WINNIPEG – Farmers who default on cash advances this year will face higher penalties.
Interest on cash advance defaults will rise to prime rate plus three percent. In previous years, it was prime plus 1.5 percent.
The federal government is alarmed about the number of defaults on cash advances during the past few years, prompting the rate increase.
In 1994-95, out of more than $524 million advanced to wheat and barley growers, 16 percent – more than $82 million – is owed by farmers.
“Because of that increase in defaults, there are now a number of checks in the program,” said Rhea Yates, a spokesperson for the Canadian Wheat Board.
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“It’s the old story. Two to three percent of the people kill it for everyone else,” said Charlie Froebe, in charge of the cash advance program for non-board crops for the Canadian Canola Growers Association.
Froebe said out of about $39 million advanced for canola, flax, oats and rye last year, two percent fell under “major defaults” and another five percent took longer than a year to recoup.
The federal government has been cracking down on defaulters during the past couple of years with bin audits and, in some cases, credit checks.
Controls are working
Yates said the controls are making a difference. In 1995-96, out of $542 million advanced to wheat and barley growers, $39 million, or seven percent, is left owing.
Next year, defaulting farmers could face stricter penalties if MPs pass a law introduced this spring in the House of Commons. It includes measures such as closer reviews of cash advance applications, liens on crops and being barred from the program.
Yates said between 30,000 and 35,000 farmers use cash advances each year on wheat and barley to help with cash flow. The amount advanced depends on the type of crop year.
“If there’s good early delivery opportunities, in those years you see less use of cash advances,” she said.
Froebe said 1,500 to 2,000 farmers apply for advances for non-board crops each year.
