Proceedings of the Standing Senate Committee on
Agriculture and Forestry
Issue 4 - Evidence of December 7, 2004
OTTAWA, Tuesday, December 7, 2004
The Standing Senate Committee on Agriculture and Forestry met this day at 6 p.m. to study the present state and future of agriculture and forestry in Canada.
Senator Joyce Fairbairn (Chairman) in the Chair.
[English]
The Chairman: I welcome senators and those who will be watching the committee hearings this evening. The Standing Senate Committee on Agriculture and Forestry is in the process of holding hearings on the deep difficulties in agricultural communities across Canada. One of them has to do with the BSE issue that has closed the American border to Canadian cattle for almost two years. We have been listening to people from the industry and others associated with the concerns of the industry.
Tonight we will hear from Mr. Terry Campbell, from the Canadian Bankers Association; Mr. Bob Funk, from Scotiabank; Mr. Brian Little, from RBC Royal Bank; and Mr. Dave Marr, from TD Bank Financial Group. Thus we have a wise and experienced group of people who will help honourable senators with some of the difficult issues with which we are dealing.
Gentlemen, perhaps you would care to make your individual statements and then we will ask you some questions.
Mr. Terry Campbell, Vice-President, Policy, Canadian Bankers Association: Madam Chair, I will make a brief opening statement, providing a little bit of background, and then I think the time will best be spent turning it over to questions.
The Chairman: If that is satisfactory to the others, that will be perfect. The floor is yours.
Mr. Campbell: Madam Chair, on behalf of the Canadian Bankers Association, I would like to thank the Standing Senate Committee on Agriculture and Forestry for inviting us here to participate in this important discussion on BSE. The agricultural sector is very important to Canada's banks. We have a long history of serving the farming community. The sector acts as the economic foundation underlying many of the rural communities that we serve through our branch network. The beef sector is particularly important, accounting for almost 20 per cent of the authorized credit to the agricultural industry.
The banking industry has been working with the government, the beef industry and our beef industry clients ever since the discovery of the single case of BSE in May, 2003. Canada's banks reassured farmers that they would show patience and work with them on a case-by-case basis to help them through the crisis exploring all options available. In addition to the efforts of individual banks in that regard, the industry as a whole, through the CBA, has been collaborating with agricultural industry stakeholders and governments to help them craft long term, sustainable solutions to the crisis.
For instance, we hold regular conversations with the Canadian Cattlemen's Association to share information on the status of the industry, to inform producers of the actions that our members take to assist beef industry clients, and to work with producers to explore ways of addressing the crisis. We have also had discussions with the federal Minister of Agriculture and Agri-Food, as well as provincial ministers of agriculture, to share information on how our industry is addressing the crisis.
Banks are being as patient and flexible as possible when dealing with clients in difficulty because of the border closure. In some cases, banks have tailored specific programs to assist BSE affected farmers, including such things as payment deferrals, loan consolidations, interest rate relief and restructurings. In other cases, institutions have applied more general bank disaster assistance programs in their continuing efforts to be as accommodating as possible. We undertake these efforts with the aim that further financial restructuring may be able to sustain some producers until the border reopens and demand increases.
Measures taken by the federal government and provincial governments across Canada to assist the beef industry have been beneficial. Past measures taken by governments have had a meaningful impact on the ability of producers to sustain operations throughout the difficult period. We are hopeful that the government's recently-introduced assistance package will provide additional, much needed support for Canada's beef farmers.
While banks are giving every consideration to clients who are in difficulty because of the border closure, an unfortunate but inevitable consequence of the protracted market disruption is that some farms have failed, and others will fail. For certain clients, it is a growing challenge for lenders to be able to craft additional measures to sustain them. However, I want to make it clear that moving against clients is the last resort and would only happen if all other measures have been exhausted.
It is often a challenge for clients themselves to decide if they want to devote additional resources of their own to sustain their operations, or to exit the industry in an orderly way, with whatever equity they have remaining. We would encourage the government to examine measures that could be introduced to help producers who want to exit the industry.
The recent announcement in the U.S. that the draft rule has moved from the Office of Management and Budget for review is a hopeful sign that this phase of the crisis may be drawing to an end. However, even after the border opens, more work will be needed to help the beef industry rebuild its economic foundation. The protracted border closure has significantly weakened the balance sheets of a large part of the beef industry, and has damaged the financial position of a number of businesses that provide products and services to beef producers.
Moreover, a significant overhang of older cattle will remain to be dealt with. The government will have an important role to play in helping put the beef industry back on a solid economic footing. We would encourage the government to continue to work closely with the beef industry beyond the time when the border reopens.
Madam Chair, those are our brief opening remarks. We would very much welcome the opportunity to have some dialogue with you.
The Chairman: I thank all of you, and the institutions that you represent, for taking the attitude that you have through this issue, because this is one where, if ever we have all had to work together, this one is it. We are very appreciative of your attitude towards what is a crisis in the country.
Senator Gustafson: I am pleased that you bring a positive report of standing with the farmers in this difficult time. There is no question that there are many problems out there. The problem of the cattle industry is outlined here, and also the problem of the low commodity prices in the grain sector is a major factor, but there also are some positive things. I would like to point out a couple.
Number one, Canada probably has the cheapest land in the world. The province of Saskatchewan, for one, has 40 per cent of the arable land in Canada. By comparison, the equity in the land is an important thing. It is the one thing that they do not make any more of, and it is the one thing that is awfully hard to move.
That has always been a stable place of investment for agriculture. It varies from province to province, however. Right now, Alberta's land prices are sky high for different reasons that may even turn out to Saskatchewan's benefit because we are not over-inflated in prices, and neither is, say, western Manitoba. That is one thing that I would hope you would keep in mind as we look at the situation, because things will change. Times will change.
I can give you a comparison, because I believe it is important. I live 20 miles from the border. Six quarters of land right on the border sold in Canada for around $55,000 a quarter section. Right across the border in Crosby, North Dakota, that same land would go for $120,000 U.S., and they will not sell it. The reason for that is that there is a lot of optimism.
The Americans look at agriculture in a different way. It does not matter whether it is New York, Los Angeles or Seattle; the people will fight for the heartland and will support it. We do not seem to have that dedication in Canada, and it is needed.
This Agriculture Committee has heard from many witnesses from all over the country. Therefore I am trying to lay out some of the things that are important for us. However, the bottom line is that I am pleased to see that you are going to stand with the farmers.
On the cattle industry, which most of your brief addresses, I believe that will straighten itself out. The cattle industry has always been one of the strong industries, and certainly the banks and different lending institutions have always seen that as a positive, because there was always a little money there to pay bills and to meet obligations.
So with that, I will thank you, chair.
The Chairman: It was a very good introductory speech, Senator Gustafson. Do any of you have any comments on Senator Gustafson's remarks that you would like to express?
Mr. Campbell: We certainly appreciate the senator's comments.
Are there any comments from my colleagues?
Mr. Rober Funk, Vice-President, Agriculture, Soctiabank: If I might, I feel there is a lot of consistency, in terms of how we have seen our customers behave, with the way that you describe them in general, and the industry. Over the course of the last 18 months that BSE has been out there, we have dealt with the issues more from the standpoint of bankers and their customers being together to discuss situations, exchange information and determine what the best course of action would be, rather than from an adversarial point of view, such as the ``We cannot support you any more'' type of approach.
In fact, I think it speaks to how important this industry actually is seen by Canada that banks or lenders, the producer associations and the producers themselves, as well as governments, both at the federal and provincial levels, have been very supportive and consistent, and started very early in the process to provide support and to give that indication. That certainly helped the lenders to understand that there was resolve that this industry should remain strong, that this industry should remain a staple of agriculture in Canada. That made it easier for lenders to find ways to provide additional support.
Mr. Brian Little, National Manager, Agriculture and AgriBusiness, RBC Royal Bank: I would like to comment on your remarks regarding the cattle industry. We too feel that the industry will bounce back. It is a resilient group of producers who participate in this industry, and they find ways of dealing with the circumstances and adjust their business plans and their management practices to enable them so to do. We feel confident, as you do, that the industry will carry on. It will look different, but it will still be there.
Mr. David Marr, Senior Advisor, Community, Rural and Agriculture Issues, Government and Community Relations, TD Financial Group: Just on Mr. Little's comments about the beef industry, I think that goes for most industries or sectors in agriculture. They have proven resilient over the years. Whether it is some sort of tariff duty or a drought, farmers have been strong and stuck by their industries, and most of them seem to come out on top.
Senator Mercer: I too want to thank you for being here. I think through the BSE crisis that farmers, consumers and retailers have all done a good job as we have gone through this process. There is one group I have not mentioned and that is the packers. My colleagues are never surprised that my comments zero in on the packers.
When Mr. Bob Freisen, the President of the Canadian Federation of Agriculture was here a couple of months ago, I asked him to comment on the fact that I had learned that the profit margin of three of the large meatpacking companies went up by 281 per cent in the last two months of 2003. I knew they were doing fine before that, and I was shocked. His comment was, and I quote, ``We believe that the initial money to the beef industry last summer was some of the easiest money that the packers ever made.''
I would like to have your comment on that. I have two small follow-up questions as well.
Mr. Funk: I can start off on that one. I think that, at the time the border closed initially, what happened in Canada was that all the price discovery mechanisms that we had had in place basically stopped working. How did beef get priced at the farm level? How did it get priced by packers and so on? There was a great deal of confusion about who was going to buy how much beef, and what they would actually do with it once they processed it. From the standpoint of flowthrough, certainly it gave the sense that packers were trying to find a way to make sure that they did not own any inventory that was priced too high. I guess probably, under the same circumstances, if a businessman were sitting there in any industry, he would say, ``I need to have my inventory well priced.''
Whether this absorbed the funds that were initially committed by government to producers, I really cannot say. However, from the standpoint of our own customers, we certainly saw the working capital positions of our customers supported by these payments that went through. Maybe they could have been supported in a better way, but my sense is that the producers themselves did benefit.
Senator Mercer: That ties in with your earlier comments in the opening statement, where you talked about the banks having been patient with farmers. I do not disagree in general terms, although in the past three or four months there have been more calling of loans and operational lines of credit than there was previously. I guess the question is: Does this mean that the crisis from the bank's point of view has reached some sort of peak in financial terms that would kick in later than all of the other crises that the community has been through as we have lived through this crisis?
Mr. Campbell: I will ask my colleagues to jump in and comment as well, but I think it is fair to say, senator, that the border has been closed and we have not had a functioning market for a year and a half. While we are working as patiently and as flexibly as we can in trying to craft solutions, working with the producers on a case-by-case basis and looking at the facts of their individual cases, in some cases the producer, him or herself, will come to the conclusion that they have to make a change. It is perhaps in their best interest not to take on any more debt, and to exit the market in an orderly way with the equity they have remaining, and get on with life into a different area.
Those will be rational decisions from their point of view. However, that is really at the point where you have exhausted all other options, and putting more debt into it would not be in the interests of the individual. Even before the BSE crisis struck, there were individuals whose financial situation was fragile. Their equity was depleted and they were facing challenges. The fact that the crisis hit has exacerbated that situation. You reach a point, in some cases, where it is a collective decision all round; you have to make a very unfortunate and difficult call. Let me turn it over to my colleagues to elaborate.
Mr. Little: To add a comment to that, Mr. Campbell, our goal is really to assist the customers in conserving their remaining equity. It results in a conversation between the account manager, the banker and the client, sitting with the client's family, discussing what is our best move. Should we risk our remaining equity to go back one more time, or should we be exiting the industry, retaining our equity and resources, or perhaps liquidating some surplus land or assets and scaling back, and perhaps even getting some off-farm income for a while to enable us to be in a position to rebound back whenever the situation changes? It is a two-way conversation between our account managers and our clients at that point in time.
Senator Mercer: That leads me to the next question. According to the Canadian Federation of Agriculture, the administrative cost of Canadian agricultural income stabilization — or CAIS, as we know it — programs may be as high as $14 million; that is their number, not mine. If that is so, how do you justify that cost? Is that an example of prohibitive fees that the banks impose on a program designed to help the industry? I refer to their numbers, which I assume are correct.
Mr. Marr: Could you clarify whose costs those were — the $14 million?
Senator Mercer: The administrative costs of CAIS, of program deposits may be as high as $14 million.
Mr. Marr: Is that the administrative side from the government?
Senator Mercer: I believe it was administrative costs from the banks. That was the way they put it.
Mr. Marr: To the best of my knowledge, there are no administrative costs to CAIS from our side. We do not charge producers for participating in CAIS. The program was introduced by the government, which came to us to establish accounts to support this program. We have not passed costs on to the customers.
Senator Ringuette: That is interesting. Due to this BSE crisis, how many farmers have lost their operations? I know that the banks have statistics and that you do forecasting. Do you have a ballpark figure of how many have lost their farms?
Mr. Funk: I do not think we would have a number for that anywhere at this time. We have stood by the strategy that we put in place at the outset, which was not to let the way that we, as banks, behave relative to our customers add to the confusion that was already there from the standpoint of loss of market signals, loss of markets, not knowing where cattle would go or how many could be packed, et cetera. We have all worked with customers individually, and many of us have said that this is not the time to take a decision. Some operations have less equity and are in a thinner position financially than they were previously.
I would say that when we have taken actions with clients, it has been together with them. If we forecast on the best that we can determine, given that the marketplace does not yet have clear signals and we cannot establish clear prices other than what is being paid today, which we know is in serious disconnect with what is being paid in the U.S., we ask the customers if they wish to proceed and continue to operate. We ask whether they want to buy more calves and replace cull cows.
For the most part our customers are taking that decision. When they say they have had enough, then they are acknowledging the weakness that has come upon them and they are taking their own decision. It is not the lenders who force the decisions.
Senator Ringuette: I guess my question was not properly phrased. How many, to your knowledge, do you know have made the decision to sell their land, their farm, their operations? Do you have a ballpark figure?
Mr. Funk: I am sorry, I do not have an exact number on that. Some have made the decision to sell parts of their farms and some of their assets in order to scale it back to help protect themselves for the next stage. I do not have the number of those who would have sold or liquidated their total farming operations.
Senator Ringuette: I ask these questions because I am trying to understand the current status in respect of farm ownership and how that will have repercussions once the border is open and some semblance of stability returns to the beef industry. If people are selling part of their land, it is likely they will not be able to regain as much beef activity as they had previously. If they are selling their land to neighbours, that might increase their beef productivity. That is the picture I am trying to see. Ultimately, are the youth in the region taking this opportunity to get into the beef industry? Right now, the prices are low and the opportunity could not be better in terms of initial outlay and the equity factor that you require. Our concern for youth is ever present around this table and how to get them to acquire a farm when the cost of one tractor is $150,000. Farming is an enormous capital venture.
I would like to gain a sense of where we are headed. Will the capacity still exist? It has changed hands somewhat. Once the borders reopen, will we regain the capacity that we had? Is it possible for our youth to enter this market? This crisis will be resolved.
Mr. Marr: Senator, you raise a couple of important points. Typically, prior to the first case of BSE, when land changed ownership it went to a different family that was actively trying to grow their operation for various reasons. The family that sold it was downsizing their operations. As we all know, not every child that is born on a farm these days wants to stay on the farm, for various reasons. The capacity typically remains in the community in one shape or form because someone is growing. I believe that the beef industry will likely come out of this stronger because they have been faced with some challenges and they have reacted to those challenges. Agriculture in general has proven that every time a challenge is put before it, the necessary changes are made to meet the needs and come out stronger. There are so many examples of that.
Prior to BSE, there was a reduction in the number of farm families from the census of Statistics Canada. I believe it was about 10 per cent in the number of actual farms. That will likely continue because of the way that industry is changing, whether it is farming or other businesses. Some of these family farms are becoming larger and stronger as well. It is different.
Senator Ringuette: Is the beef industry opening the doors to new, young farmers who want to venture into that market?
Mr. Marr: It could do that. I know many young people who are in the beef industry and do not seem to be hesitating to stay in the industry.
Senator Ringuette: That is a good sign.
Senator Callbeck: The loan-loss reserve was part of the strategy announced back in September. I believe that its purpose was to increase the lenders' or the bankers' willingness to support projects and to increase slaughter capacity. However, it is my understanding that it has been poorly received by financial institutions. Do you believe that is right? If so, from the bankers' point of view, what is the problem with it?
Mr. Funk: We certainly do not see it negatively from the standpoint of being something that government did incorrectly. There was nothing there before, and there is something in place now. We are trying to think our way through what the impact will be in terms of the opportunities that could come to the table. We know there are several groups who are looking at opportunities to expand the packing sector, and what we are seeing the loan-loss reserve do, essentially, is provide somewhat of a backstop for one of the critical factors. That critical factor will be how to survive in the after-border-opening time frame when you start facing the competition from the mainline packing operations that are already there. The cash flow might well work out positively as long as the border was to stay closed, to put a positive spin on a really bad situation. However, when the border then opens, you will see the majors, the Cargills and the IVPs of the world bidding strongly for cattle, and there needs to be strength for those new projects so that they can survive the competition they will face when the border reopens.
Senator Callbeck: How do you strengthen the projects, then?
Mr. Funk: How do we get the strength in the project? Essentially, we see the loan-loss reserve as providing the amelioration or the offset of the risk that there might be in the individual business case. It does not change the need for the business case to be sound, but it provides that buffer zone between what might be marginally all right and what we know has the ability to withstand some shocks. I do not think any of us know how much of a shock any of those new projects will have to withstand. The purpose of the program is to try to give us all a little help from the standpoint that there will be shocks and there will be support to withstand those shocks.
Mr. Little: To reiterate what Mr. Funk has stated, I totally agree that it must be a sustainable proposal and a sustainable project in order to withstand, as he calls it, the shocks, the ups and the downs that we know exist in the packing house business. We feel that it is a good tool, and the 40 per cent loan-loss reserve fund provides us with a nice cushion in case we need it. We would still look at it, though, from the point of view that it must be a good business plan and it must have a good marketing plan, with strong management and some financial depth to help it withstand any of the bumps that it might experience.
Mr. Marr: I do not have much to add to what Mr. Funk and Mr. Little have said. The loan-loss reserve program is a good backstop but it does not replace a sound business plan. I think probably the biggest challenge to the expansion of the slaughter capacity is finding the appropriate market for the product that they will produce.
Senator Callbeck: It is not really fair to say that it has been poorly received, then?
Mr. Marr: No.
Mr. Funk: To a certain extent, it is very new yet. Things are being put together quickly these days, and we are trying to figure out how it is going to work at the same time that it is being implemented. Sometimes questions are perceived as challenges and sometimes they turn out to be challenges but at other times they are just questions for information.
Mr. Little: We are waiting to receive the final draft of the reserve agreements. Once we receive those, we will be communicating those to our sales force, branches and account managers throughout the country. We have been receiving walk-in interest of late, and we will be communicating with them and providing them with information on the package.
Senator Callbeck: You have not yet received the final information?
Mr. Little: The final agreement is not available but will be available soon.
Senator Tkachuk: In your brief you say that the beef sector accounts for almost 20 per cent of authorized credit to the agricultural industry. Before this last BSE crisis, not that many people were talking about BSE as a problem.
I am an optimist. Once the border is open, will the financial institutions take that into account for future expansion and credit? Will that mean higher interest rates for the beef industry? It is open to anyone who wants to talk about that.
Mr. Little: First, the BSE crisis has served notice that there is no sector that is immune from significant challenges, and all of us in agriculture finance are quite aware of that. We are also cognizant of the strength of the industry and the ability of the industry to resolve these challenges within its own purview. I would think, going forward, that the principles of credit availability will be the same. We will continue to look for a strong business plan, strong management, all of the same criteria in the future as we look at today in assessing a feedlot or a cow-calf operation or backgrounding operation. It would be very much using the same benchmarks as we go forward.
Mr. Funk: I would add that what it will really do is position both the additional risks that we became aware were in the industry, but also the resolve of the industry itself, and of the public in the form of the governments provincially and federally, to see this as a continuing core of the agriculture industry. Certainly, the drastic increase in risk that we could have seen if governments had stood back did not happen. What that gave us to understand is that there truly is a ``We are in this all together'' mindset around this industry. From the standpoint of future opportunities in this industry, that balances what we see as a new risk experience as opposed to the support of the government in that circumstance.
Mr. Marr: I want to add to Mr. Funk's comment. It also strengthened our view on the value of the association groups and the support they added, and how quickly they reacted to get out to retailers and convince them and the public that there was nothing wrong with our beef, and to gain continued support for our product in Canada, domestically.
Senator Tkachuk: You have seen what happens, and you know how the United States might react and you know the political problems that U.S. politicians also face with not exactly being helpful in opening up the border again. I noticed you were very careful in saying that available credit will be the same but you will not be sitting around the table and saying, ``Maybe this is another point more than we normally would have charged.''
Mr. Funk: If I interpreted Mr. Marr's comments correctly, we still have the spectrum of risk that we assess in the financial institutions where the customer comes to you with a business plan that is solid, with management that is sound and with an equity piece that supports so that you can meet certain criteria such as your ability to repay with a margin of safety, and so on. The risk seen of that customer would stay relatively constant. If we were to look at industry risk as a component of overall risk, it would be a relatively minor effect. It is primarily on the producer and on the business opportunity.
Senator Tkachuk: That is gratifying to know.
The Chairman: Without revealing any secrets, of those who have come forward from all your organizations with a plan for which they are looking for support to get started, do you sense that when this all shakes down, we will have learned something from this situation? May we have learned, in part, that we need an opportunity in this country to serve to a larger degree, be it in a niche market or in the larger market, a domestic Canadian market for our beef rather than thinking in the broadest sense, as we have been doing for a long time, that the back and forth we have with the United States over this often open border will still be the major force? Will we develop a bit of a force of our own that will be Canadian-oriented marketing of our beef?
Mr. Campbell: In other words, what have we learned?
The Chairman: Exactly. Surely we will come out of this situation having had a tremendous shock. That is one thing, but when you have a shock do you sit back and decide to go back totally to the old ways, or do you sense that there is innovative thinking with structure and resources to back it to provide protection in this country and enable us to market to Canadians so that, should this happen again, we will not be left in the crisis in which we have been for the last year and a half?
Mr. Funk: We are coming up to the tenth anniverary of the elimination of the Western Grain Transportation Act. One of the immediate effects of that change and the dropping of the Crow rate was that it suddenly became economic to produce cattle in the same place that you produced feed grains. We saw a movement of the red meat industry west and an increase in the size of the red meat industry. In that decade, we did not see a proportionate increase in the packing sector; in other words, the value-added getting us closer to the retail market shelf.
As adverse as this recent shock is, it has reminded us that we have to grow the components of the industry together. I think that we will, in the end, have a very different industry in that we will have once again a focus on balance of the industry. We will raise these cattle. We will not depend solely on open American borders to move live cattle. We will look more to markets for value-added products. Some of those jobs will stay in Canada and the industry will be somewhat more balanced than it was in the last couple of years before BSE came upon us.
Mr. Little: I expect to see some niche processors evolving in this next round that will examine the markets to determine specific customer needs and develop products to meet those needs. Those situations could evolve as we go through this next round of process development in Canada.
Mr. Marr: I believe that most of the industry realizes that we cannot be solely dependent on the United States and is looking at markets around the world. I would hope that we do not retract to just a domestic market but, rather, look at all the opportunities in other countries. I do believe that the industry will try to get away from sole dependency on one market.
Senator Gustafson: I believe that a very important aspect of this situation will be health regulations. We need a set of health regulations that deal with the United States, Mexico and Canada in a North American common market idea. Canada will not be selling beef to Japan if they have some problems in the U.S. or in Mexico, or vice-versa. North America are really in this all together.
In my opinion, the border will open when the three players are satisfied that we have our finger on the right button, and it is hoped that that will happen soon. Once that happens, we will probably look at the situation differently and find out how this will all work.
I may be wrong about that, but I think that health regulations will be key to this situation, and I think Canada is a leader in that.
I sat in on meetings in Salt Lake City where all the States were represented. Many ideas were presented on how things should work. The dairy producers did not want to get involved too much. Others presented some ideas. Some thought that we should test every animal, every chicken and every turkey. Someone else noted that we cannot even count the population, let alone the chickens and turkeys.
When this is all figured out and when we have health regulations that deal with the three countries involved, I think the industry will go ahead, and it will probably be stronger than it has ever been.
Senator Mercer: Banks are not the most trusted institutions in Canadian society. I am sure that is not a revelation to you this evening. I am worrying about the banks, post-BSE, relying on government taking the risks and government coming to the aid of the industry in time of crisis, which we did with BSE and which we probably should do in the future. However, I would not want to think that we are doing this on our own. I get a funny feeling, as I listen to people talking about risk management, that we will have a tightening up of access to bank financing, or the criteria for financing will be much more stringent and that you people collectively will not take your share of the risk in the industry.
Can you give me some assurance that my fears are not well founded and that there will be some commitment from the banking community that they will remain aggressively active in the agriculture industry?
Mr. Funk: I have given that a lot of thought and we have asked ourselves where we want to be, going forward. As we have looked at what governments have done and at the introduction of the agriculture policy framework, we have seen a desire on the part of the government to provide a stabilizing influence, and we saw that as a positive thing. To the extent that BSE was a catastrophe, beyond that it has been augmented by other things that the government also did.
It is my view of our future in dealing with the agriculture sector, and of providing financial services to the sector, including the beef sector, that we will look to governments to do the things they have always done, which is to deal in the umbrella frameworks that provides crop insurance. The CAIS program brings the livestock piece to bear for the first time in the history of insurance programs. While it is not called an insurance program, it does protect that reference margin.
Essentially, I do not think that we will look at the industry differently than before. We will simply look at this tool as being something that is measurable from the standpoint of risk evaluation.
Senator Hubley: I have a question on communities. There is no doubt in our minds that, although the industry itself has been devastated by the BSE, there is obviously a trickling down effect. How are your banks responding to other communities and other stakeholders in the industry? How do you respond to them when they are also in need at the present time?
Mr. Little: We all implemented the same programs with small business in the communities as we did with our agricultural clients: deferred principal payments and did some refinancing because they were directly impacted by this situation, either through loss of jobs, loss of sales or loss of activities. We put into place some of the same practices to help them get through this as we did with the BSE-impacted clients.
Mr. Marr: It has been a challenge in many of the communities. I offer kudos to our rural bankers for dealing with these issues for the last couple of years. They have probably seen a lot of issues, being on the front lines and in a lot of cases having lived in the communities for a long time. These communities are home for them because many of them come from farms. We are supporting those businesses along with the beef industry. We have had a lot of focus on beef today, but it is not just beef, it is dairy, it is the car dealership or the local grocery store, et cetera. Those communities are our branch livelihoods as well so we must support them.
The Chairman: I am very glad that question was asked because in the area that I am from, in Lethbridge and southwestern Alberta, due to the fact that all of the aspects of this crisis are writ large in that area, the producers, the packers, the feedlots, the truckers, the whole business, from the beginning there definitely has been a great anxiety on the part of all of us as to the continued survival of our communities, which are absolutely wonderful, and are the ones that provide a tremendous background for prosperity in that whole region. We do tend to focus on the cattle part of it right now.
I am pleased to hear the reassurances that the banks are giving that they have been much broader in their concern during this period. It has a sort of ``house of cards'' effect: If the cattle industry is down, then that affects all of the other small businesses, and that leads into real social problems in these communities.
Yet, obviously, although some people have left their businesses, basically the communities have stayed strong, and I am interested and pleased to hear from you tonight that this has been part of your commitment in a difficult time. Without it, we would be seeing a different picture.
Mr. Funk, you have been trotting around southern Alberta. Do you have any comment on that?
Mr. Funk: One of the very first calls that I got in the month after that BSE announcement was from our manager in Medicine Hat. He told me that among the things we would have to think about were the people in town who would lose hourly wages because the packing plants would have either shorter shifts or no shifts, trucking companies would lay off drivers, clerks, dispatchers and others. Everyone would get cut back and everyone would be affected. Out of that we put on notice the entire management of the bank, if you like, so that our staff, whether they were involved in the retail side or whether they were involved in the commercial side, paid particular attention when there was a problem that cropped up as a result of the BSE circumstance.
We all already have in our policies some pre-written allowances that say: For good reasons you can skip a payment and tack it on to the end, or do some other things that make your cash flow easier to meet. We employed all of those things, whether it was for a retail mortgage or for a Visa or for an operating line for a trucking company. Those were ways in which we tried, as much as possible, to recognize that the entire community was impacted here and we wanted to try to keep the entire community whole.
Senator Gustafson: I do not want to take aim at Senator Fairbairn, but there is danger in consolidating an industry too much in one area. In Garden City, Kansas, for instance, they are telling us that they are hauling all the corn within a reasonable trucking distance to there. Garden City, Kansas, processes a large percentage of all the beef in the United States. I was happy to see the Maritimes get a plant because it means diversifying the area as well. Just the fact of freighting livestock, either into Ontario or into Edmonton or wherever, gives them an opportunity to fill a niche market. That is important.
One other thing, if I may take the liberty: I mentioned earlier the importance of looking at agriculture from a global standpoint. That is important, and something that Canada must do to solve some of our long term problems in commodity prices. I mention that, and the senators on this committee know that I have hammered that point a great deal.
The committee adjourned.