Two of Canada’s leading farm lenders told the House of Commons agriculture committee that most of their customers are so far weathering the storm of low commodity prices.
John Murphy, vice-president for agriculture with the Royal Bank, and John Ryan, president and chief executive officer of the Farm Credit Corporation, gave testimony to the committee Nov. 16.
Murphy said individual farm families and communities may be in an economic crisis, according to transcripts of the meeting.
“But if you define a crisis as the future state of the Canadian farm community’s ability to produce food, I’m not convinced that they’re anywhere near a crisis in that context.”
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A small proportion, only $55 million of the Royal Bank’s $4.5 billion farm loan portfolio, consists of “impaired loans,” said Murphy. Out of 15,000 farm customers in Sask-atchewan, only 350 are in arrears.
“I wouldn’t call that a crisis,” he said, later adding he expects few of the bank’s customers will lose their farms because of current low commodity prices.
But Murphy also acknowledged his bank’s statistics don’t represent an average. He estimated at least a third of Canadian farmers can’t afford to borrow money from banks because they can’t service the debt. These farmers have moved to using credit cards and trade credit from companies that sell inputs.
“I don’t doubt for a minute there are thousands of people in very delicate financial situations because of the reasons I mentioned,” he told the committee.
“But that should not be construed as an income crisis in the food production industry in Canada.”
Be straight
Murphy said lenders should avoid doing “the one-more-year thing” with farmers.
Bankers should not avoid telling farmers who won’t recover that they should “get out now, save some equity, go do something else.
“We wish that everything would work out well too, but in some instances we have been cruel by not helping our customer see the reality of their situation.”
Ryan said arrears levels are the best gauge of the impact of commodity prices on farmers’ cash flows.
Over the past year, the FCC’s arrears for hog operations increased by about $900,000 to a total of $2.9 million. The number of FCC accounts in arrears for cash crop production rose to 2,300 from 1,900.
Overall, total arrears in Saskatchewan and Manitoba increased to $13.6 million from $8.5 million, most from grain operations, said Ryan.
Both Ryan and Murphy said their staff have been urging farmers to discuss their cash flow situations with their local bank officers.
Ryan told MPs arrears levels tend to lag behind the cash flow situation on farms.
