Bankers would like more payment-predictable farm programs, but they aren’t worried about agriculture’s ability to service its record debt despite weak farm bottom lines.
Representatives of the Canadian Bankers’ Association met with the House of Commons agriculture committee at the end of March and told MPs that farmers’ credit ratings will be fine as long as governments keep supporting them.
However, they added, a more predictable farm support program would be appreciated.
“These are all-important elements for lenders because government initiatives play a big role in agriculture,” said Brian Little, head of agriculture and agribusiness for the RBC Financial Group.
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“Programs can be an important component of farm incomes and can, therefore, determine the risk that lenders are exposed to.”
He said the farm debt load is a concern but not a panic. Last year it was more than $50 billion, which is $30 billion more than it was 15 years ago when farm incomes were higher.
“The debt load has been growing over the past number of years, but I believe that as lenders, we are monitoring the situation closely in ensuring that our clients are able to meet the requirements and in cases where there are difficulties, we work through the challenges with them,” he said.
“I don’t think it’s too out of line from my perspective. However, we do watch it closely.”
Later, Bank of Nova Scotia vice-president Bob Funk told Saskatchewan Conservative David Anderson that a more predictable program would give farmers and their lenders a clear idea of what the program will pay out in particular circumstances.
“When you don’t have that evidence, you can’t (count on) a payment that you’re expecting,” he said. “If you don’t know what it is, when it’s going to arrive or how big it’s going to be, you can’t treat it as an account receivable.”
Anderson wanted to know if reform of the margin-based Canadian Agricultural Income Stabilization program could solve the problem.
“I believe it can come close,” Funk said. “It may not be exact but even in a crop insurance program, it may not be exact because you always have dates and times when you add acreage, you subtract acreage and that sort of thing. But at least it would get us very close.”
Anderson pursued the point.
Why would lenders support a sector in which government payments rather than market returns determine profitability and ability to service debt?
“What we are comfortable doing is working in an industry that we know has a large political aspect to it,” Funk replied.
No matter whether it is the United Kingdom, Canada or Australia, government policy will be involved to make sure farmers make money and can pay their debts, he added.
