Proceedings of the Standing Senate Committee on
Agriculture and Forestry
Issue 12 - Evidence - Meeting of May 6, 2008
OTTAWA, Tuesday, May 6, 2008
The Standing Senate Committee on Agriculture and Forestry met this day at 7:07 p.m. to study the present state and
future of agriculture and forestry in Canada.
Senator Joyce Fairbairn (Chair) in the chair.
The Chair: Good evening, honourable senators, witnesses and all who are watching our Standing Senate Committee
on Agriculture and Forestry. Today the committee continues to look into the issue of farm input prices in Canada.
Canadian farmers have been facing significant input price increases in recent years. For example, Statistics Canada's
Farm Input Price Index shows that fertilizer and fuel prices have increased on average by 7.6 per cent and 13.9 per cent
annually between 2002 and 2006.
Although grain prices have been on the rise since last year, higher input prices have directly impacted farmers'
profitability. In addition to the reasons behind these higher input prices, the committee will pay particular attention to
input prices in Canada relative to those prevailing in the United States.
Joining us this evening from the National Farmers Union are Colleen Ross, their Women's President; and Nigel
Smith, their Youth President. We are delighted to have you here. We have one hour this evening with these witnesses,
honourable senators, to cover a wide range of issues, so I would encourage you to keep your questions short in order to
give our witnesses an opportunity to respond fully and for everyone else to have a chance to participate in the
Colleen Ross, Women's President, National Farmers Union: Thank you for this opportunity to come before you this
evening. I am a farmer. I have a farm just south of Ottawa where, with my family, I raise livestock, several types of
grains and soybeans. If you think it was difficult for you to get here on a nice day like today, for Nigel Smith and I who
are farming and running farm operations, it is really hard to leave the farm when are you planting grain to drive an
hour or two into Ottawa; however, we appreciate this opportunity to speak on behalf of the National Farmers Union
and, indeed, the farmers in Canada.
As you know, over the past 20 years, farmers have embraced many new technologies, and many of these
technologies have helped us to be more productive. Unfortunately, financially many of these technologies have not
embraced us back, and there has been little profit for farmers through increased production as powerful farm input
manufacturers have positioned themselves to siphon off any wealth that farmers could produce by embracing these
Also, we look at the loss that farmers have incurred as a result of trade agreements and globalization. For example,
thanks to the North American Free Trade Agreement, NAFTA, particularly Chapter 11, much of the power has been
transferred from our governments to the world's dominant agribusiness corporations that have been handed all the
power. Corporations have won increased patent protections that they have greatly profited from, and these protections
have resulted in longer, more wide-ranging patents on drugs, agricultural chemicals and seeds and in decreased
competition and increased corporate profits.
Another major outcome of free trade agreements and deregulation has been the dramatic expansion of corporate
mechanisms for monopoly control and the creation of a huge global bureaucracy charged with enforcing corporate
patents. For example, today, as a farmer, I have a choice between two tractor manufacturers that dominate the world
market: John Deere and New Holland. Prior to NAFTA and the World Trade Organization, WTO, there were many
more players in the marketplace. Through unrestricted mergers and takeovers, tractor makers and grain traders have
restructured themselves into what in the tractor industry has become a duopoly. This dramatic reduction in
competition and increase in market power has facilitated and been spurred by globalization and trade agreements.
Grain companies have merged to reduce competition and own not only the inputs but also sell and trade on both
ends of the value chain. Cargill, for example, sells seeds, chemicals and fertilizers. Cargill manufactures and sells feed
and owns some of the largest grain processing plants in Canada and globally. The meat processing wing is known as
Cargill Meat Solutions. Cargill owns and operates under several names, as do similar horizontally and vertically
integrated corporations. Often, farmers do not even realize that when they are dealing with a certain company or
manufacturer under a different name it is still owned by Cargill. Cargill purchases and sells grains, oilseeds and
specialty crops throughout Canada and markets them around the world.
Further, there is Cargill Power and Gas Markets, CPGM, which is their North American natural gas trading
operation based in Calgary, Alberta. In addition to natural gas, CPGM also trades in electricity, weather derivatives —
whatever they are — coal and other commodities.
The corporate concentration and the power that the large corporations wield are quite evident through the example
of Cargill, and there are many other examples out there.
Canada's agri-food chain in which we farmers try to operate stretches from oil and gas companies at one end
through to fertilizer, chemical and seed companies, through farmers in the middle and to grocery stores and restaurants
at the other end.
I would like to refer you to a document published by the National Farmers Union a couple of years ago, The Farm
Crisis, Bigger Farms, and the Myths of ``Competition'' and ``Efficiency.'' It talked about competition and the profits that
these companies, input providers, processers and retailers are making, and the record and near-record profits that have
been sucked out of the farm.
Every link, with the exception of the farm link, is dominated by two and up to ten multi-million dollar
transnationals. The size of the companies that dominate each link is increasing, and the number of companies is
decreasing. The dominant agribusiness corporations have pursued strategies of rapid growth and equally rapid
reductions in competition. In doing so, these corporations have dramatically increased their market power with the
approval of governments, including our own. At the same time, trade agreements have also added to corporations'
power and reduced the powers of national governments. Taken together, these events have yielded awesome increases
in corporate power and profit.
Now is the time for Canada to refocus its agricultural policy from one that is commodity-based to one that begins to
rebuild local, sustainable food systems. Government research and policy that supports alternative ecologically sound
inputs that assist farmers in the process of removing themselves from the input treadmill must be pursued and
supported. Incentives for farmers to create meaningful, economically viable farming models with reasonable legislation
and processing and retailing infrastructure will benefit farmers, communities and consumers across Canada.
I would like to refer to a report that came out of the Food and Agriculture Organization of the United Nations and
their call for radical shift away from industrial agriculture towards more sustainable place-based agriculture. The news
release from IAASTD, the International Assessment of Agricultural Knowledge, Science and Technology for
Development, said that ``the old paradigm of industrial, energy-intensive and toxic agriculture is a concept of the past.''
Yet this model continues to get support in Canada.
I would implore you to consider food sovereignty as an agricultural policy framework that will be a food policy that
puts people before profit and will build sustainable food systems that ensure justice for all.
A commentary came out today from the Canadian Federation of Agriculture. The CFA is echoing some of the
research that we have been putting forward to this committee and to the House of Commons standing committee over
the past several years. It is also talking clearly about how even today when grain prices appear to be at an all-time high,
farmers have experienced decades of income loss because our cost of production has, for many years been, higher than
our return. We have incurred a lot of debt on our farms. We are pleased to get great grain prices, but we also see in this
farming year that 45 per cent to 50 per cent of our income costs will be used up in fuel and fertilizer bills.
Also, because there is a grain shortage, there is a seed shortage, because farmers are capitalizing and taking a lot of
land that was out of production, fallow or in pasture and putting it into growing corn, wheat and other valuable crops.
There is a considerable seed shortage and seed is expensive this year. Any possible gain that we will enjoy with these
high grain prices will be eaten up, once again, by input providers.
I will end there and ask Mr. Smith to tell you a bit about himself.
Nigel Smith, Youth President, National Farmers Union: First, I would like to thank the committee for having us here
tonight. I am happy to be able to tell my story.
As a young farmer, I run into many of the financial constraints that come with such a capital-intensive industry. We
are talking about hundreds of thousands or millions of dollars invested in order to get started in farming. That is no
small amount for someone who possibly comes in with a great deal less than that or maybe even debts.
I would like to restate what is already in the handout that you have: the fertilizer prices and the corporate
concentration within that particular input market seem to be contributing factors, along with competition and global
markets, to greatly increasing prices and making fertilizer unaffordable for some.
I think there are opportunities in this as well for farmers. Ms. Ross touched on that. The answer could be maybe
leaning towards something more sustainable that we can strive for on the land. We can help farmers become less
dependent on some of these high-cost inputs. On my own farm, basically, diesel fuel is our main input; we do not farm
with commercial fertilizers. We have done that partly because of the constraints placed upon us. As a small farm, it was
not feasible. We have been able to branch off and to find niche markets farming without those. There is a good
potential for other farmers across the country to embrace more ecologically sustainable practices.
I think that farmers can and will adapt to this challenge. If we look over the years that farmers have done this
consistently — and we will continue to do that — we have very good farmers in Canada. I think that the potential for
us to grow our crops in a different way is definitely there with lower inputs. There are consequences to that, such as
possibly some lower yields and whatnot, but most important is profitability on the farm.
Another problem that comes along with this on the ground is that in the springtime we have much larger
investments into our crops and, therefore, much more risk at seeding and planting time. With the volatility in the
markets right now, it is difficult for a farmer to budget how much fertilizer he can afford to put on the crops and what
kind of yield he can expect from that and then what kind of price on top of that.
That exacerbates what is already very challenging and what some are calling crisis times on the farms right now.
There is potential for great hardship here, and I think we should keep that in mind as well, that these issues are very
I will leave it there. We have used up our ten minutes.
The Chair: Thank you very much. I should tell that you one of our beloved members of this committee, Senator
Gustafson from Saskatchewan, is a farmer, and a real farmer at that. That is why he is not here this evening. He would
like to have come. He encouraged us to begin this particularly difficult study on input costs and the like. He is in
Saskatchewan working hard. I am sure he would want me to say thank you for coming here tonight and giving us your
point of view.
Senator Segal: Thank you both for making time to come tonight. Planting season is, depending on climate and
weather, tough enough. We appreciate your taking time away from the farm to help us plant a few constructive seeds, I
hope, in a way that benefits from your advice.
Ms. Ross, the note that you referenced and the concerns you raised focused in on big companies that are making
lots of money while the average farmer is in some difficulty trying to make ends meet. What is the solution to that?
Would we be better off, in your judgment, if these corporations that provide expensive and globally integrated inputs
were replaced by Crown agencies? If you take that to its logical extension, our friends in the old Soviet Union had a lot
of that and their farming was inefficient. It was all state-owned, but it did not produce better yields or, arguably, a
better quality of life for their farmers.
On the other hand, farmers are left out of many programs. For example, farmers do not get Employment Insurance
when they run into difficulty because they cannot get the yield or income they need. Senior citizens have a guaranteed
annual income supplement if their income falls beneath a certain level. We do not have that for farmers, yet what you
do is about as strategic and fundamental to our survival as a country as anything anyone else would be doing.
What advice would you give us? If we could make one or two tough recommendations that would confront the
problems you have very articulately laid out, what do you think we could say that would be most helpful and would
make the biggest difference? I am not talking about the aggregate process right across the board. I am talking about the
individual farming enterprise, where we try to make it as profitable and sustainable as possible.
I have another question, which I will hold, if that is okay, on the issue of locally produced produce and marketing
local material. I would be interested in your views, and if Mr. Smith wants to add to that, do not hesitate.
Ms. Ross: Thank you for the question, Senator Segal. Hindsight is 20/20. I am thinking back 10 and 20 years ago
when we signed NAFTA and WTO and saw corporate confrontation in the marketplace. We knew this would be bad
for farmers. We wrote the briefs and did the presentations, and then 10, 15, 20 years down the track we are asked to
give solutions for things that we said would be bad in the first place.
In January 2005 we wrote a brief, and then in March 2006 we sent a letter to the Director-General of the United
Nations warning him of global food stocks being at an historic low. That was ignored. We sent it to the Prime Minister
and many other ministers and said that we need to talk about this. Global food prices are at an all-time low; grain
stocks are at an all-time low; grain prices were being kept artificially low by corporations — they can hold the price
down — and it was ignored, and now we are asked what we will do about the world food shortage. To be asked how
we fix the broken wagon when we warned how the wagon would break in the first place is a little difficult for us.
We want the government to open the books on the Competition Bureau. When huge conglomerates purchase their
competitors, and we know as farmers that it will be bad for farmers and it is allowed to happen anyway, we wish that
would be examined and would be prevented from happening.
In the meat-packing industry, it has been difficult to get hooks, to get our animals processed and slaughtered. We
knew that would happen. It is like closing the barn door after the horse has bolted. We need a new barn, and we
actually need new horses too.
Mr. Smith mentioned building local sustainable food systems. For that we need legislative support, policy support
and regulation support that is reasonable. We need some incentive to do it. Due to globalization, infrastructure across
Canada is gone. There is no market. There is very little infrastructure in Canada for us to process Canadian-grown
foods any more. We grow a lot of fantastic food here in Ontario, British Columbia and Saskatchewan. We need to be
able to process that at home and market it as Canadian products grown in Canada.
Let us look at our labelling laws — that is something else we need to open the books on — so that Canadians who
want to buy Canadian product that is grown within Canada know with assurance that it is not just product of Canada,
which is not grown in Canada. You know the 51 per cent law, right? We need to re-examine that. That would benefit
farmers and consumers also.
Senator Segal: What could we recommend, in your judgement, that would have a positive effect on the difficulties
now being faced, accepting that the National Farmers Union has had a clear and coherent position for a long time and
not all of their advice has been taken? That is fair enough. Now we are in the position, based on the efforts of Senator
Gustafson and others, to look at input costs and come up with recommendations that could make a difference.
Ms. Ross: We need to examine that. There is something fundamentally flawed with a system where Canadian
farmers generate $750 billion in revenue and yet have a farm income crisis. There is a sucking sound in rural Canada,
and it is the money that is going off the farms. That must be examined.
Like I said, open the books on the Competition Bureau; look at a where these profits are. There has to be something
fundamentally immoral or certainly illegal about that sort of profit sucking.
Also, what about setting some reasonable floor prices? If global grain stocks are at an historic low, Economics 101
says that when demand is high and stocks are low it should trigger an increase in prices. It did not. The data is there;
you can see the data where grain stocks are like this and demand is up here but our income is down like this. It does not
make sense. We need to examine that. Can we have some reasonable floor prices for grains so that these corporations
cannot go so far below our cost of production?
Senator Segal: If I understand you correctly, one of the things would be a very broad public inquiry into these
pricing mechanisms and the extent to which they are sucking unfairly legitimate returns from a farmer's hands and
putting them in other places where they were not intended to go.
Ms. Ross: When you have control and vertical integration in the marketplace, there is little elbow room. I do not
want to say that we are victims of this, but we are dealing in the global marketplace as farmers. That is why many of us
are wiggling our way out of this global marketplace and capitalizing on the trend towards local, sustainable food
systems. Canadians are starting to feel very insecure about this global food regime that we have and they are starting to
look back and ask, ``Where can I buy locally? I want to get to know a farmer. I want to know where I can buy my local
food.'' They are feeling insecure about the local food system. Many farmers in Canada are starting to capitalize on
that. We would like support as we capitalize on that.
Farmers do not want to farm their mailbox. We work full time and bizarrely hard. We do not want to work 80 hours
a week or more and put our families through what we put them through and then go to our mailbox and get a cheque.
We want our money to come from the marketplace in a fair way, just as others receive a salary for the work they do.
That is not an unreasonable request.
Senator Segal: Mr. Smith, we have not had a lot of young farmers appear before this committee, so we are delighted
that you could find the time to do so. What is the mindset of young farmers you know who are colleagues in the
business? Are they discouraged? Are they determined? Are there enough of you to continue on? I know the
demographic is as serious in farming as anywhere else. In parts of Leeds County, fewer than 7 per cent of farms are
held by the offspring of those who held them before. That is one indication not far from here. Can you give us any
perspective on that?
Mr. Smith: I am not sure whether you knew beforehand, but I am from Leeds County.
Senator Segal: I did know that.
Mr. Smith: It is not just a coincidence, then. In Leeds County in particular, as you said, there is no one around
anymore. A few dairy farmers are managing to hang on. Aside from that, everyone is forced to seek work in the oil
fields. That is where the youth from my rural community are going. Everyone has to leave in the winter to go and suck
oil out of Alberta while a few of us manage to stay on the farms, but this is just getting harder and harder. As more
money is required, people think about getting money in Alberta to bring home to put into a farm. That is no way to
build an industry or to maintain one.
You mentioned the looming demographic crunch. I know we have this across the board within our country, but it
does not seem to get the same attention in agriculture as it does everywhere else. If we need more nurses, you better
believe that everyone will hear about it, because health care is important to everyone, as it should be. For agriculture,
however, the fact that no one is getting into it anymore seems to slip by. There are many reasons why people are not
getting into farming, and the reason we are here is one of them: high costs and low returns from a marketplace that
does not seem to be functioning in the farmers' favour.
The Chair: That is precisely why we are having these hearings, to hear from people like you who are actually there
and doing it. Thank you very much for that.
Senator Campbell: I am a city boy from Brantford, but for almost 20 years I planted and helped harvest two sections
of land in Saskatchewan. It would not have been possible to farm that land had there not been an outside income, a
teacher within the family. I understand your outputs.
I have watched an interesting thing, and maybe you can comment on that. In Saskatchewan, as families left the
farms, farmers from Alberta came to Saskatchewan and bought the land, which is rich, for canola, wheat, canary seed
— you name it; we have grown everything. We fenced it and put cattle on it. We went through a period of time where
bigger was better, so companies would buy up huge stocks of land. Then they realized that bigger is not better; there
were no economies of scale in this thing.
Will Canadians pay more for homegrown product?
Mr. Smith: I am not sure we are asking them to pay more, necessarily.
Senator Campbell: This is what I am thinking here. If I am running a business and these are my inputs, this is my
product and this is my price, you cannot sell it for less than your inputs. You cannot sell it for even break-even on your
inputs. I think this country has cheap food. You say buy Canadian, but to do that should we not be charging a price to
Canadians for homegrown food? We do not have to pay for storage or for hauling it or for any of those things outside.
Is the issue, once again, companies that process the food?
Ms. Ross: Let us talk about wheat for a minute. There are about 40 or 50 loaves in a bushel of wheat. A farmer will
make about 11 cents a loaf. A farmer will not make a lot of money in a bushel of wheat. Food prices are going up
substantially. The illusion might be that some of that money is getting back to the farmer. However, as food prices go
up, farmers are not capturing that extra dollar that consumers are paying. Once again, we must look at that money and
follow where it is going. You can pass the cost on to the consumer. You can make the price of bread go up to reflect the
increased cost of the wheat. However, that does not necessarily mean that the money will trickle down to the farm gate.
Do we need to look at the price of our food? Yes. Although food is going up in price in Canada, we need to look at
how much of that money goes back to the farm gate.
When we have local, sustainable food systems where we are cutting out some of those middlemen and processors
and retailers, and people are buying directly from farmers, they are getting a better quality product, and more of that
money is staying on the farms. That allows farmers like Mr. Smith to continue to do what he is doing and allows
consumers to have confidence in their food supply. It is also food security and food sovereignty for Canadians. That is
really important. A country that does not have not food security or food sovereignty is not secure at all.
Senator Campbell: That is fine if you are in farming and you produce a product that goes straight to the consumer.
We were yanking 36,000 bushels a year off that land. The prices are up now, but they were not as much at that time. If
I have tomatoes or vegetables or something like that, I can go to the market, but I could not take 36,000 bushels to the
market at that time. I can now, though.
My second question goes to wheat in particular. These days food product is going for conversion to fuel. They will
take wheat and virtually anything that you can put in now. From the perspective of the farmer, the person producing,
is that a good thing?
Second, will this put more of our land back into production? In Saskatchewan, will we get the cattle off the land and
put the land back into what it should be used for, growing grains?
Mr. Smith: The National Farmers Union has been skeptical largely of the biofuels plan. It is a difficult issue to
tiptoe around, because biofuels are politically popular right now. Whether or not it is responsible, however, is slipping
by the wayside. While it is eating up crops and, in part, driving up prices — and that is definitely a positive at the farm
gate — I am not sure whether I like the idea of that being a solution to low grain prices.
Ms. Ross: Historically, input prices follow grain prices; you will see that in the document you have. Leaving aside
the question of whether biofuels are even a good idea and what the conversion ratios are, as soon as grain prices go up,
any benefit the farmers will have for growing grain for biofuels will be eaten away by the input suppliers. For farmers
to grow grain for biofuels to capture that marketplace, which is an increase in demand in the marketplace, the window
of opportunity for us to make any real money is very small and will close quickly. Historically, that is the way it is.
Governments have become powerless because of trade agreements like NAFTA and WTO. In Canada we need to
look at redundant trade. How much of the grain grown in this country can we consume and process in our country?
Often we are trading wheat for wheat, barley for barley, pigs for pigs, chickens for poultry. We need to do away with
redundant trade. Not only would that be wise for us for security and sovereignty, but it is also more environmentally
responsible for us to examine, not only as Canadians but as humanity at large, why we are practising this redundant
trade. It is trade for trade's sake.
Senator Campbell: One argument for biofuels is that the farmers do not need to put as many inputs into it as they do
Ms. Ross: Yes, because the quality does not have to be there.
Senator Campbell: Yes, they want the fibre out of it. I do not have to put in as many inputs.
I do not disagree with anything you have said. I do not have an answer here, and I have seen it first-hand. On the
farm I was involved with, there were four bright kids. They all went to university, they all got degrees and not one of
them is coming back to that farm. They will not go near it with a barge pole.
The farm is paid for. All you need to do is work it. I wish it was only 80 hours a week during harvest and planting.
That was a good week.
Ms. Ross: If I could respond to your final comment, you do not need to have the quality, but farmers are proud. I
have been farming for 26 years; I am married to a farmer and I live in a farming community.
You will want the yield; and in order to get the yield, you will want the inputs. Biofuels are high users of inputs.
Corn is a high nitrogen user and nitrogen is going up astronomically. I do not see where you will save money. Do you
think those farmers will stand around while their crops get weedy because they do not need clean crops? There is just
Senator Campbell: I am not saying it is a good thing; I am just saying that is what was presented to me.
Ms. Ross: I would like to see the first dirty crop.
Senator Campbell: Someday you have to get those weeds out of that field.
Ms. Ross: Farmers do not want to see a dirty crop. Besides that, we are not selling. These farmers do not know
whom they are selling to. They are selling to whoever will pay the highest price. They will still be paid based on quality
because their product could go into the food system or it could get siphoned off and go into biofuels. We do not know,
so farmers will still want to grow a crop that is food quality because that is where they will get the premium.
Senator Campbell: I do not disagree with you. I would not grow a dirty crop.
Ms. Ross: No, you would not.
Senator Mahovlich: People before profit — that never happens.
Ms. Ross: There is no money in it.
Senator Mahovlich: You cannot put people before profit; I do not know a business that does. If you start thinking,
in sports or in any business, there must be a profit or there is no gain. There is no business or anything.
How will we change this around? Can the government do this? Can the government put the people before a profit?
Ms. Ross: I would hope so. I hope, when I elect my member of Parliament, that he is more concerned about the
people in his constituency than the money.
Senator Mahovlich: He will tell you he is.
Ms. Ross: Are you telling me the Government of Canada and the policy we develop in agriculture —
Senator Mahovlich: We have done NAFTA, and you said it does not work.
Ms. Ross: No, it does not; so why do we keep doing it? Why do we keep digging a hole? You do not get out of a hole
by digging it deeper. Let us start putting people before profit and see what happens.
Senator Mahovlich: Okay, let us try to do that. Let me know when you do it.
Ms. Ross: I am not an elected member of Parliament.
Senator Mahovlich: Neither am I, but I am really interested in that. That is what you have to do, and it is never
Ms. Ross: Do we want to eliminate poverty and hunger in this world? Do we want to start looking at our
Millennium Development Goals?
Senator Mahovlich: Have you been to Africa?
Ms. Ross: Yes, I have.
Senator Mahovlich: Have we eliminated poverty?
Ms. Ross: No, of course not, because we are globally —
Senator Mahovlich: Exactly, so tell me about it. It is very difficult.
Ms. Ross: So let us start tonight. Let us start looking at food sovereignty and what it means. Let us start talking
tonight about turning reality on its head, putting people before profit, and start feeding people and stop using food for
fuel. Let us stop lining the pockets of Cargill and Archer Daniels Midland.
We would not be sitting here tonight if we started putting people before profit in this country. Let us start being
vanguards and leaders in this world instead of pawns of WTO and NAFTA. The Security and Prosperity Partnership
of North America — security for whom? Prosperity for whom? I do not want to partner with that — putting profit
Senator Mahovlich: Will you run for the Liberals in the next election? I will be there with you.
Ms. Ross: You just told me I was unelectable.
Senator Campbell: You are electable as a Liberal.
The Chair: Let us get on the straight and narrow here.
Senator Mahovlich: I want to tell Mr. Smith about how smart my dad was. He was a gold miner and we got into the
farming business; we were in it for six months and that was the end of it. He realized he could not make a go of it. It
only took him six months to get out of the business, so it was very difficult.
Did you inherit the farm?
Mr. Smith: I grew up on the farm, and I went away to school after high school.
Senator Mahovlich: Were your parents farmers?
Mr. Smith: Yes, they ran a dairy farm. Since then, my passion for it never really wavered. I would like to continue
on with that way of life for a while, but the way things are going now, it becomes more difficult all the time.
The odds seem to be more and more stacked against us. You need more and more capital. We are competing with
each other all the time and nobody else is competing. It is just farmers competing with each other and driving prices
down and some prices up, while what we are paid does not seem to change.
Senator Mahovlich: For years we heard a lot of complaints about how the price of wheat was down. Now it is up,
and we still have a problem because it costs so much for the fertilizer.
Ms. Ross: Fertilizer, fuel and seed.
The Chair: Thank you. We understand what you have been saying today. It is one of the reasons we are having these
discussions. You can rest assured that the thoughts you obviously feel profoundly will be reflected when we make a
report on these hearings.
Senator Segal: Ms. Ross, when you talk about food sovereignty and floor prices, it leads us to the supply-managed
commodities, including dairy, which do relatively well. They do better than some of the non-supply, and their income
base is more sustainable.
Are you suggesting that we would do better if we tried to bring in more supply management? Is your advice to not
worry about the WTO or about U.S. 301s taken against us, which existed before the free trade act, and to bring in
supply-management stability, which produces a certain guarantee at the farm gate? I want to be sure that you are
saying that that would be one of the paths you think we should go down.
Ms. Ross: Absolutely. We should look at that. There was supply management in the hog industry many years ago.
We deregulated the hog industry, and the hog industry in Canada is now completely destroyed. The supply-managed
industry in Canada that we have left the SM5, the Supply Management Five, including dairy, turkeys, poultry, eggs.
Some of that has been compromised through the trade agreements.
They are smart. They can get around supply management and our board of protection by bringing in products that
are processed and can get under the wire. For example, you cannot bring in chickens, but you can bring in chicken
breasts. You cannot bring in dairy products, but you can bring in butterfat oils with sugar and the ingredients for
baking. They are getting around the regulations, but we need to be careful about how we protect ourselves. Part of
food sovereignty is that a country has a right to protect its borders and its producers from unfair competition and what
is called dumping. We need to look at that.
Mr. Smith can speak to this in a more relevant way. I am not in a supply-managed industry. Mr. Smith is a dairy
farmer with his family. In the dairy industry, unfortunately, supply management started out to be a great idea. It was
managing supply and also guaranteeing farmers' costs of production, which was great. I envy some of the dairy
farmers who have done quite well. Now, however, the quota system has made the industry exclusionary and made it
difficult for young farmers to enter. We need to look at supply management, but we need to retool it to make it more
fair and more reasonable so that young farmers can get into it. We need a reasonable price so that they system does
what it was originally intended to do, regulate supply and guarantee a cost of production. Unfortunately, the industry
has gotten away from that.
I would recommend that you let Mr. Smith speak to that, because he is experiencing it right now as a young farmer.
Senator Segal: By all means.
Mr. Smith: I feel I am a bit off topic here, to speak about only the problems of supply management. Ms. Ross is
right that the spirit of supply management works well in these commodities when farmers are not competing against
each other. It is the same at every level. There are so many of us and always so few buyers. That is just trouble in
economics. The way it has gone, we are all competing against each other to purchase quota. We are driving the price up
so that it has become unaffordable for anyone who cannot cash flow a certain amount of money each month to
purchase quota. Who will spend $30,000 to put a dairy cow in their barn? That is what it costs now.
It seems like many different aspects of each commodity sector have spun out of control. We definitely need to be
looking at agriculture across the board and some of the issues and problems within it.
Senator Segal: We have been looking at the depopulation of rural Canada. Fewer than 4 per cent of Canadians now
live in rural Canada. Not having people on the ground creates a whole series of strategic risks for Canada.
Scotland has had great success reversing that trend, and one way they have done it is by reaching out to Eastern
Europe and elsewhere and bringing families who wanted to farm to repopulate their part of Scotland. We did that in
Canada many decades ago. Scotland is remarkable in Europe for being the only country that is reversing the tide on
Would it be a good thing or a bad thing, from the point of view of your own operations, if there were more people in
farming? Would that be good, or would it produce competitive pressures that would be not constructive and unhelpful?
Mr. Smith: I would say that having more farmers is a good thing. It can be even more efficient. Now, because we
have fewer farmers, we need bigger equipment and we run large expanses of land, requiring more input costs, more
fertilizers and more chemicals, which is what we have been talking about. If we scaled back a bit and reduced some of
those input costs, we would need more farmers, but we might end up with a more profitable industry in the end.
The Chair: Thank you very much. The more you speak, the more delighted we are that you are here. You can read
about these things, but we have been all across the country in the past year, in the North and in every province, because
we need to hear the reality. You have given it to us tonight and we thank you for that. Good luck.
We have a number of witnesses joining us now to discuss the manner in which farm loans and farm banking have
changed in recent years and how those trends may have been affected by developments in agriculture. From the
Canadian Bankers Association we have Peter Brown, from Scotiabank; David Rinneard, from BMO; Brian Little,
from RBC; Denis Boudreau, from National Bank; Michelle Harvey, from TD Canada Trust; Darryl Worsley, from
CIBC; and Marion Wrobel, Director of Market & Regulatory Developments.
We have one hour this evening and want to make every second count. These are special witnesses. We want to cover
a wide range of issues. I would encourage my colleagues to keep your questions short to give our witnesses an
opportunity to respond fully and for everyone else to have a chance to participate in these discussions.
It is my understanding that Mr. Wrobel will be making an opening statement with the others here to help answer
questions. You are a fine-looking group on this issue. We are interested in what you have to say.
Marion Wrobel, Director, Market & Regulatory Developments, Canadian Bankers Association: One reason a large
number of us are present here today is to demonstrate the large amount of competition in this marketplace. There is a
lot of competition in the banking sector, and the various banks take different perspectives on a variety of issues. We
hope that diversity of the banking sector is reflected in our answers today.
On behalf of the Canadian Bankers Association, its 51 members and their 250,000 employees in Canada, I would
like to thank you for the invitation to speak to the committee on the subject of farm input prices in Canada. We look
forward to your questions about bank lending to the agricultural community. At the outset, I would like to put the
banking industry and its association with the agricultural community in perspective.
Canada's banks play an important role in supporting the agricultural sector. We recognize that a cooperative,
symbiotic relationship between our members, the farming sector and rural communities is necessary to ensure the
strength of this sector. We also recognize that a cooperative relationship with federal and provincial governments is an
essential component of this work. The banking industry is in regular dialogue with Agriculture and Agri-Food Canada
and other federal and provincial government departments to help implement and deliver agricultural programs for the
It is the banks' relationship with their customers that is of primary importance, however. We work with our
customers, in good times and bad, to provide cash management and transaction accounts and access funds to
maintain, grow and diversify their farms whether through mortgages, term loans or operating lines of credit. It is our
relationship with our customers that we will talk about today.
There is a great deal of competition and choice in the market for lending to the agricultural sector, with each
competitor striving to increase its market share. In addition to banks, there are credit unions and caisses populaires,
Farm Credit Canada, finance companies and provincial government agencies. In this context, the banks have
authorized almost $29 billion in financing to the sector. When I talk about authorizations, that is the amount of money
we make available to our customers. According to Statistics Canada, in 2006, chartered banks accounted for 42 per
cent of farm debt outstanding.
Moreover, it is also important to consider the type of financing that banks provide. The banks are the largest
providers of non-mortgage farm debt outstanding. They account for 55 per cent of this lending, more than $14 billion.
As this type of lending is more complicated than just lending against assets, it requires the bank to truly understand its
customers and to work closely with them over time.
Working closely with customers in this way is reflected in the fact that the agricultural sector, and rural businesses
more broadly, receive service that is at least as good as that provided to urban businesses. According to Statistics
Canada, small businesses in rural areas have access to business financing that is comparable to that in urban areas. For
instance, rural businesses had 88 per cent of debt financing requests authorized. Rural and urban businesses paid
comparable prices for a wide variety of business credit, including demand and short-term loans, mortgage loans and
lines of credit.
Working closely with customers is also reflected in our commitment to assisting smaller farmers and the rural
communities through bankers dedicated to the agricultural sector and through service innovations. For instance, in
order to allow producers to spend more time on their operations and with their family, we are using mobile agricultural
bankers. These bankers employ cars and laptops to meet with clients at their farm as opposed to at the branch. This
commitment to rural communities and the small and medium-sized farms that underpin them is also borne out in the
Providing services to the agricultural and rural community is an important part of what we do as banks. Our
commitment to rural and agricultural small businesses is a major part of the banks' SME business segments. For
instance, for the small business segment, 17 per cent of total funds authorized and 18 per cent of total funds
outstanding are dedicated to the agricultural sector. That is from one in six to one in five dollars dedicated to this
sector. That is quite a bit. Moreover, in recognition of the capital- and land-intensive nature of farming, the amounts
authorized for agricultural producers and related services tend to be higher on average than in other industry segments.
All this is not to say that there are not any challenges. While grains and oilseeds are benefiting from strong demand,
the beef and pork sectors are suffering from increasing input prices and a drop in cattle and hog prices. In response to
these challenges, the solid relationships our banks have built with their agricultural clients allow them to work on a
client-by-client basis, taking into account their individual situations to find sustainable solutions when required.
As we all know, temporary shocks to the agricultural sector are common. Indeed, this decade has witnessed BSE,
avian influenza, drought and floods. As before, the banking industry will work together with the agricultural sector to
contribute to its long-term viability.
Thank you for the opportunity to meet with you on your study. We would be pleased to answer any questions you
Senator Segal: Thank you all for making time to join us tonight to give us the benefit of your advice and perspective.
I owe money to various organizations around the table, so I will govern myself accordingly.
Let me ask perhaps a more fundamental question. Over the years, I have watched banks making difficult decisions
on behalf of their shareholders about what businesses and lines of business they stay in. Sometimes they are heavily
into commercial lending, and sometimes they withdraw from that sector. Sometimes they are into small business. Some
years ago, I think, the banks decided that whatever else they did they would not finance restaurants, for legitimate
reasons around credit risks and appropriate collateral.
Without saying what is politically correct perhaps, if the politics of withdrawing from this sector were not
problematic, as I expect they would be, and in terms of what the banks now make as commercial enterprises that have
a fiduciary duty to their shareholders to make a reasonable return, do you think that generally speaking the
organizations for whom you work would want to stay in this business? If they had the freedom to withdraw and to put
the capital to use in a more profitable segment from the lending perspective, do you think they might do so, or do you
think the returns are of sufficient value that most of your organizations feel they are in this sector for the long haul?
Brian Little, National Manager, Agriculture and Agribusiness, RBC, Canadian Bankers Association: From our
perspective, we would prefer to remain in this industry over the long haul. Many of us have been in it for quite some
time, starting out with specialized agricultural departments and then hiring specialized people to work as agrologists
within a company to provide advice and counsel to our branch managers and customers. We have further specialized
by having many of those agriculture account managers move on to become account managers and work with clients
across the country and, even within our risk adjudication team, to have expertise within our account manager ranges
according to sector. We also have that specialization within our risk adjudication teams.
Over the long haul, the banks are in it for an extended period of time. It has been a good piece of business. It is a
wonderful relationship. Our business is built on relationship, relationship, relationship. It is important to establish that
relationship to help the next generations grow.
Senator Segal: Does anyone else want to add to that?
Michelle Harvey, Group Manager, Agriculture Product, Policy and Process, TD Canada Trust, Canadian Bankers
Association: Every bank is the same. They look at the return on equity in the various businesses and make decisions
about what to do based on that. I would say that we are all in this for the long haul. We are putting more into this and
more people in the field. We believe there is a future for this in our industry.
Senator Segal: Is it fair for me to conclude from both those responses that the mix of risk and profitability makes it
an area that is sustainable for the banks and a place you want to be for the foreseeable future?
Are there any regulatory or government policies that make your circumstance as lenders more difficult or make your
ability to invest in the sector more constrained? For example, is Farm Credit Canada, FCC, really a lender of last
resort? We often hear that it is not. It is competing for loans that intrinsically would be bankable based on normative
considerations of what a bankable asset would be. As such, it does not contribute much to the range of choice that
farmers have. It only contributes to the competitive mix. One would have thought FCC's initial mission was to be there
as a lender of last resort who steps in when for various reasons the banks cannot accept a particular risk.
As I often say to friends, bankers have tough decisions to make, but it is not their money. It is their shareholders'
and depositors' money. Therefore, they have to be careful. However, are there things that government could be doing
to enhance your ability to provide and expand your liquidity beyond 17 per cent in this marketplace as opposed to
constraining it? I ask that in the context of the farm dynamics we are now going through. I am sure your risk officers
are working very hard to try to assess and keep ahead of the situation.
Peter Brown, Director, Agriculture, Scotiabank, Canadian Bankers Association: I have one comment about Farm
Credit Canada. We see them as a competitor in the marketplace, not a lender of last resort. Any competitors in the
marketplace are certainly welcome if they have the same regulations that we work under. That is an important aspect
of their involvement.
What we see as valuable in dealing with the farm customer is that we are able to provide a full range of services to
them. We do not only lend to them. We provide investment services, day-to-day banking, credit cards and the whole
gamut of products and services. That is an important aspect of the relationship we have with them.
It is also important that that is the same ground on which others competitors play. It is not helpful when you have a
competitor working in the industry that deals with only one aspect and does not provide some of the other services.
Mr. Wrobel: Going beyond the FCC, the Canadian Bankers Association and its members have always advocated
for a competitive regulatory and tax environment. The government has taken some steps, for which we are very
grateful. We are moving in the right direction, but we are heavily regulated from the point of view of corporate taxes
and the regulatory environment in which we operate.
We have many initiatives impacting the banks at the same time that we have to deal with implementing Basel II,
which has required a lot of resources. This is time and effort that cannot be dedicated to delivering products to our
customers. If we can get the regulatory and tax environment right, in general, that will be a big help.
Senator Segal: One of the fascinating questions around Canadian banking that has always struck me is the mix
between what I would call asset-based lending and cash-flow-based lending. I was once lectured by a bank chair in
another context about the difference between solvency and liquidity. Many farmers, who on occasion find themselves
in difficulty, do not believe they have a solvency problem. They have assets — land, machinery — and equity in them.
They simply do not have any cash because of a commodity price collapse or because of something like a BSE crisis. It is
the general view that where there is any hope of a reasonable conclusion, bankers will try to stay with them because it is
in everyone's interest that they survive, including the bankers' interest.
Has the mechanism for determining that relationship between cash flow lending and asset lending changed in the
last five years? Have the dynamics in the marketplace forced banks to reflect on different formulas and different mixes
in terms of risk assessment and analysis?
It would be helpful for us as a committee to understand some of those dynamics. I am not asking for any
proprietary information but for what you are able to share with us on how those dynamics have changed in your sector
as lenders and providers of financial services right across the spectrum.
David Rinneard, National Manager, Agriculture, BMO, Canadian Bankers Association: As banks, we have all offered
programs through the BSE crisis, floods, drought, et cetera, to ensure that individual operations can sustain those
crises, recognizing that they are most often temporary in nature. We are quite cognizant of that and think we have
done a commendable job of ensuring producers get through those.
The rationale for such programs is recognizing that over time the industry is cyclical. In most instances, we will work
with our customers through those troughs in anticipation that there will likely be another peak where they can recover
and become whole once again.
Senator Segal: In the last 36 months, if there is one thing you wish you had been able to do better, what would it be?
None of us is perfect, but with the benefit of 20/20 hindsight, is there something that might change in the future in the
industry, or has whatever could be done been done?
Mr. Rinneard: For the most part, our customers are poised as well as could have been foreseen given the
circumstances they are in. Some are in more dire circumstances than those in the grain sector, which is vibrant right
now. However, much of what they are currently enduring is a phenomenon that until now had not been realized.
Mr. Brown: I would like to give you an example of what we do to get farmers through a period of low income.
Recently I was in Atlantic Canada looking at the potato industry. As many of you know, potato producers in Atlantic
Canada have had some financial stress over the last two or three years. We have a number of accounts. I will look at
Prince Edward Island, in particular, where we needed to do some refinancing. Our commercial lenders have probably
refinanced 50 per cent to 60 per cent of their customers in the past 12 months to free up enough capital for them to
plant the crop this year.
It is an exercise we go through because we believe in the relationship. We also believe in the future of the industry
and that we will see a time when they will have profitability again.
Denis Boudreau, Senior Manager, Agriculture, National Bank: I would like to thank my colleagues for answering
those questions. I could add that what could help us would be to be able to foresee the future. It would help us a lot, a
little like weather forecasting.
We have specialized teams which look into difficult situations. For example, we are fairly involved in hog
production in Québec. We have specialized teams that will find solutions to meet the needs on both sides, in order to
take care of the situation. How long will this last? It is a little like weather forecasting. If you have the answer, we
would be pleased to hear it.
Senator Campbell: Not being from a farming community, it always amazed me that even in the harshest times, I
never heard a farmer blame the bank. I was amazed by that because in the city, the first one we blame is the bank. That
speaks to the real relationship that you were describing. Farmers do not switch from bank to bank. They likely use the
same bank their father used. That speaks volumes about your industry.
I am not a big supporter of government getting out of this with Farm Credit Canada. They might be a competitor,
but they are providing what might be a different product from yours. A bank gives you one-stop shopping for so many
Perhaps all the witnesses would answer my question: Are you seeing more young people coming back into farming,
or is this the drain we sense it is? Are more people getting into farming by staying on their parents' farm or by
Darryl Worsley, National Manager, Agriculture, CIBC, Canadian Bankers Association: We are seeing a resurgence of
young farmers wanting to stay in the business and continue to farm. Banks are working with those families on
succession planning to ensure that that the young people are able to take over their parents' farm and succeed.
Senator Campbell: Is that regional only, or are you seeing it generally across the country?
Mr. Worsley: Generally, we are seeing it across the country.
Senator Campbell: That is good news.
Senator Mahovlich: When we had the BSE crisis, how many farms were lost in Canada?
Mr. Little: We experienced that in May 2003. Essentially, we took the strategy of working with our customers on a
client-by-client basis to help them to get through it. We all took steps, whether deferring principle, taking interest only
for a period of time or building a plan. I was amazed at the creativity of our producers. They were faced with a tough
situation, and they reacted and responded positively. With all of the stakeholders working together — governments,
banks, producers, organizations — very few farmers fell by the wayside as a result of BSE.
Senator Mahovlich: Some of them must have been forced to sell their farms, probably to larger corporations.
Mr. Little: Some did that, but many were able to make it out the other side and are still in business.
Senator Mahovlich: That is good news. The current crisis is rising input costs. Will farmers have a big problem in the
foreseeable future given their input costs? Will you open the doors?
Ms. Harvey: We work with clients on a case-by-case basis. We look at cash flow, business plans and the viability of
each client and producer. We work with them, and if it makes sense we will back them.
Senator Mahovlich: Costs are rising, so they will be knocking on your door, I am sure.
Ms. Harvey: It is still too early to tell because it is just starting and it depends on when the money is owed to the
suppliers. We have not seen many to date. Last year was a good year, so many farmers prepaid their input costs. I
would say it is almost too early to tell.
Senator Segal: I would like the perspective of our witnesses on the issue of scale. Often, in other businesses, it is quite
normative for a banker to see two clients, one who might have a particular franchise but not a lot of capital; and the
other might have a lot of capital but could grow their franchise. Constructive bankers will help to put the two together
in a way that is of benefit to both. It also helps to produce a stronger and bigger client for the bank. Do you find
yourself doing a lot of that in the farming sector between producers? We have heard evidence before this committee
that many smaller farmers are disappearing, either because of intergenerational sell-off or because it makes more sense
to do corporate farming. How frequently is that happening in the sector, and to what extent is it driven by financial
reality as opposed to generational questions?
Mr. Rinneard: I have not seen much of that transpire. Speaking anecdotally as a former account manager, typically
in such instances you see different operations that bring different pieces to the table and perhaps crop-share or share
other aspects of infrastructure or labour to ensure that with fewer resources they are still able to run viable operations.
Mr. Brown: We do not often play a role in matching up two entities that could come together. Certainly we play a
role in the intergenerational transfer and work our clients through that process. By means of quite a detailed program,
the next generation can find its way into the business. It is not always a viable situation for them to go into, but at least
they can go in with their eyes wide open.
On the one hand we see that scale going up, but on the other hand we see quite a growth in the small niche farm
market. It is an exciting story that farmers are producing organic or other value-added products, growing locally, or
are involved in farm markets because they are in the shadow of a large urban centre. That story is growing, and we are
involved with them.
Senator Segal: Many witnesses have talked about the need to move from the large agribusiness shipping food long
distances to the more local farm business. Of course, that often requires retooling the operation and some fresh
financing. It might require capital to be spent in local marketing, which would not normally have been the case based
on the prior supply chain.
Have you seen incidents of that? Have the banks been able to respond to that on a merit-by-merit, case-by-case
basis? Such a transition is not without risk. The farmer finances the risk, but the bank has to provide the liquidity
through that risk period. Do you have a program to deal with that?
Mr. Brown: Yes, we see that quite often, both in a large way and in a smaller approach. It all comes down to
business planning. We work with our customers on planning the business so that they can begin to take on some kind
of shift in that business. The business planning exercise is much more important in the industry today than it might
have been a generation ago.
Mr. Boudreau: As far as new or small operations are concerned, yes. I've seen a preference for this type of operation.
Why? Through personal choice too. Instead of making a choice to go into bigger operations, not necessarily more
profitable, some opt for production or processing and/or marketing.
As our colleagues said earlier, it is on a case-by-case basis, but financing is available for this type of operation. I
already experienced several very interesting instances. There is a promising future, particularly in the areas located in
the vicinity of large centres.
Senator Segal: You mentioned that specialists work with your organization to make analyses. Is it occasionally
suggested to families to change their products or their ways of doing things?
Mr. Boudreau: There is certainly a consulting side in the recommendations since we develop many close
relationships with our customers, particularly in agriculture. We negotiate around the kitchen table. It is easier to build
close relationships and we certainly use sometimes our experience and our knowledge to guide people.
Senator Segal: On the issue of business planning and business planning skills, can you share with the committee any
work that you are aware of that the banks do with organizations like Guelph or Kemptville, or others, where farmers
are being trained? The chemical companies, for example, often finance training programs so that our farmers are well-
versed in how to handle a particular chemical if there is a change in the offering. Are banks involved in any way?
Obviously, client-by-client, you give solid advice and help as best you can, but in terms of an aggregate activity across
the board, are banks involved in any way in building the business skills and the risk management skills of your clients,
or do you leave that to the University of Guelph and other institutions that focus on preparing the farmer on a broadly
based capacity premise for their activities overall?
Mr. Little: The banks are usually very much involved in those kinds of events as participants and presenters, both in
the local communities and also through the Canadian Bankers Association and the Olds College bankers' school that
takes place each year. The banks are very involved in developing a five-day program for producers and bankers around
the industry. It deals with key ratios, key information, financial plans, building the business plan, and so on. We are
very involved, both formally and informally, through presentations and activities throughout the winter months.
Senator Segal: I wanted to ask about land value and how it figures into the overall assessment of a farm's viability.
Clearly, land has an intrinsic value that would change over time. However, there are assumptions in the marketplace
that when there is an intergenerational change or the farm changes hands, that land value is one of the bases upon
which, I assume, financing might be considered. When a province like Ontario or any other produces for the best of
reasons a greenbelt that says that certain land can be used only for agricultural purposes, which changes the dynamic
on that value — and I am not saying it is a bad thing or a good thing, I am merely saying it is a change — what does
that do to you folks as people who have the land base as part of your collateral arrangement for the financing of cash
flow and other things for that farm? Many people on the periphery had one plan to sort through retirement and now
have another plan; I have met with them. What does that do to you folks as managers of risk? How do you address
that? What implications does that produce for you?
Mr. Rinneard: When we look at farm land for farm land financing, we treat it as farm land and, as a rule, we do not
incorporate the speculative value into the price of that land. As a consequence, when something like that materializes,
we hope that it does not have a detrimental affect to our relationship with that individual or their ability to garner
credit going forward.
Senator Segal: Something like a greenbelt change would not have had any meaningful impact, by and large, on the
overall portfolio of loans that you might have had in that particular marketplace, except for whatever circumstances
might have been different case-by-case, unrelated to the land value, if I understand what you say?
Mr. Rinneard: Yes. I cannot cite any specific cases where we have encountered a problem with that.
Senator Segal: I think we have discovered at this committee that the vast majority of Canadian farms depend on
income from off the farm. How important is that calculation in the kind of credit and cash flow allowances that you
are prepared to advance to one of your clients? Is it part of it? When you must securitize your position against various
assets, do you have to take a look at the income coming from other sources? Every case is specific and different — and,
I respect that — but generally do you have an approach to it? I heard a very clear-cut approach that land is assessed as
agricultural land and not for its speculative value. Do you have a clear-cut approach with respect to off-farm income
and how it is assessed in your process of determining credit worthiness for any of your clients?
Mr. Worsley: That is a very good question, senator. In terms of off-farm income, yes, we do take it into
consideration when we are looking at the overall cash flow. Off-farm income is becoming increasingly important,
especially for smaller farms.
Senator Segal: I am trying to understand the mechanics of this. Classically, when a non-farmer fills out a statement
of net worth for a banker to look at, he will lay out assets, liabilities and income sources that relate to his family or to
his business. I assume, then, that your expectation is that if a farmer's significant other was employed as a teacher
downtown or as a nurse at a local facility, that would be figured into the mix and would be part of what you assess
regarding whether or not that client is credit worthy. How big a part would depend on how significant that chunk is in
the overall cash flow into the enterprise. Is that a fair assessment on my part?
Mr. Worsley: Yes; it is given consideration.
Senator Segal: To follow that line, if there were a basic income floor that farmers were guaranteed because they were
farmers — not supply commodity related but because they were farmers — like we have a guaranteed income
supplement for seniors who fall beneath a certain level, would that kind of basic guarantee in the system make your job
as lenders easier? We had a farm opportunities program for a while that was discontinued. We said that if any farm in
Canada earned less than $25,000, they would be topped up to have that much liquidity. Would a basic guarantee in the
system be a contributing factor, or would it be so marginal as to not be worth the effort?
Mr. Little: I think you are describing a program that would be similar to any government program, whether a
Canadian Agricultural Income Stabilization payment or another provincial program, where we have to treat that
source of income towards the serviceability of the farm business. Yes, it could be considered as part of the debt
servicing calculation and an indicator of income for that farm to support the farm family lifestyle and living expenses.
Senator Segal: How would that relate, generically, to the kinds of leverage that you are prepared to accept normally
as a debt-to-equity, debt-to-income ratio? Do you have norms or do you have a specific view that grain farmers are in
one category and supply-side dairy farmers are in another? Do you have rules of the road for those ratios? I assume
that when regional managers must report on how they are doing across their whole portfolio, someone to whom you
report will have a view on what those ratios should be. Would you feel comfortable sharing that with us?
Ms. Harvey: We have basic industry profiles that help our lenders out in the field look to see whether a deal is viable
to begin with. They look at certain ratios, depending on the industry, to see whether a deal could be done.
On your previous question about income, I would say that it really depends on the farm. Some may not need off-
farm income to cash flow, and some may need it and they know they need it. We look at it separately for each
It depends, as well, as to who the farm is operated by. Is it a sole proprietor or a partnership or a corporation? We
look at all of those sources of income and deal with each case individually.
Senator Segal: I assume those ratios would in the normal course of business be proprietary to every bank. You
would each have your own decisions based on a whole bunch of things. Would the Canadian Bankers Association have
any across-the-board norms that they could help us with in terms of the technicality of that?
I am not looking for proprietary information; that is none of our business. However, are there any across-the-board
norms that might help us as we look at input costs — what that does to debt loads and cash flow burdens? Are there
any technicalities that you could share with us, not today necessarily but perhaps in a memorandum, that would help
us make recommendations that are constructive for the lenders and the farmers?
Mr. Wrobel: As an association, we do advocacy for our members and provide them with research. In terms of their
business practices, they operate their businesses as they see fit. We do not engage, in any way, in collecting or finding
out how they do that. We just do not have that kind of information.
The Chair: All of us around this table who have been involved in this committee for quite a while, know that hardly
a year or a month goes by that there is not some kind of incident that takes place and causes immense strain and
concern among every part of our Canadian agricultural group.
Listening to you tonight, and having been at this table for quite a long time and having heard group after group of
farmers come in and attack the banks, we have not heard that attitude so much since the BSE issue. I come from
Southwestern Alberta, right in cattle country, and it was a horror; there is no doubt about it. It was fearful; it made
people have problems with their health and everything else.
At the core of it always was the question of how will we get back. Can we get back? Do we want to get back, and
how will we get the help?
When the chips come down, the help basically comes from you. It seems to me, listening here tonight, that was a
kind of historic point in bringing some very creative efforts together to try to keep that industry and all that was
connected with it alive — and, therefore, the families and the farmers alive as well.
Do any of you feel that way? That crisis was so unexpected and frightful, yet there was a connection between you
and the farm community as a result. You were all very different parts of it, but nonetheless you were all hit with that
issue. What would your call on that be? Did it help to build a better bridge?
Mr. Little: That may have been a new beginning, because we are following many of those same practices now with
our pork and beef producers, cow-calf producers, as we did with those impacted by BSE. Essentially, we are sitting
down and working through a plan with them, developing a plan for the next 12 months and helping them make some
changes to their business that will help them survive and come out the other end. I think perhaps it might have turned
the page. The relationship is very important, and perhaps the BSE crisis helped to deepen the relationship.
The Chair: Ultimately, it is important for all Canadians to have that kind of connection.
Mr. Brown: I think it is an important example of how we can work together. It really did give us an opportunity to
show how we can work with our customers. Even beyond that, it was not a situation just of bankers working with
farmers. It was everyone in the industry, and we all saw it happening.
Government came to the table very quickly and strongly. The Canadian Food Inspection Agency was there doing
amazing work, and so were the cattlemen's associations; everyone was pulling together at once. That is how it was
successful. It certainly gave us the ability to do what we can do in those situations.
Mr. Wrobel: If I might speak for the industry as a whole, one of the defining features of that episode was the fact
that the industry and the associations worked incredibly closely with federal and provincial governments, bureaucrats
We were in constant contact with all of those players to reassure them and to send the message out that if individual
producers felt they were subject to a lot of risk and personal stress, they should talk to their banker. That is the first
thing they should do. They should not run away from the banker but actually talk to the banker and allow the
individual banker to work with them to see them through.
As Mr. Little said earlier when he was asked how many producers fell by the wayside, there were not very many,
because all of those parts worked together. At the end of the day, the collaboration with all of the players worked very
well and could be a model for similar situations.
Mr. Rinneard: I would like to echo Mr. Wrobel's remarks. The producers at the time were reluctant to approach
their bankers. However, subsequent to that and since then, I think they have recognized that there is a lot to be said for
being pre-emptive and having those tough discussions right away at the outset, rather than letting the problem fester.
In so doing, they were quite obviously better poised to sustain that crisis.
As a consequence, they are still around today. They are having those same conversations perhaps, in some instances,
with some of their bankers now. However, they have an added degree of confidence that we will continue to support
them during those difficult times.
The Chair: That is good to hear. Even for myself out in my home country, certainly we in government, in Parliament
and in legislatures were constantly every day in touch with each other. Even in that kind of a situation, I think it did a
lot of good for us too to know that when the chips were down, we really got along together very well. We were very
aware of the banking industry, and I think we also learned from each other.
Without those connecting links, as well as your connecting links, we would not be in the situation now of
hopefulness and success that came out of a very nasty time. It was more than just anxiety or trade in that issue, and I
thank you all for responding the way you did.
Thank you for being here tonight. It has been a very interesting evening, and we are glad that you chose to come.
The committee adjourned.