is one of wait and see. If you think back to John's comments, where he talked about the numbers of overtures that we've made to our customers to offer postponement assistance or what have you, and when we see that we've only been taken up in 123 cases, where people have actually come forward and asked for some assistance, that shows you the difference, that people are hanging in. They are trying to service their debt load.

    If it continues, the impact specifically to the cow-calf sector will be an obvious decrease in revenues and a very much tightening situation of cashflow. Therefore, they become at risk as to whether or not they can service their debt, largely because of the markets and the cull sector. But also, you have then the corresponding increase in production costs. So they have less revenue and less cashflow, and they have increased production costs because they have more inefficient operations. They have to keep more animals on feed, and that's where there is going to be a real crunch for the producers.

    What is benefiting a lot is that when we say 6,600 producers in the beef sector and $900 million, those numbers relate to our customers where that's their primary source of income. A lot of those customers also have a secondary sector, whether it's grains, cash crops, or what have you, and in some cases, that is able to assist, to carry people through the tough times.

    How much of an impact will it be to them? We have to look at it from our perspective and the impact on our portfolio, and then that leads us to some extrapolation. We have to watch and see what happens with this November-December time period. If we have roughly $55 million in payments due in November-December, we're really going to start seeing some of the impact, because while our arrears have increased in the last year over year, it's not all related to BSE yet, because the real crunch is the November-December payment period, for cow-calf producers especially.

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    Mr. Dick Proctor: Is my time finished?

    The Chair: It is for this round, but we'll come back.

    Mr. Dick Proctor: Okay, fair enough. Thank you, Mr. Chair.

    The Chair: Mr. McCormick.

    Mr. Larry McCormick: Thank you very much, Mr. Chair, and to the witnesses, thanks for being here.

    My questions are not necessarily in any order, but I'm thinking about a couple of years ago when we were sitting around this table. What we, the committee--perhaps one or two members more than others--had legitimate concern about was that one of the new mandates available to Farm Credit was to go into leasing. We peppered the questions at you because of visions of old machinery lined up back in your yards, or whatever. But seriously, have you entered into this in a major way, and what's the success of that division? I wonder if you could brief us on that a bit.

    Mr. John Ryan: To your point, I think there were two components to that: one was the concern about getting into land leasing, and the other was on the equipment-leasing side of things.

    On the land-leasing side, first of all, we have clearly got out of that. We made a conscious decision back in 1999 that we would not be in the land business, and we returned the land to the producers. We had, as you might recall, at one point in time, 1.4 million acres in Saskatchewan. We have about 2,600 acres now. So that's basically done. Agri-Land is no longer even in existence because there's no need for that. So that was a concern that was expressed at the time, and certainly we haven't gone in that direction.

    On the leasing side, very little has happened to date. We have an arrangement with CULEASE, in terms of the credit union movement, in terms of them actually doing the leasing and we almost front-end it. Take-up has not been that significant, though.

    To your point of concern about equipment being lined up across the country, that certainly has not happened, but we haven't been very active in that either. It's all about providing a choice for the customer.

    Mr. Larry McCormick: That's good, providing a choice. Thank you.

    One of the things we've heard from the witnesses--and of course, we hear it from frustrated producers across the country--is about the shortage of slaughter facilities, such as in Manitoba where basically there are no slaughter facilities for beef. Usually, they just go to the States and book them into Ontario or Saskatchewan and get lined up.

    Some people think perhaps these facilities will be needed in the future, even after we open up the borders. You have lent $68 million out in new beef loans. I'm sure none of this has gone to slaughter facilities, but I wonder whether you've had any engagement of conversation with any groups at all. I'd like your comments on that.

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    Mr. John Ryan: You are correct, Mr. McCormick. It has not gone to slaughterhouses itself, in terms of the financing. It has been primarily to the cow-calf operators. But I'm not personally aware--and I don't know, Janet, if you are--of any actual discussions we've had relating to the commitment or re-establishment of slaughterhouses.

    Ms. Janet Wightman: There have been some discussions starting with producer groups or with local groups. The discussions are really preliminary, though. There really is no concrete business plan that has yet been put forward, largely because of the unknown situation with the border.

    To the question of slaughterhouses, we don't have slaughterhouses, with the exception of some very small abattoirs. We have several very small ones in Quebec.

    Mr. Larry McCormick: Thank you.

    Perhaps it's an unfair question, but regarding these cows that have no value today, I don't know how we are going to market them. We would like to market them and we would like to make use of the meat, but have you projected any cost to your organization of these cows in the future? At this moment, there is no sign of getting rid of these cows and even clearing on any value at all.

    Mr. John Ryan: We haven't gone to the point of looking and saying what are the impacts to the corporation in terms of the culled cows. We know clearly there is an issue. I think our approach has been to look at it on a customer-by-customer basis.

    We understand the implication from the point of view of income. Depending on whether you are talking about beef, dairy, or just the culled cows or bred heifers, and so on, it could have anywhere from 5% to 20% impact from an income perspective. Some people might not think that's very much, but at the end of the day, it all adds up. So it is a very serious situation that hopefully will get addressed, and it will have negative impact, or is having negative impact today.

    We haven't carried that forward to an analysis on our portfolio. After we go through the November-December timeframe, with the heavy payments coming up, I think we'll be in a better position to do so.

    Mr. Larry McCormick: That is very fair.

    As you know, the government disbursed our tax money, and your tax money, last week with the transition money that will go directly to the producers--$600 million. It's never enough but certainly will help. Getting that into their hands directly within the next month or so will make a difference. It takes in total farm income, so I hope it helps the actual people who are specializing in beef.

    I want to give you the opportunity, which I'm not sure you want, to talk about the agricultural policy framework. There is money there. I've been very involved. I did some interviews in three provinces recently and had it defended as the greatest thing since sliced bread. But with the fact that the money is there, I think perhaps the feds are willing to negotiate. It will be reviewed a year from now. With this amount of money sitting there, I think we could take money out of one part of it to the other. The need is there now.

    Would you have any comments on that? I know you cover this vast country with your corporation, and some provinces are in and some are not.

    Mr. John Ryan: Six of the provinces have already signed on, so they certainly see advantages to the agricultural policy framework. The others that have not signed on have difficulties with it. I guess it's being framed as the agricultural policy framework, but as you well know, there are five components to it, food safety being one of them in itself that doesn't seem to be getting a lot of attention but is very important on a go-forward basis.

    I look at it and say it's a policy framework that we have in place now that talks about our commitments the next five years out, something we haven't had before. So I don't think we should lose sight of that, as well as the other components.

    There are provinces and producers that have tremendous difficulty on the one component of the agricultural policy framework that I think needs to be sorted out. I don't have a solution for it, but it needs to be sorted out, because there are dollars ready to flow, and it would be good to get that into the hands of producers.

    Mr. Larry McCormick: Those were very fair comments.

    Thank you, Mr. Chair.

    The Chair: Mr. Hilstrom.

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

    Continuing on, you're right that the slaughter plants are just under discussion by producer groups. The question to Farm Credit is are you going to be willing to participate when the farm group comes to you and says here is their business plan, and they have a market for the meat? Is Farm Credit open to this as the one step past the producer?

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    Mr. John Ryan: Clearly the new legislation that we received in June 2001 gives us all the authorities we need, and from there--

    Mr. Howard Hilstrom: Are you willing to do it, though? We know you have the authority.

    Mr. John Ryan: If it makes good business sense, most definitely.

    Mr. Howard Hilstrom: Let's get into that then.

    Here we have you talking about a public policy mandate. Is that an internal concept, or is that a public policy mandate with the idea that you have some interaction with the government of the day?

    Mr. John Ryan: I'm not sure what you mean by government interaction.

    Mr. Howard Hilstrom: Let's put it like this. The federal government right now is trying to deal with the crisis in this country on BSE. Your public policy mandate, when the government has this problem, Farm Credit corporation is attached to government in a way--

    Mr. John Ryan: It's a crown corporation, yes.

    Mr. Howard Hilstrom: Yes.

    What's your means of contact with the government? Does the minister phone you up and say “John, you know we have this problem with BSE”, or do you have a working group that meets with government officials, and who would that be?

    Mr. John Ryan: Within Minister Vanclief's portfolio there is what's called the portfolios group division, which is not just Farm Credit but it's also the Canadian Dairy Commission and the Canadian Grain Commission, for example, and we meet with the minister and we meet with the deputy minister likely twice a year face-to-face and have regular conference calls from there. That's our main conduit into the government itself.

    When I made reference to the public policy mandate, that's very much because we are a crown corporation, as you can appreciate. With that public policy mandate, though, it's clearly stated that you need to be running the corporation on a sustainable basis. We don't have the capacity or the authority to get into grants, as an example. I'm not suggesting they would be looking for a grant from ourselves, but if they wanted to go down that way our legislation doesn't allow us to do that. Quite frankly, I think it would be difficult to be a grant provider today and a lender tomorrow or try to do the two things at the same time.

    Mr. Howard Hilstrom: What specific discussions did your group or your corporation have with government? And you have to be generous with me when I can't identify exactly who it would be who would be doing this discussing. You have to help me out on this a bit. What specific conversations were had with anybody in government as to what to do about the BSE and what part FCC could play in that in your capacity within the legislation? Were there discussions actually held, first of all?

    Mr. John Ryan: We have ongoing discussions, as part of the portfolio heads, about BSE and what the impacts are. Our role there is clearly to indicate what do we see from a producer perspective and what can we be doing. What I talked about earlier, the customer support program--

    Mr. Howard Hilstrom: Did the government ask you to do anything more than what you're already doing within your organization?

    Mr. John Ryan: What the government has asked is how can Farm Credit respond to it. Our answer to that is we want to look after our customers; the customer support program is our approach to this.

    Mr. Howard Hilstrom: The Government of Canada is supposed to be looking after all producers, so part of that conversation was that the farmers who have accounts with you are going to be allowed to put off principal payments, put off maybe even interest payments and that. But what about those farmers who aren't customers of yours, who are the vast majority? Was there any discussion about what Farm Credit could do for farmers who are not customers of yours? An example would be a farmer who's run into problems with the CIBC. Would you be willing to take that loan over and treat that farmer the same way as you would treat your own farmers? Was that part of the discussions?

    Mr. John Ryan: It doesn't have to be part of the discussions because we can do that today. One of the interesting things that I've noted in terms of...and I don't know whether we should take credit for it or not, but I'll share with you--

    Mr. Howard Hilstrom: It's not whether you can do it or not, it's what the actual facts are as to what actually was said and done. Did the minister or this working group ask you to take over these loans rather than have the farmer lose his farm and his land? Was that part of the public policy that was important to do?

    Mr. John Ryan: We don't have directions from the minister specifically to say we have to do this or we have to do that, but he well knows that we have the authority to do it. We often refinance loan proposals from other financial institutions.

    But I'm not sure that's really the answer. I think the other financial institutions have to hang in there also. In fact, the letter I referred to in the customer support program we started a few years ago, you'll find other financial institutions doing it today.

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    Mr. Howard Hilstrom: One of the parts of the income--

    The Chair: Mr. Hilstrom, you've expended your time.

    We're going to be meeting with the other institutions as well. Today it's Farm Credit. I'm going to move to Mr. Proctor for another five minutes, and if time allows we'll be back.

    Mr. Dick Proctor: On that last point, John, when a lending institution like a bank closes up shop, such as CIBC, for example, did in Mossbank this summer, there is a credit union still in Mossbank, and the credit union people tell me there's a percentage of people who simply will not deal with the credit union. So you don't get an automatic transfer of all those people who can no longer bank at CIBC.

    Does Farm Credit have additional business as a result of those small branches that are closing shop in the Mossbanks of our world?

    Mr. John Ryan: My response would be likely, but whether we try to track it, I don't think we have a tracking mechanism there. But if you look at two years ago, we were doing $1.8 billion in new financing a year, and last year we did $3.1, so it was a substantial increase, to say the least.

    This could very well be one component of it, but only one component.

    Mr. Dick Proctor: To go back to BSE for a minute, because of the expanded mandate of Farm Credit, it's not just cow-calf producers and backgrounders. What about the trucking industry, for example? How has that industry fared? With the border open to meat cut, muscle cuts, etc., are they getting back on their feet? I'm thinking of Roberge Transport, for example, in Moose Jaw. What's the latest? Do you deal with them? Is that one of your clients?

    Mr. John Ryan: I wouldn't be able to say whether we do or we do not. Our portfolio has a very small component on the trucking industry. One of the key questions we have to ask is if you're in the trucking industry, is it focused on agriculture, and if it's not we wouldn't be able to provide the assistance.

    I don't know, Janet, if you've picked up anything in your feedback from the account managers on the trucking industry as a whole.

    Ms. Janet Wightman: Certainly the truckers whose primary business is with beef cattle have obviously been struggling a lot. What we're finding now is that while they are picking up and starting to recover, whether or not they will fully recover in a relative short term is the question mark.

    We're also hearing anecdotally from truckers who are outside of the strict beef sector that their revenues are down probably by about 20%, and the reason is that truckers in the beef industry had to look for new merchandise to move. So they moved into outside areas, taking business away from some of those other trucking firms. So it really has rippled further than just the truckers who would transport livestock.

    Mr. Dick Proctor: To get off beef for a moment, your account managers are probably hearing from grain farmers who are pretty unhappy about cash advances. I know this is a Wheat Board matter, but they have taken a cash advance in the spring, they've taken their crop to market, some of it very good, prices aren't particularly fine at the moment, and the Wheat Board is saying there's no additional money at this point in time.

    That has to be hurting in terms of cashflow, and you must be getting a ripple effect back from those folks.

    Ms. Janet Wightman: In fact, yes, of course it is difficult for those producers. The majority again would be diversified so that they're starting to have a little bit of a cushion on another side of their business. Quite frankly, for those who are not and who rely strictly on their grain crops, we have not seen any increase in our arrears; in fact we've seen a reduction in arrears to that sector, and even to arrears in the grain industry specific to the prairie provinces.

    Our arrears over the last few years have steadily decreased. So again, producers are managing their debt load better, perhaps in some cases are diversified so that they're able to weather some of those tough times a little better.

    Mr. Dick Proctor: How would they be diversified, Janet, beyond grain and oilseeds and cattle, for example?

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    Ms. Janet Wightman: That is definitely the primary way to diversify, so if you have--

    Mr. Dick Proctor: So if neither sector is doing well, the answer can't be they've diversified so it's not as bad.

    Ms. Janet Wightman: If neither sector is doing well and if some of the non-board crops are being grown, that will come into play. Where all of their business is in difficulty from an industry point of view, then you look to that producer's management ability and they are managing their business in a way that takes them through it. We just look to our arrears to tell us whether that's the way, or not.

    Mr. Dick Proctor: Thanks.

    The Chair: We'll move to Mr. Maloney.

    Mr. John Maloney (Erie—Lincoln, Lib.): You indicated you work with industry in good times and bad. At what point does bad become too bad and you have to start realizing on security or calling in loans? What are your criteria?

    Mr. John Ryan: Essentially what we look at there is, if you're running into difficulty now--and you obviously have to make a value judgment here--is it short term, is it long term, and are there alternatives? We spend a lot of time looking at the alternatives before we say automatically we need to move into a foreclosure action.

    In most cases we'd find ourselves working with the customer many months, maybe longer, into the years before we say it's not possible, it's not going to work, we're going to have to move to foreclosure. Quite frankly, we don't have too many foreclosures on the go now, which is a good thing, but there are times when that does happen.

    The other exception would be if indeed at the end of the day the customer has given up and we've lost contact and we're not able to work back and forth and try to work through a particular solution.

    We don't have fine criteria saying that after three months or after six months we must do the following. It's very much on a case-by-case basis.

    Mr. John Maloney: You've indicated that in the next one to two months you're going to have roughly $55 million in payments come undone--or come up.

    Mr. John Ryan: We hope not come undone.

    Mr. John Maloney: Have you done an estimate of what percentage you think may become bad debts, or what may become loans and defaults? Any idea?

    Mr. John Ryan: It's too early, I think, at this point in time. The $55 million specifically is November-December payments. And if I go back over the last few years when the grain sector was in so much difficulty, we kept saying we needed to wait for the May installment or wait for the December installment, and many times we thought it was going to be a lot worse than what it was. It didn't turn out to be that way, so we've quit speculating on that and instead I think the goal of the corporation is clearly to talk to our customers early and get a sense.

    On Janet's comments of a few minutes ago, we've sent out over 4,500 letters to the beef producers and we've had 123 so far who have actually taken us up on that offer. We may very well see much more as we move into November-December, but we haven't run numbers.

    Mr. John Maloney: You made an interesting comment or observation that with the lower beef prices some consumers are filling up their freezers, which is impacting poultry and pork producers, etc. Do you also have marginal pork and poultry producers in financial distress at this time as a result of the beef crisis?

    Mr. John Ryan: I wouldn't necessarily say it's only because of the beef prices, but it's certainly a factor from a consumption perspective.

    If you look at it on the pork side of the things and if you talk to the pork industry, they will tell you they expected that at this point in time they would be in perhaps one of their peaks. It just hasn't happened. There is a lot of pork on the market and prices have been depressed.

    We don't have a large amount of arrears either in the poultry or the pork industry at this point in time. I could take a few minutes and go through my book and give you the details of it, but it's not something that has spiked up over the last several months in terms of arrears.

    Mr. John Maloney: And your arrears in the beef entry as a percentage of your overall is about 6.7%--is that correct?

    Mr. John Ryan: That is 0.67%. In round figures it's $6.1 million that are actually in arrears at this point in time, versus $3.9 million last year.

    Mr. John Maloney: Are these just the producers, or would these be the implement dealers, feed suppliers, etc.? Is that a combined figure?

    Mr. John Ryan: It is more on the producers side; 70% of the total portfolio we have is in cow-calf, so by natural extension you'll find the bulk of them are in the cow-calf side of things.

    Mr. John Maloney: Do you have a handle then on what the total arrears picture is with the entire industry, more than just the cow-calf operators or the producers in general?

    Mr. John Ryan: The figure I've given you of $6.1 million is everything involved in beef, as compared to just the cow-calf, but the bulk would be cow-calf.

    Mr. John Maloney: I compliment you for your support program and being proactive and going out and meeting farmers. Even just talking to you probably puts them a little bit more at ease, instead of stewing and worrying about it. Is there a possibility for counselling from a psychological or emotional perspective? This has to be bearing on them tremendously from an emotional perspective. Do you have something to assist them that way as well?

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    Mr. John Ryan: We don't have a separate counselling arm to help with the stress levels and so on, but we clearly have a group of account managers on the front line who understand agriculture very well and how trying it is. They show lots of empathy when they deal with it on a customer-by-customer basis.

    The Chair: Thank you.

    Mr. Ritz.

    Mr. Gerry Ritz: Thank you, Mr. Chairman.

    The Canadian Cattlemen's Association is saying that even with the border open in the next short time to live cattle under 30 months old, it's going to take at least two years for things to level out. Are you guys in for the long haul?

    Mr. John Ryan: I don't know whether two years is right, but we are in for the long haul.

    Mr. Gerry Ritz: Okay, so things can be termed out even more than they are now if need be, and it's a matter of case by case, producer by producer, coming in and talking through it.

    Mr. John Ryan: Very much so. As I said earlier, agriculture is the only business we're in, and we intend to stay in there. In 1999 the hog industry went into the dumpster, with very low prices. The best thing we did was hang in there, from the producer's perspective. It has proven to work for us in the past, and it will work for us again.

    Mr. Gerry Ritz: You also say, John, that you have face-to-face meetings with the minister a couple of times a year--conference calls on a regular basis. Were there any discussions during those latest conference calls or face-to-face meetings as to why the $600 million in transitional money did not go out in mid-July, as was scheduled?

    Mr. John Ryan: I'm not sure how to respond to your question, in terms of what dialogue--

    Mr. Gerry Ritz: It was slated to go out in mid-July. It was broadcast, and so on, but it did not happen. The minister said it was transition money. Certainly there was a transition in place, and with the BSE crisis it would have been the ideal time to send it out, but it was being used as a bit of a hammer to force the APF on certain provinces. I'm wondering if there were any discussions on why the mid-July date was dropped.

    Mr. John Ryan: I read what you read in the newspapers on the position people take, compared to getting into.... We're not a delivery agent there, so it's not an area we're going to spend time on.

    Mr. Gerry Ritz: It would make a severe impact on your portfolio in a positive sense, we would hope.

    Thank you.

    The Chair: Mr. Proctor again.

    Mr. Dick Proctor: Thank you very much, Mr. Chair.

    I'm just looking at the beef arrears data you've supplied. Can you generalize on which operators are in more trouble? You're talking about 70% of cow-calf operators being in the beef program. But within the arrears data, can you generalize to any extent? Can you say whether it's the relatively small cow-calf operator that is experiencing more difficulty at this point? Can you make any of those generalities, or is it across the board?

    Ms. Janet Wightman: It really is across the board. We don't tend to have a lot of large finishers in our portfolio.

    Mr. Dick Proctor: What's your definition of large?

    Ms. Janet Wightman: I mean the very large, double-digit-thousand-head feed lots. There are two that come to mind. Other than that, we have relatively small ones with perhaps 5,000 head in that range--

    Mr. Dick Proctor: Do you mean 500, or 5,000?

    Ms. Janet Wightman: That's in terms of feed lots. Then we have the much smaller ones, and cow-calf operations. But it really is very generally spread across those industries in the beef portfolio. The arrears with those customers have increased.

    Again, we have no instances of foreclosures because of BSE. We have instances of some higher arrears and some postponements, but we know that for our business the postponements and adjustments are a good thing, because when we track the history of those customers who received the postponements, they're back in good performing status a few years down the road.

    We don't really have a spike just in the cow-calf, the backgrounders, or the finishers.

    Mr. Dick Proctor: On just one other unrelated question, Mr. Ritz asked earlier about the price of farmland. You folks from Saskatchewan will know that Saskatchewan changed its foreign ownership rules and regulations last year. What has happened as a result of that? Has there been any appreciable difference in the price of agricultural land as a result...or modest?

    Mr. John Ryan: Janet may have specific numbers, but I can share with you that I'm actually seeing many more people interested in coming to the province of Saskatchewan. People have sold out their operations in Alberta or B.C., or have decided to expand from those provinces into Saskatchewan. On the immigrant side, more people are interested in acquiring property in Saskatchewan because the prices are so low, in relative terms.

    I don't know where we're at, Janet, in terms of the last farmland values.

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    Ms. Janet Wightman: There has been a slight increase, although given the recentness of the change and the timing of BSE, we have heard anecdotally from a lot of customers who were planning to move and buy land in Saskatchewan that those plans are on hold.

    The Chair: Thank you.

    Mrs. Ur.

    Mrs. Rose-Marie Ur (Lambton—Kent—Middlesex, Lib.): Thank you for your presentation.

    It's always good to see you, Mr. Ryan, and nice to see you as well, Janet.

    As you had indicated and we're well aware, there's a large backlog of cull cows and, combined with it, a lack of slaughter facilities, especially in this part of the country. How interested would FCC be in working cooperatively with a group of farmers looking into establishing a slaughter facility? Would that be within parameters you'd be interested in working in?

    Mr. John Ryan: Most definitely. We find ourselves across the country, whether for this or something else, sitting down on a regular basis with the producers. The key thing at the end of the day is you need a leader, a driver, someone who takes responsibility for this, saying, “I'm going to put a group of people together; we're going to put a business plan together, and we need your support”—in this particular case, Farm Credit's.

    We've done that on quite a regular basis, and if it's now in the slaughterhouses that there's an interest, we'd be only too happy to sit down. But we'd be looking for where the leadership is and where the business plan is.

    Mrs. Rose-Marie Ur: Right. I think it's a lesson learned through this unfortunate circumstance with this one animal. I'm cautiously optimistic the borders will be open sooner rather than later, but I think we should still continue, in that vein, to look at slaughtering facilities, so that all our eggs aren't in one basket, so that farmers don't run into this kind of situation. God forbid this has to happen again within our country. It's interesting to hear your viewpoint on that.

    Another question—and we've had this one other times you've visited with us—concerns the working relationship between FCC and the local banking industry. Can you explain how you're working with the local banking institutions?

    Mr. John Ryan: In many cases it boils down to the individual bank, and sometimes the individual branch. I'm comfortable in sharing with you that in instances when we've done joint financing with other financial institutions, in many cases what happens is they'll do the operating credit and we'll do the term loan. For the larger proposals it's not uncommon to find us doing part of the proposal and the other financial institution doing a proposal.

    It boils down to working relationships, though, account manager by account manager—at that level. We at a senior level can talk all we want of the merits of working closely together, but if they don't see at the local level the importance of that and how beneficial it is overall, it doesn't happen to the same degree. I would move from the chartered banks and put the credit unions in the same scenario. In some cases we just have excellent relationships, almost on a daily basis working with them. At other times, we can't seem to come together to have that dialogue.

    Mrs. Rose-Marie Ur: Would it be because people working within the industry are not as knowledgeable on rural issues or affairs? The two of you are very impressive here today, as always, speaking very knowledgeably of the industry. What I find when some of my constituents come forward is that when they go before some of their bankers there seems to be a lack of knowledge of the industry, and it makes it very difficult.

    Are you seen as the lender of first or the lender of second resort, or is that perception not really there?

    Mr. John Ryan: The approach we like to take is to make sure everybody's fully aware of what Farm Credit is today—not what it was five years or ten years ago—and show what service we have to offer, and aggressively be in the marketplace to demonstrate that we're here for the long haul, and focus on agriculture.

    That certainly has made a difference for us, if you look at the level of growth we've had as a corporation as a whole. I think if we look at it from an account manager perspective, in all our field offices are very knowledgeable people. One of the thrusts of the corporation is clearly focused on how we make sure they don't lose out on that knowledge, and on what additional skill sets we have to work on, making sure they constantly have them and are right up there.

    Janet.

    Ms. Janet Wightman: We do a lot of business partnering with banks across the country—banks and credit unions—a significant number of them in Ontario. One of the things I want to point out is that in a lot of places where there is agriculture, the frontline staff of the banks are very knowledgeable about agriculture. The problem they find—and we know, because some of them come to work with us—is that because agriculture is all we do, we're very familiar with it, whereas when a proposal is sent into a corporate office for approval agriculture is just a small portion of what a bank may do, and so as those deals go into their corporate office, their staff often remark that they're harder to sell.

    I just wanted to make that point. At the front line in the agricultural communities some of the banks have very knowledgeable staff. I think it's more because their portfolio is so diverse outside of agriculture, whereas in our case, that's literally all we do.

º  (1640)  

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

    The Chair: Okay, we'll move to Mr. Hilstrom.

    Mr. Howard Hilstrom: Has Farm Credit done a financial analysis comparing the NISA program to CAISP, the Canadian agriculture income support program?

    Mr. John Ryan: No, we haven't.

    Mr. Howard Hilstrom: Well, that's pretty strange, John, because the farm safety net programs are supposed to be a significant portion of the farmer's income and his risk management tools. I find it hard to believe your managers.... Maybe Janet should comment.

    Ms. Janet Wightman: Well, I certainly could. My comments would rarely be different from John's.

    We have not done a comparison of the two programs and the financial difference between them. We do very much--as I think you're getting to--monitor what the new program is looking like, what it may mean, and how the new insurance programs are being brought together. We do watch that, because of course that's a risk tool for users.

    We've not done the analysis.

    Mr. Howard Hilstrom: How many customers do you have, roughly 6,600?

    Ms. Janet Wightman: In beef alone.

    Mr. Howard Hilstrom: How much money on average are those 6,600 customers going to get from the new CAISP program? Have you done an estimate on that?

    Ms. Janet Wightman: No, we have not.

    Mr. Howard Hilstrom: The government is saying there's an awful lot of help that's going to come down as soon as the provinces sign on. The producers I know aren't sitting there waiting for any amount of money. They expect to get very limited money out of that, but we'll wait and see.

    Let's talk about the bison industry. The bison industry has had some tough times. What is Farm Credit Canada's assessment of the current status of the bison industry and its chance of being a success and growing in the next few years? Is it an industry that's going to get back on its feet and move ahead, or is it on its feet now? What's the prognosis for the bison industry?

    Ms. Janet Wightman: From the perspective of the clients in our portfolio, bison is a very small portion within our portfolio. We do have solid bison customers, but the industry, perhaps because it is so small and so young, is going to have a very difficult time coming through some of these challenges they are facing because of BSE.

    Will it be a viable industry? It really depends on whether you mean will it be a significant portion of our industry, much more than it is now, and that I don't know. We have consumer demand issues to get around--there's a real need for a clear marketing plan to get those consumers--and then there are all of the market issues around BSE.

    Mr. Howard Hilstrom: As top-level managers, watch out for those cattle prices you're hearing about. This $1.10 to $1.20 for a 550-pound calf is for your top, best calves. I'd say that's the top 20% to 25%. Then there's the middle, and then the bottom 20% to 25%. That in-between price is what most producers are going to get, and it's probably going to be $1.00 or less.

    Just to be very clear here, what you're talking about when you say you see the crunch coming in November and December is strictly from the loan portfolio of the Farm Credit. We know municipal and school taxes are coming in October, some in September. There will be fuel bills. Many suppliers have already sent notices out to farmers saying if their accounts go into arrears for one month, they will be cut off--if you don't pay your bill every month, you'll have no credit.

    So that's what you're talking about when you say the crunch is coming in November, December, because the crunch is already here on most farms.

º  (1645)  

    Mr. John Ryan: The point I was trying to make when I talked about the November-December timeframe clearly relates to Farm Credit only, and that's for the bulk of our payments. And I don't even know at this point in time if it's fair to say the crunch will automatically happen, because I've found our producers to be so resilient, not on the BSE, but if I go back over the last few years, payments are being made.

    Mr. Howard Hilstrom: You see, the reason we've been able to do that is because we've cut the hell out of expenses and costs that we would normally have spent this summer on machinery and different infrastructure expenditures, like corrals and these things. That's why there's still some money sitting around on the farms, because the guys saw this coming in May and said they weren't going to spend a penny. So it's a delayed.... They have been trying to pay their bills.

    I don't have any more questions.

    The Chair: Mr. Duplain.

[Translation]

    Mr. Claude Duplain (Portneuf, Lib.): Thank you Mr. Chairman.

    I missed a part of the discussion because I was reading something. I hope that I won't ask you questions that have already been asked.

    We've been looking at arrears figures. Being in arrears does not necessarily mean that a producer is in a precarious situation. It is probably a difficult situation but not necessarily a precarious situation. Would you agree?

[English]

    Mr. John Ryan: I'm unable to hear the translation.

    Ms. Janet Wightman: The question was on whether or not they're in a precarious situation versus a very difficult situation, and the difficulty goes back to Mr. Hilstrom's point. We can respond only from what we see within our business and what we hear from our customers, and we're hearing the former--that is, that it's a very difficult situation and there is some optimism they will get through that situation.

[Translation]

    Mr. Claude Duplain: I have looked at the data for some sectors and the last document I read was on the dairy sector. It showed that in one region, 10 per cent of producers were in a very difficult situation.

    Does one see that throughout Canada or only in certain regions? Is this typical of one region, in the dairy sector, or is it something you have known recently?

[English]

    Ms. Janet Wightman: The performance we see within the dairy sector is very strong. If we monitor performance by means of arrears, the arrears in the dairy sector are very low--0.06% of our portfolio.

    It's a little more isolated. There's a lot of pressure on the size of operations in the dairy business. There's a lot of pressure on the cost of production. It isn't a simple answer, because we see strong stability in the dairy sector of our portfolio. That being said, we know there are reduced revenues and there are increased production costs. Therefore you have that margin squeeze. But again, those producers are still servicing their debt, from what our records show.

[Translation]

    Mr. Claude Duplain: I heard that certain agribusiness and agrifood operators wanted to develop but that they can't do so, not because of a lack of money but because of a lack of labour, especially in the meat packing sector. Apparently it is the lack of labour that is limiting their ability to be competitive.

    Have you heard of this? Have people or companies with labour problems come to see you to discuss possible investments?

[English]

    Ms. Janet Wightman: For larger operations in primary production and for the operations that would be value-added, that's probably the biggest difficulty we hear about, the labour market and the accessibility of employees. Whether it is large, intensive livestock operations or the value-added sector, we hear about it a lot. It tends to be, in the larger businesses, the number one issue for either producers or agri-business operators to manage.

º  (1650)  

    The Chair: Have you concluded, Mr. Duplain?

    Have you anything more, Mr. Maloney, Mrs. Ur?

    I guess because we are always given to understand that the dairy industry is the most highly leveraged sector of our farm economy in terms of the livestock end of it, I wonder if that is true to the portfolio you have with the sectors. Is the dairy sector the most highly leveraged sector you have? Is that reflected in your organization, or is it only through the banks?

    Ms. Janet Wightman: It would be one of the more highly leveraged, yes, and because of the stability within the sector, that's a viable way to run the businesses. It is one of the more highly leveraged.

    The Chair: It would be also fair to ask--because people are out there wondering--where you stand on the issue of the financing of quota.

    Mr. John Ryan: We made a very conscious decision that we would be financing quota. The challenge we have--and our producers--is not to end up over-financing or extending over too long a period of time, so we have a policy in place of a maximum of ten years over which we would finance quota. We happen to feel it needs to be financed, because quota prices, as you well know, have continued to go up. It is a real cost of doing business. We've set our limits in terms of degree of comfort from a risk management perspective to maximize at ten years on quota.

    The Chair: Did you watch the late-night news on the outcome of the Cancun conference? Were you watching in anxiety, as the dairy producers were?

    Mr. John Ryan: It's certainly been a hot topic of discussion, whether it's going to be here or not going to be here. But we see it as a good thing for Canada; we think it should be here. We're hoping that we're going to be able to protect our supply management.

    The Chair: On behalf of the committee members, I want to thank you once again.

    Mr. Duplain.

[Translation]

    Mr. Claude Duplain: I just have one question. Your financing takes place over 10 years. Can I conclude then that a normal dairy farm should become profitable enough to pay for its quotas over a period of 10 years? Would that be a fair interpretation?

[English]

    Mr. John Ryan: When I made reference to ten years, it was for quota alone. We could be financing the real estate, the land and the buildings, for a longer period of time. It could go to a maximum of as high as 29 years—although we don't see many at that level. The equipment could be as low as five years. But certainly from a dairy perspective and the financing quota, we're looking at a maximum of ten years.

    The Chair: I want to thank you, on behalf of the committee members, for appearing again. It's not because you haven't wanted to come, but because haven't asked you. We thank you for coming on such a timely occasion as this. We've had more pleasant historical occasions when we've met than we do at this time, because of the BSE crisis. But we will come through this. As you said earlier, farmers are very resilient, and they will bounce back in some form—maybe differently, but they will be there.

    As always, and I think I speak for probably all the members here, we see people on the front lines who know the industry. From a Farm Credit Canada perspective, we don't have a lot of problems in our constituency offices—at least speaking for myself, and I trust that's true of the others. I'm not aware of members who seem to have problems from the perspective of people on the front lines who are actually servicing our rural communities.

    I want to thank you for the work you're doing. I think you've presented your case well today, and we look forward to meeting again some time. Thank you very much.

    The meeting stands adjourned.