OTTAWA (Staff) – The federal government is cracking down on thousands of farmers who have abused the advance payments program by not paying the loan off when they sell grain.
This week, the Liberals fulfil an election promise to reintroduce interest-free cash advances on Sept. 15.
With the largesse will come tougher rules to stop farmers from cheating the system.
Last year, farmer defaults cost Ottawa $45 million, which the Canadian Wheat Board now must try to collect from the delinquent borrowers.
More than 3,800 prairie farmers did not follow the pay-back rules they had agreed to when the advance was received, according
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to Bruce Riddell of Agriculture Canada.
“Western farmers have been in financial difficulty and I suppose they have been trying to take care of themselves,” he said. “But their actions have made the program too costly.”
This year, farmers borrowing against unsold grain in their bins will have to agree to more government surveillance.
They will have to allow random bin inspections by federal officials to make sure they have enough grain on hand to cover the debt.
There will be a limit on the amount the elevator manager will be able to issue without review and approval by the wheat board.
And the interest-free provision will be in effect only for a year. Interest will be charged on any outstanding 1994-95 advance beginning Sept. 14, 1995.
Riddell said if these rules do not sharply reduce the rate of farmer default, even tougher steps will be implemented next year.
Bigger guns
“We have done an audit and it showed real problems with the program so we are tightening it up and rolling out the big guns,” he said. “If this isn’t enough, we’ll roll out even bigger guns next year.”
The problem of defaulting farmer borrowers that was exposed by a recently-completed audit is big and getting bigger.
In 1989-90, the default rate was 32-hundredths of one percent of money lent.
For 1992-93, when the rules had been changed, the default rate rose to five percent of the almost $900 million advanced.
For 1993-94, farmers borrowed $820 million and have until Dec. 31 to pay it back. By last week, $373 million was still owed.
“Most or all of that grain presumably has been sold by now and they are supposed to repay when the grain is sold,” said Riddell. “Every year, the gap gets bigger.”
This year, farmers are expected to borrow more than $1 billion, since the loans will be interest free and the large crop will sit in bins longer than many farmers would like.
As the government looks in every crevice and behind every curtain of its operations in search of ways to reduce spending this fall, it has decided to move on the advance payments program early to try to avert an even greater loss in 1995.
