C.D. Howe Institute thinks it is time that Farm Credit Canada again became the lender of last resort
The business-oriented C.D. Howe Institute has stirred up a fierce debate by arguing that Farm Credit Canada provides unfair competition for private lenders and should be reined in.
The Toronto-based think-tank issued a report early this month arguing that the crown corporation has an unfair advantage over commercial competitors and should have a mandate review and tougher regulatory control.
It also suggested FCC should revert to the lender-of-last-resort position it held until the late 1980s when the federal government bailed it out of hundreds of millions of dollars of debt and instructed it to operate in the black and pay an annual dividend to Ottawa.
“The traditional lender-of-last-resort role … should be considered for all crown financial corporations,” said the Howe commentary.
“This former legislative role encapsulated well the concept that crowns should not compete with private lenders and insurers.”
The think-tank said its recommendation would make the crown portfolios higher risk, but “it would limit their size and the extent to which they crowd out private market activity.”
Credit Union Central president David Phillips said FCC has an economic advantage over private lenders such as credit unions because it has access to cheaper funds and does not pay income tax.
“It is an interesting report and we are in agreement with some aspects of it, and the issues it raises are important,” he said. “They clearly have a competitive advantage that we find unfair. We certainly think a mandate review is a good idea.”
FCC and its supporters rejected the report’s premise of unfair advantage and its recommendations.
FCC executive vice-president and chief executive officer Remi Lemoine said the corporation’s ability to borrow from government at cheaper-than-market rates does not give it a market advantage.
“We do not pass those savings onto our customers,” he said. “We have a balanced portfolio and our market share has grown because agriculture is our sole focus.”
He said a parliamentary review of the FCC mandate is not necessary.
Canadian Federation of Agriculture president Ron Bonnett agreed.
Bonnett, who is both an FCC and credit union customer, said FCC offers farmers a full range of options and has shown its financial loyalty to the sector.
“In our opinion, they bring competition into the system and they are there through thick and thin,” he said. “For some other lenders, when things are good they are there but when there is a blip, they run away from the sector like scared rabbits.”
Former Liberal agriculture minister Ralph Goodale said the proposal to return FCC to the status of taking on customers that commercial lenders find too risky is a non-starter.
“That is a recipe for failure, and FCC adds financing stability,” he said.
“The trouble with relying on private lenders only is that they are in when times are good and out when times turn. There is no commitment to service agriculture.”
Credit unions and chartered banks beg to differ and have been wooing farm groups through sponsorships at conventions and contributions to community events.
For example, Bank of Montreal agriculture manager Karl McLaren was given the podium as a prime Dairy Farmers of Canada sponsor at the association’s recent annual meeting to extol the extent of the bank’s partnership with and support of the dairy industry.
The Howe report said FCC’s share of farm debt almost doubled in 20 years to 29 percent in 2011, helping push farm debt to record highs.