Calls for review | Critics say lower rates from the federal crown corp put private lenders at a disadvantage
Agriculture minister Gerry Ritz has offered a strong defence in the face of private lender criticism that Farm Credit Canada has an unfair market advantage and should be reined in.
The debate was stirred up in a commentary by business-oriented think-tank C.D. Howe Institute, which argued the federal crown corporation’s mandate should limit its ability to compete with private lenders.
It suggested FCC revert to a 25-year-old model of being a lender-of-last-resort for highest risk farm borrowers.
In response to a query, Ritz issued a statement defending the Regina-based crown farm lender.
“Through targeted programming, FCC provides much needed stability to thousands of farmers and farm families,” he said.
“Farm Credit Canada has been instrumental in fostering long-term economic growth overall across rural Canada. Our government fully supports the work that FCC does for farmers and Canadian agriculture.”
The Canadian Bankers’ Association does not see the issue the same way.
CBA policy and operations vice-president Marion Wrobel said FCC’s lower government borrowing rates clearly gives it an unfair market advantage.
The proof is that its share of farm debt outstanding has risen to 30 percent during the past decade and its share of mortgage lending to almost 40 percent, he added.
Wrobel said crown lenders such as FCC should have a clear mandate that limits the ability to compete with commercial lenders such as banks and credit unions.
“We think it is really important that crowns have a clear public policy mandate.”
He said they need better oversight, perhaps through the Superintendent of Financial Institutions, which oversees private financial institution. A mandate review of the crown corporation by Parliament would also be in order, he added.
Wrobel said FCC clearly makes loans that carry higher risks than private lenders can afford.
He also rejected arguments by FCC defenders that the crown corporation is necessary because it is a dependable supporter of the sector while private lenders back away from lending when the agricultural economy weakens.
Private lenders carry the bulk of short-term operating loans, he said.
Wrobel said private lenders do not simply lend against rising asset values but also take into consideration cash flow and profitability when issuing operating loans.
“Sometimes we give advice to farmers that they are taking on too much debt,” he said.
“Sometimes the best thing to say to an agricultural producer is ‘no’ or ‘not so much’ or ‘here’s how you have to restructure yourself to repay those loans.’ ”
Wrobel said making FCC a lender of last resort could be one part of the answer, depending on the public policy mandate, but the banks’ main point is that publicly supported lenders should complement private lenders and not compete.
“From our point of view, it is a policy of complementarity that is the key.”