Proceedings of the Standing Senate Committee on
Agriculture and Forestry
Issue 30 - Evidence - June 5, 2007
OTTAWA, Tuesday, June 5, 2007
The Standing Senate Committee on Agriculture and Forestry met this day at 7:37 p.m. to examine and report upon rural poverty in Canada.
Senator Joyce Fairbairn (Chairman) in the chair.
[English]
The Chairman: Good evening, honourable senators and witnesses.
As our committee has learned, rural Canada means much more than just agriculture. It also includes communities and regions dependent on forestry, mining, fisheries and even manufacturing. That said, the agricultural sector has been and remains very near and dear to this committee's heart. In fact, our initial interest in the rural poverty study was driven by mounting evidence of serious problems down on the farm. It gives me great pleasure, therefore, to welcome this evening three witnesses from Statistics Canada who are here to share with us information about the latest farm income statistics and the early results of the 2006 agricultural census.
We have with us Denis Chartrand, Director of Statistics Canada's Agriculture Division; Cathy Cromey, Chief of Statistics Canada's Census of Agriculture in the Agriculture Division; and Marco Morin, Chief of Statistics Canada's Farm Income and Prices Section in the Agriculture Division.
Denis Chartrand, Director, Agriculture Division, Statistics Canada: Thank you very much. It is with great pleasure that we are here today to brief senators on the highlights of our 2006 Census of Agriculture and also the May 28 release on aggregate farm income that was released by Statistics Canada. The presentation today will be in two parts. I will make the introductions, but I will have my colleagues talk to the committee. Ms. Cromey will talk about the 2006 Census of Agriculture, while Mr. Morin will be talking about the highlights of the aggregate farm income release that we had recently.
Before Ms. Cromey covers the highlights of the 2006 Census of Agriculture, I wish to note that the census is held every five years to provide a comprehensive picture of the industry. It is a unique source of national, comparable data at the small area level down to the municipal level. The May 16 release of the agriculture census is part of a series of data releases that is and will be available to the public and the provinces on the Statistics Canada website. The census also provides information on the key structural changes and trends that affect this important industry over time.
Ms. Cromey's presentation will be followed by a review of the highlights of the 2006 aggregate farm income estimates, which will be presented by Mr. Morin. The aggregate net farm income estimates provide an early and timely indicator of what is happening in the agriculture industry. However, for an in-depth analysis of the performance of the different sub-sectors of the industry, for example, field crop, beef, poultry, horticulture, dairy, et cetera, it is important to use complementary sources of information on farm types and size, as these sub-sectors are often subjected to different constraints and situations. Also, the concepts used for the production of our aggregate farm income series reflect the need to provide economic data at the provincial level for the system of national accounts. These concepts will be noted in the presentation later, but it is important to remember that we need to properly interpret and compare different data series.
It should also be noted that the annual aggregate data series is complemented by two important collection activities at Statistics Canada: the farm financial survey and the tax data program. They provide data on assets and liabilities, and farm cash receipts and expenses respectively at the farm type and size level. These complementary sources help provide a better understanding of the behaviour of different sub-sectors of this important industry when facing constraints or situations that are difficult for them.
At this time, I would invite Ms. Cromey to provide you with the highlights of the 2006 Census of Agriculture. We will be following the order of the slides that are presented in the booklet. We would appreciate it, if it is acceptable with the committee, that questions are limited to items of clarification during the presentation, and we will be more than pleased to cover the detailed questions you may have at the end of the presentation.
Cathy Cromey, Chief, Census of Agriculture, Agriculture Division, Statistics Canada: Good evening, honourable senators. As I go through the presentation this evening, you will see that farm numbers have declined 7.1 per cent since 2001, but the decline is 3 per cent less than the decline between 1966 and 2001. This decline does not tell the whole story. Farm operators are finding different ways and means to maintain financial stability. They are doing this by becoming larger or diversifying or finding niche markets.
With respect to census farm numbers, the definition of a census farm remains the same. It includes all farms that sell or intend to sell agricultural products. Thus, the definition includes very small operations just starting up, the more traditional family farm and the very large corporations. The number of farms on May 16, 2006 was 229,373. This is a 7 per cent decline since 2001.
If we look at the farm numbers by province, this slide shows that all provinces lost farms. Ontario still has the most farms, at just over 57,000, while Newfoundland had the least, with only 558. Only Newfoundland and Saskatchewan reported declines of over 10 per cent, although Saskatchewan had the sharpest decline in number of farms, at 6,269 farms.
I will now speak about land areas, crops and livestock in Canada. The average farm area remains stable between the two censuses despite the drop in farms and now stands at 167 million acres. Looking at the Canada column, we see that the average farmland per farm has increased by 8 per cent, to 728 acres in 2006. We also see that Saskatchewan farms are the largest, with an average land area of 1449 acres, and Newfoundland and Labrador are the smallest, with an average of 160 acres.
The transformation occurring in agriculture is well illustrated by the crop sector. Area planted to field crops is down 1 per cent nationally, but farmers are changing the types of crops they are growing. If we look at our failed crop distribution graph, we see that wheat and other grains have decreased again. Wheat is still our largest crop, but it had a 10 per cent decline. Other traditional grains, such as barley and corn for grain, also declined, but you must remember that the census data was collected a year ago, before the ethanol push that is currently encouraging increased area seeded to corn.
Since 1976, the proportion of land planted to oilseeds has increased almost six-fold. Canola is the dominant oilseed grown in Canada. Increased demand for canola is based on the health benefits of its oil and the prospect for using it in the production of biodiesel. Pulses, such as dried field peas, lentils and field beans, which had increased 190 per cent from 1966 to 2001, have now experienced a 22 per cent decrease. Hay and other fodder crops have increased 9 per cent since 2001, and 49 per cent since 1986. This is due to increased cattle numbers.
Our next slide shows the provincial levels of cropland and the percentage changes since 2001. Cropland decreased in six provinces, B.C. showing the largest decrease with 5 per cent less acreage. Ontario had a marginal increase, and Quebec had a 4.5 per cent increase. This is due, in part, to increases in livestock inventories and the need for more land on which to spread manure as required by provincial environmental legislation. Saskatchewan continues to have the lion's share of Canadian cropland, at 42 per cent of the total.
Looking at cattle and pigs, we see that the number of cattle and calves on Canadian farms rose over 1 per cent between the two censuses, to a record census value of 15.8 million head. Farmers also reported a record number of pigs, with just over 15 million, an 8 per cent increase. Not shown on the graph but worth noting is that the average number of pigs per farm increased 45 per cent, from 902 head to 1,308 per farm. More than half the pigs are in Quebec and Ontario.
Farmers are adapting to change by diversification, exploiting niche markets or by increasing the scale of their operations. Organic production has increased. Consumer demand for foods produced without the use of commercial fertilizers, pesticides or genetically modified organisms is responsible for this growth. There are now 6.8 per cent of farms in Canada reporting at least one type of organic production.
For greenhouses, the total area under cover has increased 21 per cent since 2001, to a record 239 million square feet. Greenhouse vegetables surpassed greenhouse flowers for the first time as the main greenhouse product.
Nursery and sod area both experienced significant increases since 2001, and this is largely due to the increased housing starts in many parts of the country.
Fruit area also increased by 5 per cent, but this is due to blueberries and grapes. On the other hand, apples and strawberries decreased, due to a strong import market. Also worth noting is that cherries are starting to grow in the West, due to a new cultivar that has been developed at the University of Saskatchewan.
With respect to alternate livestock, bison numbers have increased by 35 per cent, llamas and alpacas have increased by 23 per cent, while we see a 10 per cent decrease in sheep and a 3 per cent decrease in goats. Farms are getting bigger, as seen by the increasing average area of farms and the trend toward more farms in higher receipt categories.
Moving on to the financial picture, the agriculture census collects data on the total operating expenses, and this does not include depreciation. It also collects gross farm receipts, which do include government program payments. Please note that although the census is taken in 2006, expenses and gross farm receipts relate to 2005.
In the first slide, we see that farms are getting larger over time, despite the fact that there are fewer farms. There are more farms with $250,000 or more in gross receipts, and this is at 2005 constant prices. We see that 17 per cent of all farms had receipts of at least $250,000 in 2006, and these farms accounted for almost 75 per cent of all the gross farm receipts. This is compared to 14 per cent of farms with 68 per cent of all the gross receipts in 2000.
Although not shown on the graph, it is interesting to note that 2.6 per cent of all farms had receipts of at least $1 million, and this was an increase of 8 per cent since 2001. These farms represent 40 per cent of the gross farm receipts in Canada.
The next slide shows the amount spent on operating expenses for every dollar of gross farm receipts received. Please note the total expenses reported to the census do not include depreciation. If they did, these ratios would be higher.
In 2005, the average farm spent about 86 cents on expenses for every receipt dollar. Comparably, 87 cents was spent for a dollar of gross farm receipts in 2000. Quebec had the lowest expenses to receipt ratio at 82 cents, and this is primarily due to the dominance of the dairy sector in that province. Saskatchewan had the lowest expense to receipts ratio in 1995 at 77 cents, but grain prices were very strong at that point in time.
We also see that Prince Edward Island had the largest increase since the last census, from 85 cents to 90 cents, and this was mainly due to decreases in potato production and increased input costs such as fuel and fertilizer.
Not shown in this table but significant to note is that these ratios also differ by the types of products produced on the farm. For example, dairy farms spent the least in operating expenses per dollar receipts at 73 cents, while cattle farms and all other animal production spent the most at 93 cents.
We see in this next slide that even though size is important, bigger is not always better. No matter how large or small the farm, some operations in every receipt category report higher expenses than receipts.
At the national level, the share of farms with gross farm receipts greater than that of operating expenses has decreased slightly from 56.9 per cent to 55.8 per cent. In general, small farms are more likely to have difficulty covering their operating expenses. However, almost 30 per cent of the farms with receipts less than $25,000 did report higher receipts than expenses, and this was up slightly from 2001.
For some of the smaller farms, this is a lifestyle choice. While for others, it is a real reminder of the struggle to continue farming. Farms entering the sector are also more likely to be small and suffer from high start-up costs while they establish a market.
The census also provides data on total farm capital. The value of livestock and poultry decreased 28 per cent since 2001, and this is primarily due to a drop in cattle and hog values. The value machinery was up by 9 per cent over the same period. The 26 per cent increase in total farm capital is primarily due to the 38 per cent increase in the value of land and buildings. It should be noted that the land values are based on respondents' estimates and are often based on the highest potential value they could receive, which in many cases is for non-agricultural use. Rising land values are a two-edged sword. While it increases farmers' wealth on paper, it also makes it more costly for farmers to purchase or rent land. It may also entice farmers to quit farming and sell off their land.
The census also has demographics about the people who make the day-to-day management decisions, the farm operator. This graph on age distribution illustrates the trend that an increasingly older farm operator population continued in 2006.
In 1991, the number of operators under 35 years of age accounted for almost 20 per cent of farm operators. In 2006, they accounted for only 9 per cent. Even the 35 to 54 age group — the largest of the three groups that had climbed between 1991 and 2001 — lost share in 2006. Conversely, the proportion of operators over the age of 54 has climbed again and now makes up just over 40 per cent of all operators in Canada.
The following table, on-farm work and off-farm work, demonstrates that full-time work on the farm — more than 40 hours per week — has decreased just slightly from 47.7 per cent to 46.7 per cent. Part-time work by the operators on the farm — less than 20 hours per week — has increased from 25.4 per cent to 27.2 per cent. Conversely, full-time work off the farm — more than 40 hours per week — has increased about 3 per cent from 2001, and part-time work has also increased.
I now pass it over to Mr. Morin, and he will be talking about net farm income.
Marco Morin, Chief, Farm Income and Prices Section, Agriculture Division, Statistics Canada: As an introduction, on May 28 we published at Statistics Canada the values of net farm income for 2006. These values represent an aggregate picture of the farm income situation at the national and provincial levels. They measure farm business income, which includes the revenues from agriculture activities but excludes other sources of income earned by the family farm members.
These measures are not directly comparable to those published by the Census of Agriculture. One of the main differences is that aggregate figures exclude inter-farm sales within the same province to comply with national account concepts. These concepts look at the final farm output at the provincial level. In addition, depreciation is part of the aggregate measures.
Please note also that the aggregate farm income includes all farm types and sizes. Therefore, when one wants a better understanding of the factors influencing this industrial trend, he or she needs to look at the farm sizes in agricultural sectors, as noted by Ms. Cromey previously, since there are significant differences in this dynamic industry.
Looking at the next slide, there is a formula on the page that shows how we calculate realized net income. Among the measures of aggregate income, we have three measures of farm income. However, net income is the most common one used by the agriculture community. As you can see, it represents the differences between a farmer's cash receipts and operating expenses minus depreciation plus income in kind.
On the next slide, there is information on realized net income for 2005 and 2006. The results for 2006 show an annual decline in realized net income between 2005 and 2006. In 2006, as you can see, the value of realized net income stood at $1.1 million.
By looking at the three main components, which are cash receipts, operating expenses and depreciation, we can see that farm receipts edged up 0.6 per cent to $37 billion. This reflects the Canadian level, and we can explain it as stronger crop revenue and declining livestock receipts and program payments.
I will spend slightly more time on this slide since it is important to explain some factors behind the numbers.
I just said that one of the reasons is the stronger crop revenue, and the recovery in crop revenues in 2006 was held by increases in both deliveries and prices. Prices especially gained strength during 2006, as the biofuel industry expanded and adverse growing conditions were experienced by some of the major growing exporting countries. Late in the year, prices also benefited from the improved harvest conditions in 2006 that resulted in higher quality crops to market.
Also, under the cash receipts line — for the livestock sector this time — hog producers saw their receipts go down from 2005. Prices were the main factor, averaging almost 13 per cent below those of 2005. Increased cattle and calf receipts moderated the drop in livestock revenues as cattle exports regained their strength following the reopening of the American border to live cattle under 30 months of age on July 18, 2005.
Finally, the third component of receipts, which are payments, after three consecutive years of increases, these program payments declined from the record level of 2005. Here again, an explanation is very important as program payments reached records between 2003 and 2005, further to the droughts experienced in 2001 and 2002 and the discovery of the first mad cow disease or BSE case in Canada in 2003.
If you go back to the slide, the second line is the total operating expenses and, on this side, higher interest rates as well as higher energy and labour costs drove farm operating expenses up 3.3 per cent to $31.5 billion. Interest expenses increased as prime business rates jumped by over 30 per cent to reach almost 6 per cent on average in 2006, while one- year mortgage rates rose by more than 20 per cent to almost 6.5 per cent on average from their recent lows of the past couple of years. Another item included in the calculation of interest expenses is farm debt, which continued to rise in 2006.
Although fuel price increases did moderate in 2006, price rises in biodiesel and gasoline were the major contributors to the climb in machinery fuel costs. Labour costs also continued their assent in 2006 as farm operators struggled to find workers in an increasingly tight labour market. Finally, the third main component is total depreciation and, as you can see, it remained around $4.6 billion in 2006.
The next slide shows the same three components but by province. There is a chart with all the bars showing the data. The bars reflect the share of the agriculture economy among the provinces; Ontario comes first, followed by Alberta, Saskatchewan and Quebec. This is a pattern that remained relatively constant in the positions of the provinces throughout the most recent years.
For the next slide, when we released our data on farm income last week, we also published figures on farm debt outstanding. The figures that I will give you are not shown on the slide, but they showed that farm debt outstanding at December 31, 2006, rose 4.6 per cent to $52.3 billion, continuing the steady upswing since 1993. However, this presents, of course, only a part of the picture because a more complete balance sheet of the farm sector for 2006, including assets, liabilities and equity will be published by Statistics Canada in two weeks from now. The 2005 figures are available, and you can see them on the slide compared to 2004. This information for 2005 shows that the aggregate figures for the farm sector equity in Canada increased 3.3 per cent in 2005 to $192.2 billion as assets rose more rapidly than liabilities. On the asset side, the value of farm real estate continued the steady growth started in 1988. It advanced 2.6 per cent in 2005 and was an important contributor to the increase in assets.
For farm liabilities at the end of 2005, they reached $46.8 billion, up 4.6 per cent from 2004 and also the twelfth consecutive annual rise. Both current and long-term liabilities advanced by more than 4 per cent in 2006 compared to 2005.
With all this information we can calculate a debt-to-asset ratio, and this debt-to-asset ratio remained around 19 per cent during the last three years, which means between 2003 and 2005.
As we said at the beginning, these are aggregate figures and if we want a more detailed analysis of the situation and a better understanding of what is happening with the dynamic of the farm industry, it is important to look at information by farm size and by farm type. For my last two slides tonight, I will present information from another source that we have at Statistics Canada called the Farm Financial Survey. It shows information on a class of revenue for three variables: Total assets, total liabilities and net worth, and there is the average per farm.
This information shows that the value for the three variables grows as the revenue class increases, giving a different picture of the situation depending on the size of the farm rather than having aggregate information.
Finally, on the other slide, there is the same information but this time for selected farm sectors. As noted, the picture of the situation varies greatly among them. Beef cattle farmers have the lowest figures on average for the three variables. Poultry farmers have the highest values of assets and net worth, while dairy farmers have the highest value for liabilities.
The Chairman: Thank you very much. That was extremely interesting, and we certainly need to know this.
Senator Callbeck: On the census farm numbers, a census farm, as I understand, could be a farm that gets $500 for maple syrup, or it could be a farm that brings in $2 million for potatoes; in other words, they are all lumped together.
Ms. Cromey: The census collects data on all farms in Canada regardless of size; that is right.
Senator Callbeck: In the farm numbers, it shows that they have gone down. Those numbers include the $500 maple syrup farmer in there with the $2 million potato farmer.
Has any consideration been given to putting revenue restrictions on the definition of a census farm?
Ms. Cromey: We do not, because of the collection process. We have people self-identify, which is easier than going out and saying there will be a cut-off rate; because then we would not be able to find those cut-off rates.
Also, revenue changes from year to year. We use the census figures for five years for our survey program, and one year some farms could be below the cut-off and the next year they could be above the cut-off. Therefore, the census always collected all sizes. However, we disseminate data broken down by the different sizes. Although we collect all sizes and we have the numbers for them, we can break it out and say which ones are in the higher classes and which ones are in the lower classes.
Senator Callbeck: What about hobby farms? Do you know what percentage of these farms would be hobby farms?
Ms. Cromey: At this point in time, we do not ask for a definition of ``hobby farms'' on the census. Next year, however, we will have the results of the census population agriculture linkage database, where we bring the two databases together. At that point in time, we are able to classify the farms either into lifestyle farms or into professional farms.
Senator Callbeck: On page 6, you mention organic production is at 6.8 per cent.
Ms. Cromey: Yes, 6.8 per cent is organic production.
Senator Callbeck: Has that figure gone up much in the five-year period?
Ms. Cromey: It is hard for us to tell if the number has gone up much in the five-year period. In the 2001 census, we asked for certified organic farms only. This time we asked for farms reporting to be organic by certification, transitional or non-certification. There has been an increase in certification by about 2 per cent, but we did not ask the full question in 2001.
Senator Callbeck: Are there some provinces where that increase has been stronger than in others?
Ms. Cromey: British Columbia has a large number of organic farms, as does Saskatchewan. Often, people producing certified products are in our grains. They become certified because they need it for the world markets. Saskatchewan also has a high number of certified farms.
Senator Callbeck: Do Saskatchewan and B.C. have a high number?
Ms. Cromey: In Saskatchewan, there was an increase of 52 per cent in certified farms.
Senator Callbeck: What about their size?
Ms. Cromey: On the certified organic farms, many are in the less than $25,000 category and some of our larger grain farms are in other categories also. About 1 per cent of these farms are in some of the larger receipt categories.
Senator Peterson: I would like some clarification, on page 7, of operating expenses and gross farm receipts. Is off- farm income included in there?
Ms. Cromey: Off-farm income is not included.
Senator Peterson: In Alberta, the graph shows 12 million less acres of farm land and yet cash receipts of $1 billion more than Saskatchewan, just comparing those two provinces.
If you go to page 5, the crop land area by province, Alberta has roughly 12 million less acres.
Ms. Cromey: Yes.
Senator Peterson: You then go to the farm income, cash receipts and operating expenses, by province, in 2006. That is on page 12. Alberta is roughly $1 billion more than Saskatchewan. What am I reading wrong there? What is happening there?
Ms. Cromey: You are looking at crop land. You are looking at the acres on the one slide. Alberta has less acreage but when you look at the cash receipts for Alberta, that would include cattle farms and all other farms, not just acreage.
Senator Peterson: Probably much of it would be cattle.
Ms. Cromey: There are a lot of cattle in Alberta.
Senator Peterson: There must be quite a lot of cattle.
Do you have numbers for the cumulative shortfall in farm revenue today? We have heard numbers in the range of $5 billion. Is that close to being accurate? This is accumulated to date. That is, if one wanted to get the whole agriculture sector back to zero, one would have to put in about $5 billion. Does this sound anywhere near the correct figure?
Mr. Morin: I am trying to understand the meaning of your question.
Senator Peterson: I am talking about cumulative debt that has been building up. We were told at a previous meeting it is high. We need that much injected back in to give farmers the money so that they can start over again. We have been told that the numbers have been negative over the past years. I am trying to get a handle on how bad the situation is out there.
Looking at this, it would seem to be all positive. We have been told maybe it is not that good. Perhaps we are talking about two different things.
Mr. Morin: My understanding of your question is that it is related to farm debt as I covered in my presentation. Is that correct?
Senator Peterson: That is kind of what I am getting at. A number of farmers are carrying accumulated debt and cannot keep that going forever. We are trying to find out what it would take to get that number down to zero. Maybe you do not have those numbers. We had been told it is around $5 billion.
Mr. Morin: The figures that we have at the aggregate level on farm debt, as I said before, for 2006 was over $52 billion, and it has been increasing since 1993. Over the past 14 years there has been a steady increase.
The information that we collect and publish is information that comes from the lenders themselves; that is, the banks, the credit unions, the government organizations, and so on. In that sense, this is how I can shed some light on the trends and how we publish information.
Your question is about how to reduce that. You are going a step forward in your question, am I correct?
Senator Peterson: If we are to come to grips with the problem in agriculture, we have to identify what the problems are, what the accumulated debt is and what we have to do to make it viable in the farm community. What will it take? These are some of the numbers we heard earlier. Maybe it is an accumulated operating debt. Did you say it was $52 billion?
Mr. Morin: Yes, this is what we have at the aggregate level. We had other information about the assets and the equity. These figures are also increased over the same period of time, since the early mid-1990s to now. If you want a better understanding, this is why I included an emphasis on farm sizes and farm types. You can see that at this level it is always the same information that we get from the aggregates. If you want to go further, you can look at each individual farmer to see how they deal with farm debt, and so on. Maybe some of them are heavily into debt, but maybe others use it for investment. When you look at farm assets and equity, part of it is there because these two figures are also increasing.
Senator Peterson: Is foreign exchange an issue?
Mr. Morin: For farm debt?
Senator Peterson: No, for the whole sector; that is, the Canadian dollar versus the American dollar.
Mr. Morin: When we export grains, oilseeds, hogs, cattle, all those commodities where the export market is important, Canadian dollars compared to American dollars are important. It is not an explanation that I gave during my presentation tonight, but for some of them it is important. We can see some trends over time.
Senator Peterson: Do you have a number for each cent the dollar goes up versus the American dollar and what the impact is on the sector?
Mr. Chartrand: No, we do not have a figure like that here. The pressure on currency affects us because agriculture depends on exports; it is a big exporter.
Senator Peterson: By the end of this year the Canadian dollar could be at parity with the American dollar. We may have to look at that moving forward; it will have a dramatic effect.
Senator Gustafson: To get a fair picture of what is happening in agriculture, in my mind, we have to take away what is happening in the marketing boards with dairy, et cetera. That is a different game than looking at grain or cattle situations.
When we are looking at the grain situation, we have to take into consideration what is happening in the global economy. Have you done any work on that?
Mr. Chartrand: We have not done a study on that at this point in time.
Senator Gustafson: The Americans tell us they have had the three best years in farming history. Canada has had the three worst years. Statistics Canada will find out when they do statistics for 2007; it will be a big surprise. That surprise will be down.
I was hoping you would give us a net income number that the farmer makes and break it down. Do you have numbers such as that?
Mr. Chartrand: We have numbers that are detailed by farm types.
Mr. Morin: In the information that comes from the farm financial survey in my presentation, they have a cash income, which represents the difference between gross revenues and the operating expenses. You can have it by farm type and size.
Senator Oliver: Do you have that with you now? Can we look at it?
Mr. Morin: I have some numbers with me.
Mr. Chartrand: We have a 2006 copy of the most recent results of the farm financial survey. It covers 2006 by farm types and size. You can look within a specialty at what the impacts are. We can leave that with you.
Mr. Morin: Do you have some specific questions or will the document be sufficient?
Senator Gustafson: I am convinced that until Canada knows where the global economy is going — because you tell us we export a great deal of everything we do in agriculture — if we cannot come up with a profit on what we export, we are in big trouble. That is where we are right now. As the dollar goes up our income goes down quickly, as it does in the forest industry.
Mr. Chartrand: We are influenced greatly by the value of the dollar.
Senator Gustafson: You mentioned farmers that make $25,000 a year from their farms; that would not even be net.
Mr. Chartrand: No, that is gross. It is not very much; it is a very small operation.
Senator Gustafson: What would that be in a net amount?
Mr. Chartrand: If you look at the ratios that we provided with the census figures on page 7. Depending on the type of operation, such as beef with an operating ratio of 93 cents, there is only seven cents left out of every dollar. That is before depreciation.
Senator Gustafson: The reality is these people are taking off-farm jobs and working long hours because they work on the farm and at their job with an oil company, driving a school bus, et cetera. They are still not getting any return, even with all the work they put in. This brings a new dimension to what rural poverty is.
These people may live in pretty good homes; circumstances may look pretty good, but financially they are in big trouble.
Ms. Cromey: That is the one thing we do when we look at those operating ratios. They do not even include depreciation, which would make them higher. There are few businesses that would want to work with such low margins. We realize that. They are getting higher over time.
With the supply-managed commodities, the ratios are lower: dairy is 73 cents, where cattle is 93 cents. Other commodities are very much dependent on global markets.
Canada is a price taker, we cannot set the prices. The dollar will not help that. That is why we look at the ratios, because over time they can help us see that. We also saw this time that off-farm work increased 3 per cent from five years ago. That was a big jump in off-farm work for those people reporting more than 40 hours per week. Even the people doing part-time work increased by at least a percentage.
Senator Gustafson: Working in the department, do you find that Agriculture and Agri-Food Canada is trying to get a handle on the global economy?
Mr. Chartrand: We are Statistics Canada; we are not within Agriculture and Agri-Food Canada. I have no idea. They are trying hard to help the industry.
[Translation]
Senator Chaput: You spoke both about on-farm work and off-farm work. We know that, nowadays, there are more farmers working off the farm. Do you have statistics on what percentage of income from off-farm work is used to fund farm costs?
Mr. Chartrand: We have no statistics telling us exactly how farmers use their off-farm income. We do know, however, as the statistics show, that many farms cannot cover their costs and only survive thanks to off-farm income.
Twenty-eight per cent of small farms, that is to say those worth less than $25,000, generate enough money to cover costs; however, the other 72 per cent do not and must find income elsewhere. We appreciate that for many farmers it is a matter of choice — they enjoy farming and owning a small farm is a lifestyle choice. Nevertheless, there are others who are trying to turn a profit.
Senator Chaput: You address on-farm work and off-farm on page 19 of your document. You provide a chart with statistical information, including the percentage of farmers who undertake more than 40 hours of off-farm work per week. Am I correct in saying that, in 2006, 20 per cent of farmers worked more than 40 hours per week off the farm?
Ms. Cromey: Yes, absolutely.
Mr. Chartrand: These are people who describe themselves as farm operators and sometimes there are two farm operators per farm, the husband and the wife. The census allowed for a family to declare up to three farm operators. Some of them said that they worked more than 40 hours a week off the farm.
[English]
Senator Oliver: I have difficulty with a number of your statistics and the numbers in the charts. First, all I have is a booklet with charts and photographs. There is no commentary and no explanation. Like Senator Gustafson, I find it difficult to get real value for the meaning of farm income, expenses and revenues from these charts.
For example, on page 13 it says, ``Farm net worth by revenue class,'' then, ``Farm net worth by revenue class, Canada, 2005.'' Earlier you said that in order to get net worth, you take total assets from total liabilities and the difference will be the net worth; yet, you were saying that in some of your charts, if a person has a farm of 1,000 acres and it is next to an urban sprawl, that person may say that he or she will take his or her farmland and use it for development purposes. Therefore, the 1,000-acre farmland is worth more. In terms of their net worth, they are not valuing that land as agriculture, but for a potential real estate development.
I cannot understand, therefore, when you talk about farm net worth by revenue class and use anticipated value for land, I do not know how you can get a true net worth statement of a farmer. I am having difficulty with that. Do you understand my question?
As Statistics Canada, in these charts, how are you evaluating machinery and equipment? Are you depreciating? If so, how are you depreciating it? How are you valuing livestock? Are you valuing it with a potential for mad cow disease? What value are you putting on that when trying to arrive at the total net worth of this farm and these farming operations? I cannot get much from these figures, and I would like you to help me understand farm net worth in these charts, starting with the one on page 13, ``Farm net worth by revenue class.''
Mr. Morin: For this table, as I said before, it comes from our farm financial survey. People are contacted with a questionnaire so they can provide the information on various aspects of their farms related to their financial situations.
Senator Oliver: How do they value the real estate of their land in that survey?
Mr. Morin: The value comes from how the respondent, as you said in your example, perceives his or her land or the other assets, and how they respond to the survey. When it comes to the aggregate figures for which I am responsible, of course here we use some sources to value some aspects of the farm.
Just to give an example, the inventories in our aggregate figures are valued on the period; let us say the period is the calendar year, we look at the inventories at the end of the year minus the inventories at the beginning of year multiplied by an average price for that year.
If you look at the example of 2003, when they discovered the first BSE case — the mad cow disease — at the end of the year the value of inventories was very high. Of course, the price was low that year, because people were unable to sell their cattle, so inventories were very high at the end of the year.
Senator Oliver: Expenses would also go up because they would have to feed that many more head of cattle.
Mr. Morin: Exactly. This is why in our calculations, as I said earlier, we have three measures. I put more emphasis on realized net because this is the most common one used by the farm community. However, we have two other measures: cash income is essentially gross receipts minus expenses; and with the third one, once we have the realized net income, we adjust it by adding or subtracting the value of the inventory change, which gives the total farm income.
The three components are very important and they cover the inventories, expenses, receipts and so on, so we can establish the bigger picture.
Senator Oliver: Realized net is again before depreciation, so unless you include depreciation, you will still not get the true number.
Mr. Morin: ``Realized'' includes that.
Mr. Chartand: The table you referred to is from the farm financial survey. When we talk about the market value that the Census of Agriculture collects, this is where the farmers are asked to value their farm and equipment. They make a judgment. Most will try to use their books, but it is market value. Here the farm financial survey — the table you referred to — is based normally on the account books that farms will hold. We expect the farmers to pull out their books and base it on that. I believe that this should not be a market value estimate provided by the census, so that is why it is important not to confuse the two. We are trying not to confuse you but to raise a point, be careful with the concepts or the definition we are putting there. This table is based on books of the accountants, and there is no market value here.
Senator Oliver: The next chart is ``Farm net worth by farm type, Canada 2005.'' I realize, as you just pointed out, that this is not from farmers; this is from the farm financial survey. It has a category here called ``grains and oilseeds.'' It says the total assets are $1.1 billion. The average liability is $196 million and the average net worth is $966 million. What would be the size of the grains and oilseeds farm that had a net worth of $966 million? What would be the individual average? In other words, how many farms are included in this category of grains and oilseeds? What do we divide by?
Mr. Chartand: We did produce it in the book, so you would have the number of farms estimated attached to that figure.
Senator Oliver: Okay, but it is hard for us to read it without it.
Mr. Chartand: We do provide estimated numbers from the farm financial survey. We have a number of farm operations that were linked to these numbers. I would not be able to pull it out, but we have it. These types of farms are broken down in this booklet, and you will have the number of operations that build that figure.
Senator Oliver: That would have been useful to have here because these numbers alone, for me at least, do not help me very much.
Mr. Chartand: We also use the main operation of the farm, such as grains and oilseeds. If more than 50 per cent of the farm's revenues were in grains and oilseeds, it would be grouped there, so it is important to read how we group these farms together to come up with an estimate.
It is provided in our publication, the number of farmers that were used to derive the average. You have a good point.
The Chairman: We will look forward to receiving that from you.
Mr. Chartand: We will leave it with you.
The Chairman: Thank you. We will certainly pass that around.
Senator Callbeck: I want to clarify what the valuation of the figures are based on, such as land as an asset. Did you say the farm financial survey uses the market price or the price on the books?
Senator Oliver: It is the farmer's estimate of what it is worth.
Mr. Chartand: The farm financial survey is based on the books of the farmers, while for the census, we are asking for the market value.
Senator Oliver: When you say, ``the books of the farmers,'' how do the farmers value that hypothetical 1,000-acre farm that is near an urban development? What figure do they put on that 1,000 acres of farmland?
Mr. Chartand: That is a good question. I would have to check to ensure I do not mislead you.
Senator Oliver: That is what I thought I heard him say before.
Senator Callbeck: I was trying to clarify that.
Mr. Chartand: We know for sure that the census is providing market value. I am not sure how the valuation is computed for the books when they fill out the farm financial survey. I will have to get back to the committee on that.
Senator Peterson: My sense is that they would value it at farm price.
Mr. Chartrand: At market value also.
Senator Peterson: It would be valued at what it could be sold for as farm land, regardless of development land in the books. We did that type of business and those are the numbers that we used. We knew it was worth more but there was no point. We were trying to show it as farm land and that is how we valued it. We would find it so in most cases.
The Chairman: It is a difficult issue to understand, but I thank you for all that you have brought to us. Members of the committee will read the documents and will probably have more questions.
Senator Gustafson: What is your take on rural farm poverty? In the mind of the department is there none? Agriculture in Canada is in big trouble. We need to start somewhere with governments admitting that it is in trouble and then working on it from that point. I do not believe we can even touch it now without going into the global economy because we are an exporting nation. We have to look at it in terms of financial return of some kind for the farmers.
Mr. Chartrand: We know that there are farms in difficulty; there is no doubt about it. We know from our data that it will vary by the size of the farm and by the type of farm. All types and all sizes of farms are having difficulty. Obviously, a greater number of smaller farms are having difficulty, but we have to be careful not to include the lifestyle farmer, who enjoys the operation but is not looking to making money from it. Some small farms are trying to survive; they are the ones that we want to identify. We have to look at both the size and type of farm. Some people are having difficulty but others are making money. There is a mixture and we want to identify which is which, so we can be more effective in helping them out.
The Chairman: The committee will continue its hearings with a trip to Maniwaki on Thursday. Many people are anxious to come out and talk about where they live and their difficulties.
Mr. Chartrand: We will be pleased to answer any supplementary questions.
The Chairman: Next, I welcome Lucie Villeneuve, Coordinator of the Réseau québécois du crédit communautaire.
[Translation]
Lucie Villeneuve, Coordinator, Réseau québécois du credit communautaire: I would like to thank you for giving me this opportunity to appear before the committee to speak to you about what we call community credit.
The Réseau québécois du credit communautaire was set up seven years ago and comprises loan funds, lending circles, and some 20 Quebec-based micro-credit organizations. These organizations grant small loans of up to $20,000 to support individuals looking to start a business.
Our loan funds and lending circles have offices in 13 administrative regions, including rural regions, which explains why we were asked to make a presentation to your committee.
I would like to begin by explaining what we aim to achieve with community credit and why we developed micro- credit in Quebec.
It all began 15 years ago, as an urban movement, in the wake of the unemployment crisis at the end of the 1980s. Urban organizations in Montreal and Quebec decided to address poverty. One of the solutions devised to the problem was to help people implement their business plan. In order to do so, they required immediate access to credit; however, no loans were available to them. These organizations therefore decided to emulate what was being done elsewhere. They developed micro-credit practices based on the lending circle model that Mr. Yunus developed in Bangladesh.
It was the Common Investment Act in the United States that first introduced the idea of loan funds. It is a practice whereby banks give a share of their profits to communities to develop housing and business projects.
Similar initiatives were first introduced in Montreal in the early 1990s and were seen in Quebec City, and then in the regions, shortly afterwards.
Over the past 15 years, community credit organizations have helped small cottage-style businesses, self-employed workers, and very small private businesses get started; and, ten years ago, this support was extended to what are commonly referred to as cooperatives or social enterprises.
There are a number of reasons that explain why these business start-ups could not get access to credit. Often, it was because they had been founded by young entrepreneurs, women, or immigrants who either had a bad credit rating or no credit rating at all. In some cases, it was because the project in question required a smaller loan than the banks wished to grant — some entrepreneurs wanted only to borrow between 5,000 and $10,000. Nowadays, in Quebec, there are some 20 community-credit organizations and they can be found in most urban and rural settings.
In rural regions, the primary objective of the initiative was to stem the exodus of young people. When I say rural regions, I am referring to the Gaspé Peninsula, the Lower St. Lawrence, Saguenay-Lac-Saint-Jean, the Laurentians and the Mauricie region. Originally, the community-credit organizations focused on helping young people set up small businesses so that they would stay in the region and help generate economic development.
The Lower St. Lawrence region has been mired in an economic crisis since the 1990s and continuing on into this century, first in the fishing sector and, more recently, in the forestry sector. As a result, a number of businesses have had to shut down. Villages and entire regions have had to reconsider their future.
Necessity being the mother of invention, social enterprises were born. There are now a number of small local businesses, such as hair dressing salons, grocery stores, cafés and artisan bakeries. It was a matter of helping people to act on their business plan. Previously, people had not always been able to get support for their business plan: the perception is that if somebody is poor, then he or she must not have an entrepreneurial mind. The belief is that entrepreneurial people cannot be poor. However, we have found that this is not necessarily the case.
I have brought you copies of our annual report for 2006-2007. It is not a formal brief, as I was invited somewhat at the last minute. It does, however, give you an overview of our most recent findings. What you have in your hands is an up-to-date report that was produced this morning. It provides you with information on what we achieved last year. Over the course of the year, we supported 200 projects.
The way that micro-credit has been developed in Quebec is a little different to what is done elsewhere. Internationally, be it in Africa or Asia, micro-credit involves people coming together to establish a savings fund. The money in the fund is then lent out. In Canada, only financial institutions are allowed to operate in this manner. We therefore set up organizations that seek investments from members of the community. Some people make donations, others grant loans, with or without interest. The lender is responsible for his investments, through a process arranged by private contract.
In Quebec, our capitalization and fund-raising activities have allowed us to raise $2.5 million in private capital. This money belongs to 20 organizations and is lent via loan funds. The average value of a loan-fund loan is $7,000 and the average value of a lending-circle loan is $2,000.
Lending-circle loans help fund planning-stage activities before the business is set up. For example, if an aboriginal worker wanted to start a business he would have to draw up a business plan. As there is no way of knowing whether the person will be a gifted entrepreneur, support is provided by the lending circle, which comprises seven to ten members. Lending circles provide potential entrepreneurs with support. It is a practice that is based on the African model.
Loan funds provide support to people who already have a business plan. The average loan that they grant is worth between $7,000 and $8,000.
The third community credit option is micro-credit. It is an interesting option although it has to be remembered that it is the hands-on coaching and support that the organizations provide that is responsible for ensuring that 90 per cent of entrepreneurs pay back their loans and 72 per cent of businesses survive.
It is not always easy to become an entrepreneur in a poor area. Life is not always easy for farming and forestry sector entrepreneurs. As a result, we provide support for the duration of the loan, be it a one-year or three-year loan. This allows entrepreneurs to learn to listen and develop their business, as well as giving them the opportunity to be part of a network and develop relationships with consultants. It is a question of helping them learn the ropes, so to speak. Entrepreneurs working alone and not-for-profit organizations need moral support and advice to get ahead. We are not exactly mentors, but we facilitate networking and offer to put entrepreneurs in touch with mentors. In Quebec, we currently use a social economics approach. We look to develop alternative means of economic inclusion. While a number of Quebec regions developed on the strength of large forestry or agricultural businesses — and indeed other businesses. Nonetheless, there is a role for small businesses.
The Mauricie region is currently experiencing a crisis in its forestry sector. Jobs are scarce. The classrooms of the forestry school are empty. We need to find an alternative. There are some small farms, including grain farms, but they are not enough to support farmers through the harsh winter. Alternative employment is needed.
Community credit is an alternative that provides people with an additional option. It allows them to become self- employed or to set up a small business. We are seeing such initiatives being developed in regions and villages where, previously, the only employer was a saw mill, a paper mill or a farm, be it large or small.
Succession planning is difficult for Quebec farmers, as they traditionally operate in the dairy and cereal sector. Milk quotas are posing problems. We do not get involved in such projects. New projects need to be found for young people, which is where our network and community credit come into play.
Over the past 15 years, our organizations have created and maintained up to 2,140 jobs.
This year, we have provided some 21,000 hours of project support.
Each loan fund has a reserve to offset bad debt. Our reserves constitute between 10 and 15 per cent of our capital and the interest rates that we charge vary between zero and 10 per cent.
Our clients are often people who depend on employment insurance or employment assistance; people who work part time; people who have no income; or people who have started their business but still require support.
One of the major difficulties that community credit organizations face — be it in Canada, North America, or elsewhere — is that it is increasingly difficult to access loans from financial institutions, as the latter are motivated primarily by profit and concerns regarding international competitivity. It can even be difficult to borrow as little as $50,000 or a $100,000 from financial institutions. That is why we provide the first loan, and even a second loan, but if a third loan is required, we turn to financial institutions such as banks and the Caisses Desjardins, to secure higher levels of capital.
We need support, either through loan guarantees or measures allowing higher levels of investment, because the regions have ever-increasing needs and our organizations do not have much capital to lend. Legislation is required to recognize the special status of social enterprises and to provide help through taxation measures. This would mean that investors would get tax credits for their investments in our organizations and their financial support would no longer simply be considered as charity.
We believe that both the federal and the provincial governments should introduce legislation to that effect.
[English]
Senator Callbeck: Thank you for appearing this evening. This sounds like a wonderful program, the community credit. Did you say that the reimbursement rate is at 90 per cent?
[Translation]
Ms. Villeneuve: Yes.
[English]
Senator Callbeck: That is terrific. The province pays for the operating costs, and the money that you lend out is obtained from charities and businesses. Is that right?
[Translation]
Ms. Villeneuve: Sixty-six per cent of our contributions are loans from individuals. For example, you could lend one of our organizations $50, $100 or $1,000 for a year and, in return, we would pay you nominal interest. You would, however, have the option of giving us back the interest as a gift. It is essentially an agreement between the two parties. We do not get donations from charitable organizations. Financial institutions can, however, provide interest-free loans.
If you turn to page 4 of the report that I provided, you will see the breakdown of our funding sources. We receive donations from religious communities. We receive loans from both financial institutions and ethnic investment groups. We also receive support from unions.
In other words, our loans are bankrolled by individuals and local community organizations in the regions where our organizations are based.
[English]
Senator Callbeck: Thank you very much for that explanation. You mentioned financial institutions. Do banks give you money for this program?
[Translation]
Ms. Villeneuve: At the moment, we get money from the Caisses Desjardins. These are credit unions.
[English]
Senator Callbeck: What percentage of these loans is granted to women entrepreneurs?
[Translation]
Ms. Villeneuve: If you turn to page 5, you will see that 59 per cent of our clients are budding female entrepreneurs and that 43 per cent of them are between the ages of 18 and 35 years.
You will find that under the heading ``fréquentation'' or ``clientele'', at the bottom right.
[English]
Senator Callbeck: Sometimes you hear about microcredit. I was involved with the Prime Minister's task force on women entrepreneurs, and we heard that women really want microcredit but critics have said it is too expensive.
What is the percentage of your expenses in comparison to your outstanding loans?
[Translation]
Ms. Villeneuve: One of the reasons why our organizations exist is because our operational budget and our coaching and support services are funded by the Quebec government. Its support allows our organizations to provide micro- credit while financial institutions consider it too costly to weigh in.
Micro-credit has been around for 15 years and a number of the businesses that we have supported are now posting healthy sales figures. Seventy-two per cent of the businesses that we help are still operating after five years. A number of businesses that started off with one or two people now employ 10 to 15 people or operate as a collective. As these small businesses have grown, they have helped revitalize a number of urban neighbourhoods and have contributed to the survival of a number of towns, villages and rural communities.
To our mind, it is a joint effort: the entrepreneurs are doing their bit, while the community is stepping up to the plate by providing loans, as is the Government of Quebec by funding the operational budgets. Furthermore, all stakeholders are working to ensure sustainability. However, even if we have a role to play in the fight against poverty, that does not mean that we are the only ones who can help. That being said, we can support people who are looking to start up a business or at least help them to hire other people. We also help collectives develop large projects. Sometimes, the investments that we make generate larger investments.
We currently have $2.5 million in capital, but we have granted $4.8 million in loans. Often, the ratio is even higher at one to four. In other words, the project in which we invest is worth more than the sum of our investment and other partners often become involved when our organizations want to go a little further. We either act as guarantors or as funders.
The Canadian Federation of Independent Business has carried out studies on this subject. It found that one of the major problems was that women and young people cannot easily access start-up capital. In certain sectors, we are filling the shoes of angel investors, whose numbers are dwindling when it comes to serving deprived communities.
[English]
Senator Callbeck: It sounds like a wonderful program and I congratulate you.
Senator Oliver: Congratulations on an excellent organization and an excellent report. You are very successful, and you are doing wonderful work.
The document you gave us is a history of the concept; it is a portrait of the organization, a presentation of the approaches of the association, a word from the president, a report of the coordinator, examples of witnesses and a list of members, but nowhere do I see a financial statement. Most of what you have talked about today is money and finance, but there is no traditional financial statement showing the use of funds, the revenue, expenses, balance and so on. Is there a second document somewhere with that in it?
[Translation]
Ms. Villeneuve: As we are a network, the only financial statements that I could provide are those of our organization, which is structured much like any other not-for-profit organization. Each of the network's member organizations has its own financial statements showing capital inputs and outputs.
[English]
Senator Oliver: Is there a consolidated financial statement?
[Translation]
Ms. Villeneuve: No, we do not have a consolidated financial statement. What makes our network unique is that each member organization has been set up by and for the community. The organizations therefore remain in the service of their community. They are therefore set up as not-for-profit organizations, with their own board of directors and their own financial statements.
As we have an agreement with the provincial Department for Economic Development, Innovation and Exports, our network is a hub for operational funding. We receive financial statements from the member organizations, but we do not make them public ourselves. That is the responsibility of the respective organizations. If the matter is of interest to you, I could check with each of our member organizations.
[English]
Senator Oliver: Is there a place where is there is a statement showing the use of the $2.5 million in private capital that you have gained?
[Translation]
Ms. Villeneuve: The report that I gave you clearly shows the number of loans, the outstanding debt, and the debtors. All of that information is available in this document. I do not, however, have information on capital inputs and outputs.
[English]
Senator Oliver: Of the $2.5 million what is left right now? Do you have $300,000 or $400,000?
[Translation]
Ms. Villeneuve: Six hundred and thirty-one thousand dollars of the total $2.5 million is currently being reimbursed and the rest is outstanding.
Six hundred and thirty-one thousand dollars are in the process of being reimbursed. Some organizations are larger and, therefore, have more capital. Our greatest difficulty is that we are unable to raise as much money in rural regions, even though the needs are greatest there. More established organizations have more capital: for example, the one in Montreal currently has $500,000, while the one in Quebec has $700,000; organizations elsewhere have less capital.
As it says in the report, we are considering setting up a Quebec-wide fund to ensure that these organizations and their funds have enough capital and are able to generate some leverage. Regional organizations are often able to raise $150,000 or $200,000, when in fact they may need $300,000. We wonder if this initiative should be supported. We are in the process of working with financial sector partners and, we hope, with the Government of Quebec, to look for solutions.
[English]
Senator Oliver: Do you or do you not take an equity position in the groups, companies and individuals with whom you invest? Second, you said that you would like to help individuals get access to banks and other financial organizations therefore you do loan guarantees. I would like to know how you show the loan guarantees and your potential liability for those loans against your capital assets. In other words, you have $2.5 million in private capital. What is the amount of your loan guarantees? Would it be $2 million in loan guarantees?
[Translation]
Ms. Villeneuve: I have forgotten the first part of your question.
[English]
Senator Oliver: Do you take equity?
[Translation]
Ms. Villeneuve: In practical terms, we ask for a certain interest rate. Each one of the organizations has an investment policy or a loans policy. One organization does not ask for a particular interest rate, so the person pledges to pay back the loan, while other organizations ask for prime plus 2 per cent, 4 per cent or 6 per cent. Generally speaking, they ask for about 10 per cent. That is the only equity participation.
That is important to us. Several organizations ask for a particular rate because we are the first lender on the person's credit history. We want to re-establish the person's credit. To do so, he has to demonstrate that he is able to pay back the loan. So, once he has paid back the loan, we can prove that he has done so.
As for your second question, which had to do with loan guarantees, I could not tell you how much is granted in the form of a loan guarantee. But I can tell you that each one of my organizations will support the business project alone, because these are small projects under $5,000. They are the ones who enter into the loan agreement.
On the other hand, if the project is worth between $30,000 and $50,000, other partners enter the picture, such as a local development centre or a SFDC, a Community Future's Development Corporation. At that point, they ask us to come in and provide a guarantee. They know that if we come in with a loan guarantee, we provide assistance to the person, which allows the financial institution and the economic-development or the local-development agency to say that they have confidence in the company and that they believe it will grow. Some entrepreneurs know that the organizations believe in the project, but the organizations think that the entrepreneur needs a little bit more assistance and some support to make his project work. They recognize that we have the professional skills to provide the support, so if there are loan guarantees, it helps us make progress.
For us, the advantage of a loan guarantee is that these institutions or these organizations recognize the value of the entrepreneur and the value of the various projects that we are involved with.
Senator Chaput: Ms. Villeneuve, I would like to congratulate you on your excellent presentation.
Let us look at the example of a young woman who has received a $5,000 loan from you to set up a small company. Obviously, during the first year revenue will not be very high. Can this young woman collect employment insurance benefits? Is there an agreement with the Government of Quebec so that she can still collect these benefits during the first year?
Ms. Villeneuve: Yes, if she qualifies for the program that provides support to self-employed workers, which is offered by the Government of Quebec in cooperation with the federal government. But there are a number of rules; the program is for one year. It is not always easy for some entrepreneurs because they lose their source of income. They will not lose their childcare benefits. Sometimes a single mother who is an entrepreneur has problems because her child is sick. In cases like this, we can waive payments or try to find other solutions. We work with other organizations within the network to help her. The tool that we provide is not the only one out there. We call this socially responsible investment. We also take on responsibility. It goes both ways. Often these people have to deal with difficult situations in their personal life.
Senator Chaput: Do you offer this support until the person has fully reimbursed the loan?
Ms. Villeneuve: Exactly.
Senator Chaput: You have provided support to approximately 200 projects. Percentage wise, how many of these projects were carried out in rural areas, as opposed to urban settings?
Ms. Villeneuve: That is a good question. I could check and get back to you with an answer.
Senator Chaput: You have no idea of what that would be?
Ms. Villeneuve: We cover 13 regions. Of these 13, perhaps five are in urban areas. Currently, our organizations in rural areas are younger and the problems are greater.
It is difficult to make the comparison. There are two million people in Montreal; percentage wise, we may support a larger number of projects, but supporting all the projects in rural areas takes more effort. The distances are greater. There are fewer loans, because of the time required to meet the people. Often the financial institutions and the traditional development organizations will not travel as far afield because of time constraints.
Senator Chaput: I wanted to know whether the default rate was higher in rural areas than in urban ones.
Ms. Villeneuve: We do not ask for collateral, the only collateral that we have is the person and the relationship of trust. Our reimbursement rate will be higher than the survival rate of the businesses because people will continue to pay back the loan even if the business folds. People remember that we helped them and they want to continue for the sake of other people. Depending on the entrepreneur's sense of belonging to his environment, whether rural or urban, the reimbursement rate may be higher. On average, it is 90 per cent, but in some areas it is 100 per cent. It is difficult to give you an exact answer, but the relationship of trust is very important.
Senator Chaput: What is the survival rate for these businesses?
Ms. Villeneuve: The survival rate of these businesses after five years is 72 per cent. Our rate is comparable to the current rates for private enterprises.
Senator Chaput: That is excellent.
[English]
Senator Peterson: Thank you, Ms. Villeneuve, for your presentation. It sounds to me like philanthropy in action. You have a high-risk borrower with no collateral and no problems accessing capital; the success rate is outstanding. The banks would love you and want to know your secret.
How many applications would be rejected? Would it be four out of every five? Is it higher? How strict are you on that?
[Translation]
Ms. Villeneuve: We do not operate in terms of the number of applications rejected, but rather, we go by the economic insertion rate. Not everyone has what it takes to be an entrepreneur. Thirty-nine per cent of the people that we meet with start up a company. However, the remaining 51 per cent go back to school or return to the labour force. With the lending circles, helping the person move towards employment, education or a business is just as important as the approach to the actual business, because the person will have really given the project some serious thought. When people go through the pre-start-up stage and develop their project, some realize that this is not for them. However, we then direct them to other resources.
In contrast, when it comes to funding, most of the projects that are analyzed by the loans committees are ultimately approved. However, the process can take time, because we fine-tune the details and the project has to be realistic. We work on the business plan with them so that once the business starts up, the business plan is marketable. We are not a charitable organization. Rather, we are a social and economic development organization, a social economy undertaking. We believe in people's dignity and potential. We have a tool and we work together to facilitate access to credit. These kinds of tools were developed 100 years ago in Quebec by Alphonse Desjardins. We have updated them, because nowadays economic imperatives have changed things and we are starting over again. Does that answer your question?
[English]
Senator Peterson: Do you have a schedule of repayment or is it on a best-effort basis?
[Translation]
Ms. Villeneuve: Each organization has a board of directors and a loans committee. The people on these committees are volunteers who have become involved to support the organization. They study the business plan, they look closely, because after all, it is a collective effort. We do not provide loans so that we can declare losses. We take these loans seriously, and we do not assume that there will be more money later. No, each step proceeds in a rather scrupulous manner. Criteria are set, and the entrepreneur has to go back and do his homework or work on his project more with his business coach. He has to do a number of things as he goes through the process. There is follow-up, both of the business and of its financial statements. We require the entrepreneurs in some of the organizations we support to hire an accountant. The loan includes an amount for the services of an accountant who develops a monthly accounting system so that the statements can be verified. The entrepreneurs may be very good at developing a product: often they are artists or craftsmen whom we supervise, but they are not necessarily good accountants. We tell them that we will teach them about accounting, but at the beginning someone will show them what to do. We do not take anyone by the hand, but we do protect our own interests.
[English]
Senator Peterson: Are your operations throughout the entire province of Quebec or just in one region?
[Translation]
Ms. Villeneuve: The province of Quebec currently has 17 administrative regions, and we are involved in 13 of them. It is not that these communities do not want to develop projects, but to achieve this objective, the community has to come together. There are operating costs. The Government of Quebec has agreed to fund 19 organizations. If you look at the list of members that you have, you will see that some are recorded as active members. Those are the 19 whose operations are currently funded by the government. The members that are described as partners are the organizations that have been able to provide community credit, but do not have operating costs. So in some regions, it is more difficult to set up operations. We are currently trying to find solutions to pay for these organizations' operations. That is why we do not cover all the regions. Another reason for this is that community credit is still a recent initiative. We are starting to better understand what we do. And so that means I have to travel quite a bit.
[English]
Senator Gustafson: Ms. Villeneuve, you said you are a non-profit organization.
Ms. Villeneuve: Yes.
Senator Gustafson: Does that mean you do not have charity status with the Canada Revenue Agency?
[Translation]
Ms. Villeneuve: We have two kinds of status in Quebec. We have status under part three which has to do with the Companies Act, not-for-profit organizations, and our members have charitable organizations status. We have both, and we can have both. The opportunity does exist. Actually, I recently learned that Quebec is the only province that can grant not-for-profit status. In the other provinces, the federal government does that. With the dual status, we have been able to develop several organizations and several social enterprises. Moreover, we are trying to expand existing frameworks so that we can get recognition for some of our practices that are somewhat different.
[English]
Senator Gustafson: Would many of your clients be below the income of taxation? They would not make enough income to have to pay taxes.
[Translation]
Ms. Villeneuve: You are asking whether the clients that receive loans pay taxes? That is a good question. I think that some do. The smaller ones do not, because of course in the current tax system, you have to earn a minimal amount of income before you must pay taxes. Consequently, I would say that our businesses do not pay taxes, but several of the ones that we helped in the past and that we still provide some friendly support to now pay taxes.
[English]
Senator Gustafson: You say you have an organization. How do you reach the people who come to you? Do you have an office?
[Translation]
Ms. Villeneuve: Listed at the end of the document that I have submitted to you are the member organizations that belong to our association. Each organization has set up shop in a different region or city in Quebec. Each organization employs between 2 and 13 people. Currently, the network has about 50 employees who work in different organizations. There are two employees who make up my network. For each organization that provides a loan, there is management board and advisors who work directly with the borrowers and clients.
[English]
Senator Gustafson: Are these paid employees or are many volunteers?
[Translation]
Ms. Villeneuve: Yes. Volunteers are involved on the loan committees and board of directors. Moreover, all staff who are involved in lending operations, provide support and ensure follow-up action are professionals.
[English]
The Chairman: Thank you, Ms. Villeneuve. This has been a very different presentation than we have had in our long variety of meetings on this particular issue with which we are struggling. It is very encouraging to hear from you, and it would be a good thing if some of what you are doing could be stretched all across Canada to give help to those who are a bit on the outside.
Thank you very much. Good luck with what you do, and we hope to see you again.
The committee adjourned.