[Recorded by Electronic Apparatus]
Thursday, May 11, 1995
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[English]
The Vice-Chairman (Mr. Assad): Members of the committee will come to order, and we'll welcome our guests here today.
Maybe Mr. Vanclief can introduce the gentleman at the table with him. I believe Mr. Vanclief also has some opening statements. Is that correct?
Mr. Lyle Vanclief (Parliamentary Secretary to the Minister of Agriculture and Agri-Food): Thank you very much, Mr. Chairman. It's a pleasure to be here with the officials this morning.
In order to make sure we get everybody's titles properly, I'll ask Mr. Phil Jensen to give his proper title and introduce the other two officials with us this morning.
Mr. Phil Jensen (Director General, National Marketing Programs, Agriculture and Agri-Food Canada): I am director general of national marketing programs in Agriculture and Agri-Food Canada, which is the directorate within the department responsible for FIMCLA, among other programs.
I have brought with me today the individual directly in charge of the program, Gabriel Lanthier, and from our departmental legal services, Diane Filmore, who has been involved in the drafting.
Mr. Vanclief: Thank you very much, Phil.
Mr. Chairman, I'll make some brief opening remarks on this amendment to the Farm Improvement and Marketing Cooperatives Loans Act. We are seeking an amendment to the act in order to increase the aggregate principal amount of loans allowed under the act from $1.5 billion to $3 billion. This is necessary to increase the aggregate loan limit because of the growing demand for credit by producers and marketing cooperatives.
Loan activity under this program has been increasing substantially because of a number of things, such as sustained lower interest rates and an improved farm debt situation, greater participation by independent rural lenders, improved marketing of the program, and increased competition between financial lending institutions.
The program is certainly an inexpensive way for the government to support the agrifood sector. Historically, we're pleased to say that the net loss has been only 1%. When we look at it over a long period of time, compared with some other loan guarantee programs, we in the agrifood industry can be proud of the repayment rate that has been made.
The program is certainly supported by the major farm groups and by commercial lenders. Concerns have been raised at times about duplication, both federally and in terms of overlap with provinces. There are only two provinces, however, that have similar loan guarantee programs, the province of Quebec and the province of Alberta, but with these two provinces activity under FIMCLA has increased dramatically since 1991-92. So it shows that this program is a very popular one.
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This is the only national loan guarantee program that can be accessed by farmers and farmer-owned marketing co-ops across Canada. The Farm Credit Corporation was amended in 1992 to give the FCC the authority to make loan guarantees, but it does not guarantee loans made by competing commercial lenders.
The FCC authority is used to assist in the inter-generational transfer of land where the corporation can guarantee a percentage of a vendor take-back mortgage.
Through FIMCLA farmers get a better interest rate than is normally available, usually around 0.5% to 1% below the prevailing rates. They are also allowed to borrow with a minimum equity of 20% investment in new machinery, technology and facilities, whether they are investments in alternate farming practices or initiatives.
Since the six major banks and other lenders, such as the caisses populaires and credit unions, are designated under FIMCLA, the program is available to more farm borrowers, because the FCC does not have offices in every rural centre. It's not that the FCC is not accessible to farmers, but when access to a good program such as this is available at your lending institution, it just becomes easier to talk about and take part in.
Additionally, we understand that if this type of coverage or guarantee were given by the Farm Credit Corporation, banks, for understandable reasons, would be uncomfortable with the Farm Credit Corporation, which is a competitor, if it were to audit their books for who they had taken participation in with producers or co-ops with FIMCLA.
The situation we're in, ladies and gentlemen, is that should the status quo be maintained, thereby keeping the aggregate limit set at $1.5 billion, this would mean we would have to suspend the program in the very near future, because we could not proceed if the aggregate limit went above that. The department has to give the providing lenders a 60-day notification period, and since we expect to reach the $1.5 billion limit by the end of July of this year, this means that unless the amendment is passed in the very near future, we will have to suspend the program temporarily. I think all parties and everyone will agree that because it is such a useful program, that is not our desire.
I would ask you to take a quick look, in the packet that was handed out today, at the growth of the program in the last number of years. The colour chart certainly shows that very quickly. On the bottom left-hand corner you can see that the number of historical registrations in 1990-91 was close to 4,900. By 1994-95 it's approaching 20,000 registrations.
When we look at the dollars, in 1990-91 there was nearly $82 million worth of loans, but in 1994 that has grown to $551 million worth of loans. So you can see how quickly we have approached the total of $1.5 billion. It's anticipated that growth in 1995-96 will continue at the rate it's at, and maybe a little bit larger than that.
There are some other charts in that package we will all find interesting - for example, the rate of growth of the use of the program in the province of Quebec. Some charts show that in 1990-91 there were 142 applications and loans granted; in 1994-95 there were 1,700. There was similar growth in Alberta.
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Maybe I shouldn't make the comment, but I find it interesting that the rate of growth in some provinces is not anywhere near the rate of growth it is in others. We note from the chart that Ontario, for example, doesn't seem to have grown at the rate of some of the others.
Mr. Chairman, back to you. There may very well be questions or comments from members here today. The officials will assist in helping provide any answers to those questions or comments.
The Vice-Chairman (Mr. Assad): Thank you, Mr. Vanclief.
Before we proceed to clause 1 of Bill C-75, would some of the members have any brief questions? I presume this is the purpose of our meeting.
Mr. Pickard (Essex - Kent): Possibly federal funding is in jeopardy. Because it's a loan and there are defaults on loans from time to time in a co-op program, what is the departmental risk assessment to where you're heading with this increase? You're basically tripling - at least the numbers that I see from your vote - and then going above and beyond that to almost six times.
Mr. Jensen: I'm not quite sure I understand all of your question, because what we're asking for is a doubling of the aggregate amount that can be guaranteed. Perhaps a bit of background would be in order.
The cap on what the government can guarantee is a five-year rolling average. So starting this year we will pick up this year's guarantees and drop off the numbers from five years ago, which Mr. Vanclief referred to as about $81 million. So we're adding in $550 million and we're dropping off $81 million. You can see we're going to reach the $1.5 million pretty quickly.
We think the $3 billion we projected will cover us for probably at least four or five years. We don't expect loan activity to continue at an annual guarantee of $550 million. We expect it to drop off a little bit to between $500 million and $525 million, which would mean the $3 billion should be okay.
What we're asking for in this amendment is only the authority of the government to approve these loans. The funds come from the banks. The part the government is liable for is the defaults. As we said earlier, the defaults have ranged between 1% and 1.5%. They're very low. We're talking literally in the range of $4 million or $5 million.
If one were to take just a straight projection on the increase, you would have a $1.5 billion increase and 1% of that would be $15 million. So that would really be the department's exposure. The $3 billion is not what we've been experiencing for the past 25 years. The losses have been way, way lower. It's been one of our least costly programs in terms of cost to the department.
Mr. Pickard: Thank you. That clarifies both points.
The Vice-Chairman (Mr. Assad): I understand we have a motion by our colleague, Mr. Kerpan. I've been told that it's in order. You may speak to your motion.
Mr. Kerpan (Moose Jaw - Lake Centre): I'm sure everyone has in front of them a copy of my motion this morning. It is in both official languages.
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Basically I'm not here to criticize the program, because I do believe that the program is very popular and very sound throughout Canada, as Mr. Vanclief stated.
My concern with increasing the limit to $3 billion is I think it's important we include in the $3 billion any outstanding amounts of loans or commitments from previous years. I think we have a responsibility and a duty as the government of this country to make sure we are still responsible for any outstanding amounts that have been lent through this program. If we want to make this program very transparent and very open and honest with people then we should in fact include any outstanding amounts from previous years.
It's very simple. That's basically all that is included in this amendment. I look forward to any comments. And I'm certainly looking forward to the support of the committee.
Mr. Pickard: I think, Mr. Kerpan, from the explanation I got from the department, the outstanding loans of the past are rolled in. So that is there. That is already taken care of in the bill.
Mr. Jensen: That's essentially accurate. If I understand the amendment correctly, and if the amendment is accepted, we'd really be doing a double counting, because they're counted once when we come in and approve them, and then later we pay for the defaults, which I indicated are very low. But the fact that we're rolling the average forward does not mean we haven't already accounted for them.
When previous changes were made to this act, the $1.5 billion was fixed at that level because the ministers of Treasury Board and Finance at that time didn't want an unlimited liability on the government. So they had to pick and figure and that was the figure they picked. But the actual exposure of the government has already been counted. It's a rolling average. That's really what we're amending. That's the only amendment to the act.
Mr. Kerpan: In your opening statement you mentioned you had dropped off $81 million from a prior commitment term and added in $550 million. Where did the $81 million go?
Mr. Jensen: This is only a mathematical calculation. With a rolling five-year average, the act requires us not to exceed $1.5 billion. The $81 million is dropped off for that mathematical calculation and the $550 million is added in.
If you go back five or six years, a large percentage of those loans are already paid for. Some are in default. The ones that are in default are in our books and are under that 1%. From an accounting standpoint, from the standpoint of the government's financial exposure, they have already been counted. In fact, if you go back as far as the loans might be there -
What, Gabby? Is it eight or ten years?
Mr. Gabriel Lanthier (Officer, National Marketing Program, Department of Agriculture and Agri-Food): A maximum of fifteen years for them.
Mr. Jensen: Some I guess to fifteen years. They've been counted once. I can't explain it. I wasn't around then. I don't know why they come up with a five-year rolling average, but that was the mathematical mechanism they put in place and that's what we're living with.
As you may be aware, they have a similar provision under the Small Businesses Loans Act, which has just been amended. There was an increase there because there was demand for that program too.
I think the best way to look at it is simply limiting the federal government's financial exposure over that period of time was where they came up with the $1.5 billion. Yes, those previous loans have been counted.
Mr. Kerpan: If I'm a farmer and ten years ago I borrowed $110,000 and I've either defaulted or still owe a portion of that $100,000, are you guaranteeing me then that $100,000 or any outstanding amount would be included in this $3 billion?
Mr. Jensen: In one way or another, yes. If you're in default it would be included in our default calculations, because the bank would have turned it over to us. If you aren't in default, you're still making your payments to the bank, and it would have been calculated in our mathematical calculation. But we're still liable for that default.
I think the point to make is there are many sections to the act, but we're really talking here about two sections of the act. The one section we're trying to amend through this process is just to raise the aggregate cap for this five-year rolling average. Loans don't go into that default section until they're actually in default.
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So if you were a farmer and in good standing, you'd still be making your payments. It wouldn't have come back to us yet, because the government wouldn't be in a position where it would have to guarantee the loan. It's still the bank's money, if you see what I mean. We've got the guarantee out there, but we don't need to use it because you're in good standing.
Mr. Kerpan: But we were still, in effect -
Mr. Jensen: You've been counted against the $1.5 billion.
Mr. Vanclief: Yes, the government's liable. I think what we've got to make clear here is that the $3 billion is the total of the principal borrowed over the last five years. And immediately after one year some of that is no longer owed because payments are made on it.
Mr. Kerpan: Yes, correct.
Mr. Vanclief: So it's a method of controlling how much goes out. And for that very reason, if we weren't doing what we want to do with this amendment today, there would be no more money available in this program.
Mr. Kerpan: I understand that.
Mr. Jensen: There may be another part that would perhaps reassure Mr. Kerpan a bit on the terms of the exposure of the government's individual banks. I'll just ask Mr. Lanthier to explain that if he would.
Mr. Lanthier: I think what you're asking concerns another section of the legislation, which controls the maximum amount of money we can pay out to any lender on the volume of business he gives us in any given year. We keep track of that. The amount of payments we can make to a lender is controlled by this section of the act, which tells us that any loans you haven't defaulted that were granted in that year are controlled by the volume you made during that year, and if you exceed that then we don't pay you any more. You've already received the maximum you can get under the guarantee. That's what you're talking about.
Mr. Kerpan: My basic concern is that this government would never be responsible for more than $3 billion, whether that's a new loan, an outstanding loan or a defaulted loan. That's the intent of this amendment.
Mr. Pickard: Over a five-year period. So it would continually be rolled in so that it always remains at the maximum.
Mr. Kerpan: Yes, but I'm not talking about a five-year period. I'm talking about since day one of FIMCLA.
Mr. Pickard: That's exactly what they're doing. It rolls back in every year.
Mr. Kerpan: As long as I have that guarantee, I have no problem with that. Then there would be no need for this amendment.
The Vice-Chairman (Mr. Assad): That brings you the question, Mr. Lanthier, do you have anything else to add?
Mr. Lanthier: The maximum then is a percentage of the volume. So when you say the maximum the government is liable for is 10% of $3 billion or the amount of the loan, actually, I should say 10% of $500 million granted that year is what we're liable for. So if you keep adding that up you'll see.... But of course you have to remember that the loans are being paid out.
Mr. Kerpan: Correct. Yes, I understand that.
The Vice-Chairman (Mr. Assad): Considering the explanations given, Mr. Kerpan, it's in your domain right here. Do you withdraw the motion?
Mr. Kerpan: I withdraw that motion.
Clause 1 agreed to
The Vice-Chairman (Mr. Assad): Shall the title carry?
Some hon. members: Agreed.
The Vice-Chairman (Mr. Assad): Shall the bill carry?
Some hon. members: Agreed.
The Vice-Chairman (Mr. Assad): Shall I report the bill to the House?
Some hon. members: Agreed.
The Vice-Chairman (Mr. Assad): Thank you.
This meeting is adjourned.