SOUTHWESTERN Saskatchewan Conservative MP David Anderson has posed an explosive question to Canada’s bankers that should be, and largely isn’t, on the radar screen of the national agricultural debate.
No other MP used Anderson’s opening as a chance to query whether growing farm debt is one of the most potent ticking time bombs for the industry.
Anderson deserves credit for flagging the issue.
The scene was a late March Parliament Hill agriculture committee appearance by lending representatives from the Canadian Bankers’ Association.
Much of the discussion centred on banker views about revamping farm income support programs.
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That was somewhat surprising because one of the festering issues in the industry is the fact that while farm debt in Canada has soared from $23.4 billion in 1992 to a new record every year – 2006 numbers likely will put it over $53 billion- farm income needed to service that debt has been at record lows in recent years.
Only a series of record multibillion-dollar government farm payments has compensated for poor market returns.
The huge and vital farm economy would be in deficit if not for taxpayer largesse.
Farm debt was given a first glancing blow at the meeting when Bloc Québecois MP Roger Gaudet wondered about the health of the bank farm portfolio.
Brian Little, head of agriculture and agribusiness for the RBC Financial Group, was reassuring.
“I’m speaking from the bank I work with,” he said. “Our portfolio is in very good shape and our difficult loans are not out of line with any of the commercial businesses. In fact, we have a very good quality portfolio and we’re quite comfortable with it.”
No MP from any party raised it again until Anderson came back to the topic. His query cut to the core of the bank position that loans to an income-challenged farm sector are not a concern.
“Why do you lend into a situation like that?” he asked. “And why do you keep increasing your lending into a situation like that? What’s the paradox?”
Paradox? What paradox?
“I think the situation is that when we’re talking about net income being negative, most of the time we’re talking about that before the payments come in,” replied Bob Funk, vice-president of the Bank of Nova Scotia.
Anderson persisted.
“You’re comfortable lending into a situation where people’s income is dependent on government payments?”
Yes, replied Funk.
“What we are comfortable doing is working in an industry that we know has a large political aspect to it,” he said. “Whether you are lending in the U.S. … Canada … or the U.K. or Australia or wherever, you have got various levels of involvement of government that will result in payments being made to producers.”
So there we have it: a banking industry that makes billions of dollars in profit for shareholders every year, earning $1 billion or more from its share of farm loans and happily dependent on multibillion-dollar farm subsidies to make sure they get their money.
Surely that should be the subject of farm meetings and parliamentary hearings.
The farm industry with a crushing debt is so very vulnerable to the next interest rate hike or 1995-like program-slashing budget.
