Proceedings of the Standing Senate Committee on
Agriculture and Forestry
Issue No. 20 - Evidence - Meeting of December 1, 2016
OTTAWA, Thursday, December 1, 2016
The Standing Senate Committee on Agriculture and Forestry met this day at 8 a.m. to continue its study on the acquisition of farmland in Canada and its potential impact on the farming sector.
Senator Ghislain Maltais (Chair) in the chair.
[Translation]
The Chair: Good morning, everyone. I am Senator Ghislain Maltais and I am the chair of this committee. I would first like to ask senators to introduce themselves, starting on my left, with the deputy chair of the committee.
[English]
Senator Mercer: I am Senator Terry Mercer from Nova Scotia.
[Translation]
Senator Tardif: Good morning. Senator Claudette Tardif from Alberta.
Senator Gagné: Good morning. Senator Raymonde Gagné from Manitoba.
[English]
Senator Plett: Senator Don Plett from Manitoba.
[Translation]
Senator Pratte: Senator André Pratte from Quebec.
[English]
Senator Oh: Senator Victor Oh from Ontario.
[Translation]
Senator Dagenais: Good morning. Senator Jean-Guy Dagenais from Quebec.
[English]
Senator Beyak: Lynn Beyak from Ontario. Welcome.
The Chair: Thank you. Today the committee is continuing its study on the acquisition of farmland in Canada and its potential impact on the farming sector.
[Translation]
This morning, we welcome the Canadian Bankers Association, represented by Alex Ciappara, Credit Market and Economic Policy Director, Troy Packet, Vice President, Agriculture Services, TD Canada Trust, Janice Holzscherer, Vice President and National Head, Scotiabank, Adam Vervoort, National Manager, Agriculture, BMO Bank of Montreal, Darryl Worsley, National Director, Agriculture, CIBC, and Gwen Paddock, National Director, Agriculture and Resources Industries, Royal Bank of Canada.
If I understand correctly, Mr. Ciappara, we are going to start with your presentation.
[English]
Alex Ciappara, Director, Credit Market and Economic Policy, Canadian Bankers Association: Thank you very much and good morning, everyone. Thank you for the opportunity to be here today to provide the banking industry's input to the committee's study on the acquisition of Canadian farmland and the potential impact on the farming sector.
The Canadian Bankers Association represents 59 domestic banks, foreign bank subsidiaries and foreign bank branches operating in Canada and their 280,000 employees. With me today are representatives from Canada's five largest banks who have considerable agricultural expertise and distinct ties to the farming community.
I would like to begin by highlighting the role the banking industry plays in the agricultural sector. The Canadian banking industry has a longstanding commitment to the agricultural sector. Lending to the agricultural sector represents a significant part of bank financing to SMEs with over 14 per cent of authorized small- and medium-sized enterprises being extended to this sector. Banks have $34 billion in loans outstanding to Canadian farmers through operating and term loans as well as mortgages representing about 37 per cent of the total agricultural financing market.
According to Statistics Canada, banks provide more than half of non-mortgage loans and around 22 per cent of mortgages to farmers. Regardless of the size of the farm operation, Canadian banks apply the same prudent lending practices and comprehensive risk management systems to the agricultural sector as they do in every other line of business.
In addition to financing, banks also provide a variety of services to assist farming operations of all sizes, from cash management and deposit services, to trade and exporting services.
As active participants in the agricultural financing marketplace, banks compete with each other as well as with credit unions, financing and leasing operations and Farm Credit Canada. As a Crown corporation in the agricultural sector, FCC is a significant market-dominant player with 27 per cent of the agricultural financing marketplace and almost half of farm mortgage debt in the country.
Turning directly to the subject of the committee's study, the banking industry appreciates the complexities involved in farmland acquisition and the importance of farmland to the agricultural sector for both established and new, young farmers. There are a number of factors influencing farmland prices in Canada; historically low interest rates, relatively strong commodity prices, and growing demand for urban land development are some of these factors.
Furthermore, the size, number and demographics of farming operations have changed considerably. According to Statistics Canada, from 1991 to 2011, the average farm area increased by about 30 per cent while the number of farm operators has decreased by about 25 per cent. At the same time, we are seeing the age of farm operators increasing.
Lastly, rising farmland prices has had an impact on farmers' balance sheets, with land representing two-thirds of all farm assets, up from 54 per cent in 2005.
The evolution towards larger farm operations and an aging farm population are contributors to increased interest in buying and selling farmland. For farmers who have devoted a lifetime of hard work to their farm operations, they view their farmland as an investment to support their retirement. Selling farmland is a big decision for farmers who wish to retire. Banks not only assist farmers in these transactions but also provide valuable advice around retirement and succession planning for themselves and their children.
On the other hand, banks provide assistance to young farmers who wish to begin a career in the agricultural sector and need advice to understand the options available with respect to farmland, including leasing, renting and mortgage financing. Young farmers may also need significant capital investment such as purchasing equipment and machinery to begin a new farming operation. Banks can provide the full suite of services and financial advice needed to begin a new operation.
The federal government's Canadian Agricultural Loans Act program, also known as CALA, which helps young farmers purchase land, buildings, machinery and equipment, is also available and banks utilize this program as well.
As farming continues to change, banks continue to adapt products and services to meet their clients' needs. Banks have dedicated agricultural bankers who have the expertise and knowledge to understand both the challenges and opportunities which are characteristic of the sector. Banks make ongoing communication with their farming clients a priority in order to ensure their needs are being met and to support them when making financial decisions.
I would like to thank the committee again for the opportunity to provide the banking industry's input to the study and we would be happy to answer your questions.
[Translation]
The Chair: Thank you so much, Mr. Ciappara. Thank you very much to the others for being here. It's very important for the committee today that you are here. You will be able to appreciate the full attention that senators are devoting to your banking group.
The first question will come from the deputy chair of the committee, Senator Mercer.
[English]
Senator Mercer: Senator Plett pointed out before the meeting started that he wasn't sure whether senators or bankers are the people who like to be beat up the most, so this is our chance.
Seriously, I was interested in your presentation when you said banks have dedicated agricultural bankers who have expertise and knowledge to understand both the challenges and opportunities which are characteristic of the sector. I'd like to hear an example or two from the banks as to who these experts are and how they bring that expertise to the banking sector and how they interact with the agricultural community.
Gwen Paddock, National Director, Agriculture and Resources Industries, Royal Bank of Canada, Canadian Bankers Association: I can respond to that question. I'll give you my personal example. I was born and raised on a cow-calf farm south of Guelph, Ontario. I participated in 4-H and Junior Farmers' Association of Ontario and have a degree in Agriculture Economics from the University of Guelph. I've been in agriculture for 31 years now.
When I came to the bank, the bank was looking to have people who understood agriculture first and then trained us in banking, the belief being that our farm clients would value speaking to somebody who had a knowledge of the industry and could talk about agriculture first and the banking aspects of their business second. I would be a long-term example, but that's what we look for in all our account managers is to have a background in agriculture or a passion for agriculture.
Senator Mercer: So do you only do banking in the agriculture sector now?
Ms. Paddock: Our account managers are agriculture specialized, so they will actually specialize in meeting the needs of our agriculture and in some markets our rural clients. In some of the prairies, for example, having an agriculture account manager is beneficial to an agricultural supplier because they understand the industry.
Senator Mercer: Would any other banks like to respond as well?
Troy Packet, Vice President, Agriculture Services, TD Canada Trust, Canadian Bankers Association: I can echo the same comments. We're hiring and looking for people with farm backgrounds. I've always said that it's easier to teach a farmer to be a banker than a banker to be a farmer.
I was born and raised on a mixed operation in Saskatchewan, and I'm still involved in the family farm. I've got 21 years of banking experience but I've always been involved in agriculture. As Gwen said, most people we've employed are ag specialists and strictly deal with farmers — or the majority. Again, because of the rural communities we deal in, sometimes we do a little bit of agri-business, which is really part of agriculture, anyway — or some commercial — but the majority of their portfolio would be agriculture-based.
Senator Mercer: One of the criticisms we hear frequently from people in the sector is that their banking options continue to shrink because the banks you represent continue to close small branches in small communities, and they may be left with two options, Farm Credit Canada and one bank. There might have been two or three banks in the community before. Now they're down to one. When you only have one option, it isn't an option; you're stuck.
Farm Credit Canada is a competitor but not in the same sense as you competing with each other. When banks close branches in small communities, do they consider the effect that has on the overall community and not just on the bottom line for the branch they may close?
Mr. Ciappara: Yes, we do. Over the last 10 years, the number of branches has been increasing.
Senator Mercer: Is that in urban centres as opposed to rural centres?
Mr. Ciappara: That could be. I haven't taken a closer look, but when branches do close, business decisions are made, but they are communicated to the rural communities as well. Options are also provided to them when those decisions are made.
We also have agricultural specialists who use a branch as their base and then go out and speak to farmers at their places of occupation — at their farms as well. We have mobile specialists that go to the farms and serve the farmers.
Senator Mercer: I'm not so sure that all farmers are comfortable with that. Anyway, I'll go on second round, please.
Senator Plett: I would like you to explain CALA a little bit to me. You mention it in your presentation. It's the federal government's Canadian Agricultural Loans Act. Exactly what does that do? Is that an act that we have that banks work with or that just the farmers work with?
Mr. Ciappara: I can lead off and then pass it on to my colleagues. It's a loan guarantee program that provides loan guarantees for young farmers as well as cooperatives. Under the program, young farmers and cooperatives can get financing of up to $500,000 for real estate property and $350,000 for machinery and equipment. Under the program, banks have about $174 million in loans outstanding. They utilize the program to help young farmers get financing.
Senator Plett: Is that a 100-per-cent loan guarantee?
Mr. Ciappara: It's 85 per cent.
Senator Plett: You mentioned a few times "young farmers and cooperatives.'' What are the others — old farmers as opposed to young farmers? Do they qualify?
Mr. Ciappara: I believe the age of eligibility is up to 35 or 40. Beyond that, they wouldn't. It's really a government decision rather than a decision left up to the banks.
Senator Plett: So you have to qualify to the government, then, not to the banks. If the government accepts the qualification, the bank automatically gives that money?
Mr. Ciappara: There are eligibility requirements, so farmers would self-select, looking at the CALA program. We also know the eligibility requirements under the CALA program. That's where farmers would either decide to use the CALA program or not to use it. They would know the eligibility requirements.
Senator Plett: You said 37 per cent of total agricultural financing is done by banks, with the balance by FCC and credit unions.
Mr. Ciappara: And financing and leasing companies, as well as an advance payments program.
Senator Plett: One last question, chair. I would like to have an idea from each of the five major banks to see who is the most friendly bank to the farmers as to whether these percentages are average across every one of the banks — and an idea of the amount of money you have outstanding in farm loans.
Ms. Paddock: I'm happy to start. I'm pleased to say that agriculture is a priority market for Royal Bank. It's one where our portfolio is quite strong. We have over $6 billion out to agriculture clients. What's kind of interesting, and it's a factor that represents the diversity across the country, is that our portfolio is diverse: cash crop, dairy, beef and some of the smaller niche markets. It's good business for the bank, and it's an area where we want to grow. When I look at my competitors here — we're here as one but they're also competitors — we'd definitely like to grow that business.
Senator Plett: It's $6 billion for the Royal Bank?
Ms. Paddock: Yes.
Adam Vervoort, National Manager, Agriculture, BMO Bank of Montreal, Canadian Bankers Association: I'm very happy to report that we've edged out RBC slightly in terms of what we have outstanding to the agricultural sector. I'm also proud to report that we're the leading Canadian bank in terms of dollar amounts outstanding to Canadian farmers at approximately $8.5 billion. It's clearly a high priority area for the Bank of Montreal. It has been for many years and continues to be now.
I echo Ms. Paddock's comments that we're highly committed to the sector, whether it be the livestock industry, field crops, supply management — we're active in all areas throughout the country as well.
Senator Plett: Thank you. Who's next? CIBC?
Darryl Worsley, National Director, Agriculture, CIBC, Canadian Bankers Association: At CIBC, we're proud of our agriculture business. We've been lending to farmers for almost 150 years. We view it as a strong business; it's important to CIBC. We lend to all different sub-sectors right across Canada. We view it as a growing business and one with great opportunities.
We have a very strong share in the market as well at approximately $5.5 billion authorized to farmers.
Mr. Packet: I echo the same comments. It's a very competitive environment in the ag space. Every one of us would love to have more agriculture on our books. We're getting close to $5 billion on the TD book. It's an area of continued focus. Obviously, we want to grow market share right across the country.
Janice Holzscherer, Vice President and National Head of Agriculture, Agricultural Banking Commericial, Scotiabank, Canadian Bankers Association: Last but not least. My father told me it was always better to go first or last.
For Scotiabank, agriculture is extremely important. It's a key driver for all of the major financial institutions. We have approximately $3.5 billion out to agriculture, but we're growing very quickly. It's been identified as a key market for us going forward.
One of the things I would say about ag bankers at Scotiabank is that we really focus on hiring people who actually farm. I have a lot of people whom I have to call off the combines in September. That's very important to us. Like everyone here, it's very important that we focus on agriculture and do whatever we can to support the industry.
Senator Tardif: We have heard from witnesses that as the land value increases, there is growing interest by foreign investors and by some investment firms and financial institutions — like the National Bank — in purchasing farmland for investment purposes. Do you lend money to foreign investors? And do you purchase agricultural land for investment purposes as part of your investment portfolio?
Mr. Worsley: Thank you, senator. As a bank we lend to new Canadians and farmers coming from other parts of the world. Over many years, we have worked with dairy farmers right across Canada, particularly those coming from Western Europe. We work closely with those new Canadian farmers coming into the country.
There are also investors, as you mentioned, coming into Canada. We work with companies and we lend to any Canadian who is looking to buy farmland. If a person is coming into Canada, becoming a Canadian citizen and filing their financial statements in Canada, we will work with that individual or business to facilitate the purchase of farmland.
Senator Tardif: Could I ask each one of you what your policy is on the two questions I've asked?
Ms. Paddock: We will lend to qualified individuals. We don't differentiate as far as where they come from or what a borrower's motives are.
I don't know what the statistic would be, but by far the majority of farmland that we're financing we're doing for farm operations. Whether it be family farms that are expanding as part of their business succession or new individuals getting into agriculture, in the majority of lending we do for farmland we're supporting farmers purchasing farmland.
Mr. Vervoort: I'm going to echo the other comments you've heard. At the Bank of Montreal we're lending to qualified Canadian entities, whether it be family corporations, individuals or cooperatives. They would have to meet our normal lending criteria, as well.
As my two colleagues have alluded to, we do work quite a bit with new Canadians looking to get into the business of farming, predominantly from Western Europe, and again, in the dairy sector.
As Ms. Paddock mentioned, a large amount of the lending we're doing in the farm sector and what we expect to continue to do for the next five to ten years would be financing farm operations going through a succession plan. Given the average age of a Canadian farmer, we expect succession planning to be a huge factor in the next decade and that, of course, requires financing and planning. We're working with our customers to achieve those goals.
Ms. Holzscherer: Thank you for the question. I don't think you're going to hear anything much different from any of the banks. At Scotiabank we have a policy whereby we will lend to qualified borrowers, whether they are immigrants or existing farmers. The only thing I might add is that it's absolutely true that the vast majority of our lending is done to existing farmers who are working on farms: families going through succession planning or having bought farms and having been here for long periods of time.
Senator Tardif: Do you have anything different to add?
Mr. Packet: No. Again, I would echo the same comments.
Senator Tardif: You didn't specifically answer the question, though. Do you purchase agriculture land as part of your investment portfolio?
Mr. Worsley: No, we do not.
Senator Tardif: Does anyone?
Ms. Paddock: Not to my knowledge, no.
Senator Tardif: Not to your knowledge. Your banks would not be doing that for investment returns? Thank you.
Senator Oh: I have two questions. Now that the market is looking good on farmlands and farm product exports overseas, what is the ratio on bankruptcy rates and bad loans compared to other businesses?
Mr. Vervoort: I'd be happy to take that question. Thank you, senator.
In terms of what we see in the agricultural sector versus our typical commercial loan portfolio, I believe I would speak for everyone here when I say that loan losses in the agricultural sector are significantly lower than in every other commercial sector we see in the bank. I believe that speaks to the prudent financial management of farm operations by their managers. They're owner/operators of family businesses so they have a vested interest in doing well.
Senator Oh: Do any of your banks or associations that are working with institutions, colleges or universities, help to groom young people going into farming? Are there any programs working with universities?
Mr. Worsley: Very much so. Echoing my colleague's comments from earlier this morning, we do work with the universities, particularly the agriculture schools across Canada, to recruit young people with agriculture experience and expertise into our sales force.
We also have programs that help mentor new farmers. For example, in Ontario we work with the Dairy Sense program, where we will provide additional mentoring and advice to young dairy farmers from a financial and business planning perspective.
We're constantly working with young farmers to help mentor and provide good financial advice.
Ms. Paddock: We do similar activities. To a large extent we start in 4-H, that being a program that helps develop rural youth and encourages them to stay in agriculture. A growing issue in agriculture is making sure that we retain talent within the industry. We start in 4-H and then move through the university system and will participate in a number of the business classes as guest lecturers.
Then, once we have individuals who choose farming and are just starting out, our value to them is in the advice that we can provide regarding good management practices, best practices and some peer benchmarking so they can see where they can sharpen their attention on certain expenses and generate additional revenues.
Mr. Vervoort: I'm going to echo Gwen's comments again, here, in that the Bank of Montreal also starts with the 4-H program. I grew up in a farm community, on a farm, and was involved in 4-H throughout my youth. It was a very worthwhile program.
Given the changing population in rural Canada, it is very important to see rural youth stay in the community and actively look to the agricultural sector for long-term employment, whether that be actively farming or, perhaps, banking, crop input supply business, academia — anything that relates to agriculture.
Ms. Holzscherer: I believe all of us are actively involved with co-op programs and universities and are also involved in talking to universities and colleges about what industry is looking for, to make sure students, when they come out, have the skills necessary to get ahead with a degree in finance with agriculture.
Mr. Packet: 4-H is obviously big for all of us. It's an important organization to be involved with. It's also important to get involved with the agriculture universities and colleges and do presentations and speaking engagements to engage the youth and be involved. We're very active, for sure.
Senator Oh: Which bank should I send my son to? Thank you, Chair.
[Translation]
Senator Dagenais: I am not going to be able to be very objective, because my wife has worked at the CIBC for more than 30 years.
Witnesses have told us that the Banque Nationale in Quebec had bought some farmland for the purposes of speculative investment, doubtless because it was a good investment for the bank. A good number of individuals have bought farmland as an investment from their own retirement funds. According to a number of farmers who have appeared before this committee as witnesses, it is difficult for them to get access to the amounts of money they need to make major investments.
I do not know who will be able to answer my question, but I would like to know your tolerance threshold with farmers. What are your requirements of them? We know that there are specific requirements for entrepreneurs, but in agriculture, you can expect anything. Who would like to start?
[English]
Ms. Paddock: I am happy to answer that.
When we look at the requirements for financing land, we look for the borrower to have a down payment in that purchase, and usually that's around 25 per cent of the cost. Some people might say, "In order to make it easier for somebody to buy land, why don't you make it so that you'll lend more of that percentage, go up higher to 80 or 85 per cent?'' The view is that, in agriculture, it is volatile, so you do need to have a cushion so that, in those down times, you can withstand those and you have an equity base to support you through those downtimes.
Sometimes, while you think it might help somebody to give them a higher loan-to-value so that they can buy the property, you could be hurting them because you could be putting them in a situation where they are so tight that they can't withstand any sort of bump along the road. For us, they need to have a down payment; it needs to be 25 per cent. Then they need to be able to generate sufficient income to service that debt. Again, short term, it might be great because we get a loan and the client gets the land, but, long term, if we haven't set them up to be successful, that doesn't work out so well.
Mr. Vervoort: I can add a personal experience here myself. I began a farm operation approximately four years ago, and I'm in a position right now where I'm still renting land and working for a down payment of the farm.
The Bank of Montreal, similar to RBC, requires the 25 per cent down payment, and I realize this is the nature of the beast in the farming world. It's a highly capital-intensive industry and requires investment, but it is possible to get to that point.
As well, with the Bank of Montreal, I will say that the number one item that we look at in terms of lending money to farmers, especially for land purchases, is the ability to generate sufficient cashflows to repay the debt. We want to ensure that we have people set up for success as opposed to failure.
[Translation]
The Chair: Before we move on, allow me to welcome another member of the committee, Senator Ogilvie. Senator Pratte, you have the floor.
[English]
Senator Pratte: In your presentation, you talk about the increase in farmland prices, and you mention factors like historically low interest rates, strong commodity prices and growing demand for land by cities and so on.
You do not mention demand by institutional investors or foreign investors, which has been mentioned here by other witnesses.
Is it because you do not think it's a factor or an important factor or you do not know?
Mr. Worsley: Institutional investors certainly have been more prevalent players over the last several years as farmland has been viewed as a more attractive investment. Returns have been very strong in farmland, like in residential real estate, right across Canada.
In terms of what we have seen, or just observations, more recently, with perhaps some softening in commodity prices, there has been less interest by some institutional investors in the acquisition of additional farmland. They're certainly one of many players in the farmland market today. It's a very different market than it was 30 or 40 years ago. What we find, though, is that family farms continue to be really vital players in all of this. Although the size of farms continues to increase, they continue to be family farms, multi-generational farms, that we see, for the most part, very active currently in the farmland real estate market.
So institutional players are there but certainly perhaps not as strong as they were a few years ago, and family farms continue to be really key in the market.
Senator Pratte: Is it fair to say that you would say that those other factors like low interest rates and commodity prices are much more important factors in the price of farmland than the foreign buyers or institutional investors?
Mr. Worsley: They're an important part. A part that is often underestimated about farmland values in Canada is scarcity, like in other real estate markets. Very often, land will only come up maybe in certain communities once or twice in a generation, if that. I come from a farm background; I understand sometimes the passion for wanting to purchase certain farms when they come up for sale. You may only have one attempt at it in your lifetime. So there is often a lot of pent up demand in local communities. Farms, as we know, are expanding right across the country. If they see a good piece of farmland come available, they are well capitalized. They can afford it. They will do their very best to acquire it. Shortage of supply of farmland sometimes is a factor as well.
Senator Pratte: You're all involved in succession planning and helping young farmers to acquire land. To what extent has the increase in land prices over the last 10 years been an obstacle to young farmers acquiring land?
Mr. Worsley: With the increasing prices, that does become a challenge for some young farmers wanting to expand, perhaps, the existing operations that they have started. For new farmers entering the market, it can be a challenge. We've seen a lot more young farmers purchase small parcels of land and then continue to rent, maybe initially, to expand their farm business. Sometimes that can be a more cost-effective approach, depending on the sector that they're in. We've found that young farmers, as they build up their equity, establish the business more, are in a position to acquire additional farmland. No question, it's a challenge for some folks, but people have worked hard, have been creative with their businesses to build them up and gradually acquire farmland and expand.
Senator Pratte: Anyone else care to comment?
Ms. Paddock: I think that's partly why we're seeing an increase in the size of farm operations so that families can bring in that next generation. When you bring in another generation to farm, you need to, in many cases, expand the revenue base of that operation so that you can provide for that other family to live.
When people think about the growing size of farms, there is this idea that they're corporate farms or megafarms, when, in fact, for the most part, they're multiple-family farms, multiple-generation farms. That is the way we see a lot of younger people coming into the farming community.
Senator Gagné: I was a proud member of the 4-H club. I made beautiful aprons. My bed is well made, and I learned how to cook. Unfortunately, my passion was not necessarily there, but I would have rather been in the garden or around the chickens, on the farm, dealing with what farmers deal with every day. But here I am. You alluded to the average age of farmers, but you didn't say exactly what that was.
Someone can answer that. How that will change in the next 10 years? And how will that impact your business plan with respect to the demand for credit in a growing global market?
Mr. Ciappara: In 1991 it was about 47 years and in 2011 it has gone up to 54 years old; so a seven-year difference, and that's according to Statistics Canada.
Senator Gagné: The next 10 years?
Mr. Ciappara: The next 10 years? I wish I could forecast that.
Senator Gagné: You wouldn't have any data, because I imagine you would try to map that out.
Mr. Vervoort: If I could attempt to address that. We don't have a crystal ball to be 100 per cent accurate on this. The average age of the Canadian farmer has increased, presumably because back in the 1990s a lot of those people in the industry were in the neighbourhood of 47 years old, essentially the baby boomer generation coming into farming.
Everyone has to retire eventually, and what we are going to see in the next 10 years is more of that transition from people in the baby boomer generation to their kids, and in some cases even their grandchildren over the next 15 years. Those changes are definitely going to require additional land purchases or expanding the revenue base of the farm operation, whether it be through the acquisition of land or perhaps growing different crops or commodities to increase the revenue to provide for the additional families that are coming on to the farm.
Mr. Packet: I think there has been a bit of a shift. The age of farmers is getting older. A lot of these retired farmers still own their land and are renting it back to the next generation or a neighbour's family. While we are seeing farmers getting older, there is a lot of retention, and a lot of retired farmers see that as their pension plan. They are living off that. A lot of the times that will eventually transition to a family estate, which they may continue to retain ownership in or eventually sell the land. But we're seeing the age of farmers get older, but even as they retire a lot of them realize the investment in that land is pretty solid and the returns on that are still pretty good; so there is still retained ownership of that land, even though they do retire.
Mr. Worsley: What I'm seeing is there are a lot of younger Canadian farmers more active in the family farm business today than there were several years ago. So they're getting all the focus on succession planning that CIBC and my other colleagues around the table have been focusing on for the last several years, and the focus on succession planning right across the industry is really assisting in getting young farmers actively involved in the farm businesses and being very poised to succeed and take over and be the next generation.
We have a very bright future in Canadian agriculture. There are some tremendous young people stepping into these farm businesses today. This week CIBC was a sponsor of Canada's Outstanding Young Farmers' Program. The national awards for that are in Niagara Falls this week. It is incredible that we have young Canadian farmers under 40 years of age right across the country at this event, and it is amazing what they have accomplished with their businesses.
Not all of them have been family farm businesses where they have succeeded. Some of them have been startups where they have literally gone into the business with some knowledge, but they have built up very successful farm businesses in short periods of time. Although you're right, there is going to be a lot of transition from one generation to the next over the next several years, Canadian agriculture is in a very good place. We have a lot of great young people stepping in.
Senator Gagné: I imagine there will be an increase in demand for loans, assistance, probably because there is this change in the market from the older to younger farms.
Mr. Worsley: That is right. What we're all trying to do is make sure we're working with the younger generation, not just the existing generation, and making sure we understand the needs that may be quite different from the new generation of farmers that we're beginning to work with.
Senator Beyak: Thank you for your excellent presentations. I'm from northwestern Ontario, a vast agricultural area, and I wasn't surprised and am very pleased to hear about the strong reliability of farmers, the work ethic and family values. I see that every day. And you are so involved with the community, which is very nice to hear. I had the same question as Senator Gagné about the age of farmers, 54, but could you elaborate more on the reason? Is it because they are living longer and healthier? It seems in my area they love to be on the farm and stay there, and the younger generations are coming in and joining with them, but could Ms. Paddock and Mr. Ciappara also contribute?
Ms. Paddock: Why don't farmers retire? I think of my dad, where agriculture and farming is all he has ever known, so to think about making a change is a tough decision. If you expand that to some of today's operations, they are, in some cases, very large and complex operations. To make the transition, there needs to be a successor, if it's going to stay in the family. They need to think about how to transition decision making as much as the assets, and how do they treat non-farming siblings or children fairly? Not necessarily equally, but fairly. So there is a lot involved. That's why a number of us are looking at the resources that we provide to our farming clients around succession planning to take away some of the mystery and the stress as far as having a deliberate plan that deals with, in a lot of cases, the soft issues that are just as important as the hard issues.
It's easy enough to transfer assets, but you still want everyone to be friendly at the Thanksgiving dinner table. There's a lot involved in it, and we're doing what we can to provide the advice and expertise to our farm clients to help them manage through that transition.
Mr. Ciappara: I would say farming is a reflection of Canadian society. As you can see, Canadian society is getting older, and I think the farming community is a reflection of Canadian society. And that, too, is getting older, but I think there are unique farming characteristics that Gwen has highlighted that also contribute to that increasing age.
Ms. Holzscherer: I think there is a reason that there is "culture'' in agriculture. It's a way of life, not a business. They live it, and the entire family lives it. I would suggest some of the comments that have been made and some of the questions asked about the high value of farmland show that there is a broad recognition that this is in the family, something that will be passed into the family, and that there is a tradition there that's being maintained over long periods of time. This goes to the point Darryl made, that there is a scarcity of land for sale.
I live outside of Innerkip on a small farm, and if a parcel of land comes up, it doesn't go through the market; it gets sold to someone in that area because they've been waiting to see that happen and to grow this. It is a way of life; it's a family. It's not a situation where you're counting to the day you get your pension. They don't view it that way. This is something they are going to do forever.
Mr. Packet: I would echo those comments. My grandfather is 91 and still farming. Some farmers never retire, and obviously that contributes to the age of farmers. In those situations, you get three generations farming together.
Senator Ogilvie: I appreciate that our focus is on the value of land, and my question will come around to that. We have heard a great deal about the tradition of farming and how it continues in many respects in terms of family farms and so on.
But soil is essentially just a substrate to hold the plant while nutrients are pushed through the soil to produce the plant. We know there are other substrates that can be used to produce plants. Plants are grown to produce a commodity, so we're in the commodity business here.
If we look at the actual farm situation, we come to the issue of technology. I live in the Annapolis Valley of Nova Scotia where we have exceedingly productive soil, but we have small land masses of farms relative to the national situation. But the technology that exists now, in my opinion, has transformed and is transforming the way farming operations operate. The issue of the age of the farmer is becoming rapidly irrelevant in terms of having equipment that will automatically, from a computer, manage fields of considerable size or small size. The need to change crops — let's say in fruits, we see farmers changing whole orchards every few years as much more valuable products at the end come into play.
You're looking at it from a financial point of view, so you're taking a longer term approach than many people do, but where do you see these kinds of transformations impacting how farming operations operate and what impacts those are going to have on the value of land?
Just to insert a final comment, it would be my perception that technology is rapidly changing adaptation to weather, pests and other kinds of conditions — and soil is there as a substrate, you don't have to create it and it's going to be a very valuable commodity in the future — do you see changes occurring in the industry from a technological point of view that will have a significant impact on land values and who is actually managing farms?
Mr. Vervoort: We definitely are seeing some of those trends, and some of the comments you made are 100 per cent accurate in terms of agriculture being a commodity business. With the world's population still rapidly growing, those people require more food. In order to feed the planet, technology and continuous advances are still necessary. We've seen tremendous advances, particularly in crop sciences and equipment, over the last 30 years.
When I first began my work in the agricultural sector after I completed university, I remember what crops yields were on average in the average farm in southwestern Ontario at the time. Since then, the average yields have increased on an annual basis to the point that, over the last 10 years, the overall farm average is likely up 10 per cent. The increased revenue and profitability behind those crops have, in essence, driven up the price of land.
At the end of the day, we can attribute some of this land value increase to technological advancements, particularly over the last 10 years.
[Translation]
The Chair: Before we continue, I have one question to ask, if I may.
Let me remind you that our debates are televised. We have received a lot of witnesses, young farmers and young farmers' associations, who have pointed to the speculative activities of the banks. Could you tell me today, looking those young farmers of Canada in the eye, that, directly or indirectly, your speculation funds are not unduly increasing the price of farmland?
[English]
Mr. Ciappara: Senator, are you referring to direct investments into farmland?
[Translation]
The Chair: I am talking about your direct or indirect investments; indirectly through your investment funds, for example. You are not necessarily the ones making the decisions, but you invest sums of money in investment funds, the effect of which is to increase the price of land. The trusts often rent the land; they do not put it up for sale and so young farmers cannot buy them. So when that land is put on the market, its price is three, four, or five times higher, meaning that the young farmers cannot look to expand.
If you are not the guilty parties, try to find out who is, because someone in the world is. For young farmers, this problem is one of their major challenges. I am not talking about gentlemen farmers or weekend farmers, I am talking about young people 30 to 35 years old who make their living from what they produce on their farms and who want to expand their business but are unable to buy adjacent land that is for sale because the price of the land is much too high because of speculation.
[English]
Ms. Paddock: I'll take a stab at that. To my knowledge, the Royal Bank does not invest in farmland.
When you talk about young people being able to get access to farmland, I think of a farm that just sold next to my parents' place and that farm sold for what I would consider above market price —
[Translation]
The Chair: Excuse me, I did not say that the banks were investing in farmland. I said that the banks' money, invested in various trusts for speculative purposes, is preventing young farmers from expanding their business and their land.
I would like to know whether that is actually the case, or whether the people who have come here to tell us about it are making it up.
[English]
Ms. Paddock: I'm not aware of where we have invested in any trust funds that have purchased farmland.
Senator Mercer: It's an interesting line we're not going to get an answer to. You've confused me, and I suspect you may have confused some members of the public who are watching. One of you said it's not a business but it's a way of life. This is the first time that I've understood that banks will lend money to a way of life as opposed to a business, or to an individual who has a business to pay back those loans.
We know that agriculture is a way of life but it is a business, and it is a serious business for the people that are in it.
There are two major problems that we've encountered in talking about this particular subject of the availability of land. That is the conflict and the collision of urban versus rural interests. You don't have to go very far from this building or very far from any of your offices in Toronto to come into conflict, where the urban sprawl ends and farms begin. But those farms bordering that urban sprawl are extremely valuable and very tempting for people to take out of farming and agriculture and turn it into real estate.
We're all impressed by the fact that the banks have all hired people with agricultural backgrounds to manage their agricultural files. It makes perfect sense and it's good business. But you come into a conflict. If I owned a piece of land, say, north of Toronto and I'm farming that land, and next to my land is the latest new subdivision, the pressure is now on me as that subdivision is sold, built and people move in. My land becomes more valuable because it's close to the big urban centre.
If I were a shareholder in a bank, I would anticipate my demand to the bank would be for it to make as much money as it possibly can for me as a shareholder. How do you justify saying to the farmer that you'll loan them money to keep farming — because they need new machinery, equipment or land — when the value of that land is much higher when it's not being farmed and is sold so that houses can be built on it? How do you justify that to the shareholder?
Mr. Ciappara: I think it speaks to what we mentioned in our opening remarks about the bank's relationship with the individual and the farmer. It depends on the farm itself and what their priorities are. It's really done on a case-by-case basis, I think, and is up to the farmer. We'll provide them with the tools and advice necessary to help them come to that decision, but I think it's ultimately up to the farmer.
Senator Mercer: It doesn't take a rocket scientist to figure out that if I have a couple hundred acres of land next to the City of Toronto or Peel or Durham region, I can make a lot more money selling the land for real estate than I can ever make growing whatever I've been growing on the land. From a financial point of view, it makes perfect sense to sell the land.
I don't see banks saying to farmers, "We want you to stay in farming. We want to build this long-term relationship with you.'' The only time it works to the farmer's advantage is if the bank says, "Take the deal on that land but buy more land further north to farm.'' Is that part of the portfolios that you manage? If you're going to sell your land for urban development, let's buy more land for agricultural development further north.
Mr. Worsley: That's a good question, senator. I think we have seen, in and around major urban centres, that the demand for land for housing and residential uses is certainly there. Often, it comes down to a hard decision because a farm may have been in the family for many generations, but it reaches a point where the local land uses, which we as banks don't influence or control, may change.
To your point, there may be zoning implications and farmers may, based on the returns they can get for their farmland, make a business decision to sell the farm property close to an urban centre and relocate to another area in the province. I've seen folks move to another province where they view equal opportunities for their business, and in some cases, improved opportunities for them to grow their farm business and expand.
I think we've all witnessed situations like that, where they have been pressured by urban development and they have relocated their businesses and have successfully grown them.
Senator Mercer: The issue is that in 2050 we're going to have 9.5 billion people on this planet. If we keep taking land out of agriculture to put up high-rises or single family homes, we're not going to be able to feed those 9.5 billion people. When there are a lot of hungry people in the world, there are a lot of angry people in the world and there will be social unrest because of our inability to feed people. This is a serious issue that needs to be addressed.
Another very serious issue here is the difficulty of succession planning for a farmer who has been working their land all their life. Somebody here said their grandfather is still working his land in his 90s. How does he do succession planning when he and his family can't transfer the land and retain an income for his own smaller family unit as he gets older? How are you counselling that decision to the agriculture community? It's a huge one.
We continue to talk about the age of farmers. I think somebody said the average age is 54, so that means there are a lot of people are over 54 and are getting close to retiring. The only way for them to realize a solid income in their retirement is to sell the farm, not to have their sons or daughters take over the farm. How do you help them with that?
Mr. Worsley: In many cases we see members of the family who want to remain living on the farm or participating in the farm business but they may decide to take more of a minority stake in the business, so they transition more of the business to the younger family members to gradually succeed and take over. We have seen in many cases where farming is someone's life and they want to remain in it to some extent, but they work to transition the business to the younger generation and perhaps step back and take a smaller role, if you will, in the day-to-day operation of the farm business.
Senator Mercer: Would we advise those farmers not to be what we call the "traditional family farm'' but to incorporate so they can share in the continued profits from that farm?
Mr. Worsley: We're increasingly seeing Canadian farms incorporate. That comes down to an individual decision by the farm business. We're seeing an increased number of corporations.
Senator Mercer: Is there a tax advantage to incorporating?
Mr. Worsley: Again, it comes down to the individual. There may be, in certain instances.
[Translation]
The Chair: Ladies and gentlemen, thank you so much for coming to testify before our committee today. Your testimony will be very useful for committee members, especially as we draft our report. The new generation of farmers will be a major issue in Canada in the next 15 years, and young farmers are the ones who have to carry the torch. We must always distinguish between a small family farm and major operations run by corporations. As the old saying goes, "The land belongs to those who work it.''
With that, thank you, and have a safe trip back.
(The committee adjourned.)