Bibeau defends COVID-19 response for agriculture

The government increase in Farm Credit Canada’s lending capacity and the postponement of repayment of cash advances is aimed at solving the immediate cash flow problems in the agricultural sector, but there is more to come.

That was the word this week from the federal Minister of Agriculture and Agri-Food Canada, Marie-Claude Bibeau.

FCC secures a $ 5 billion increase in lending capacity and farmers are offered six months to repay their 2018 cash advances until September 30.

Why is this important: COVID-19 may undermine future farm incomes, but many producers are now suffering from steadily declining margins, made worse by harvest problems last fall. Many farmers want money, not debt.

It is intended to help farmers who are still recovering from setbacks in 2019, and looking ahead to the future. COVID-19 issues, a federal government official said in an interview on March 25.

Bibeau delivered the same message during a press conference call on March 23.

“For farmers and food processors who face tight margins and a shortage of cash, together these two measures announced today will help keep money in their pockets when they need it most,” he said. she said, adding that it was to support the suggested farm groups.

But Bibeau also said farmers can expect more help.

“As we respond to the issues step by step, there will be more to come,” she said. “It was important to put this in place as soon as we did it to resolve the immediate cash flow issues. There will be other support measures for the food system. These are truly extraordinary moments. Nothing is really out of place at the moment. Work will continue by looking at options for financial support and looking at what’s available through BRMs (Business Risk Management Programs) – all of those things. “

Prime Minister Justin Trudeau speaks to the media outside his home in Ottawa on March 25.

Photo:
Reuters / Patrick Doyle

But some farmers are spreading this message. Keystone Agricultural Producers president Bill Campbell is among the critics, fearing Ottawa’s programs are falling short.

If farmers can’t repay cash advances – loans against inventory repaid when the farmer sells – they don’t make enough money – something better addressed by enhanced ERM programs, Campbell said in a statement. interview on March 24.

“All we do is rack up more debt on more debt,” he said.

A better option might have been to give farmers up to $ 400,000 in interest-free cash advances instead of the current $ 100,000.

However, Campbell said the programs would help some farmers generate cash.

Campbell said he didn’t want the public to think farmers were getting a $ 5 billion handout through FCC.

Saskatchewan agricultural producers said the programs were a good first step.

FCC President and CEO Michael Hoffort and Dave Gallant, director of finance and operations for the Canadian Canola Growers Association, who is an administrator of cash advances, say the programs will help many farmers.

Bibeau’s office said the government is not giving FCC $ 5 billion, but is reducing the dividend that FCC pays the government each year.

This extra money bolsters FAC’s balance sheet, Hoffort said in an interview on March 24.

“And with a stronger balance sheet, you can lend more money because you can leverage it,” he said.

“It also allows us to resist changes in the risk profile of our book, but also to take a little more risk in the way we serve the Canadian agriculture and food sector at this time.

“We have 100,000 clients across the country. If they are having trouble with their term loans, we might consider full deferrals – principal and interest for six months – or interest only for one year. It will be on a case-by-case basis – what does the farm or business need, we will structure it to best meet those needs. “

A shopper walks through an empty aisle of pasta, rice, beans and soup at a Loblaws supermarket in Toronto on March 14. Demand for food has increased due to the coronavirus pandemic.

Photo:
Reuters / Chris Helgren / File

The $ 5 billion will also allow FCC to offer its customers and non-customers up to $ 500,000 in credit.

“It’s specific security and a very easy way to free up cash flow for the industry,” Hoffort said.

If farmers have credit, they will be able to purchase their farm inputs in an orderly fashion this spring without delay, he added.

Off the farm

Meanwhile, some food processors who have lost catering markets need cash flow to help them find new markets.

In other cases, the transformers’ suppliers demand money because of the increased risk and uncertainty.

“Having a little more access to an operating facility could be useful for some of these operations,” Hoffort said. “If people don’t need it, they shouldn’t be asking for it. We’ll be happy to talk to them tomorrow or next week or in a month or two depending on what’s going on here.

The six-month suspension of default on loans under the prepayment program applies to cash advances issued in 2018 totaling $ 173 million, including $ 143 million for grains, oilseeds and legumes. They were to be repaid on April 30.

“If you still have interest-free money, it remains interest-free until September or until you pay it off,” Gallant explained in a March 25 interview. “You are still obligated to pay when you deliver the product and if you have an interest – part of your advance, the interest clock keeps ticking and they will pay that as they pay off the rest of their money. advance.

Under the cash advance program farmers can get up to $ 100,000 without interest. If they have repaid this loan, they can get up to $ 100,000 interest-free loan under the 2020 program.

“If you have an exceptional lead in 2018, and maybe have one from 2019, you can still get more money if you’re under the limit for 2020,” Gallant said.

Paying makes sense

Although farmers receiving advances in 2018 can defer payment until September 30, there is a strong incentive to repay earlier to get a 2020 loan at a much lower interest rate, he said. .

Interest charged on 2018 loans is CIBC’s prime rate over the prime rate less three-quarters of a percent on 2020 loans.

“CIBC’s prime rate is 2.95% today,” said Gallant. “On April 1, when we issue these advances (2020) to farmers, any interest bearing portion will be 2.2%.”

Farmers can borrow up to $ 1 million if they have enough inventory to cover it. The first $ 100,000 is interest free.

“When you get $ 100,000 at zero interest and $ 900,000 at 2.2%, your million dollar weighted (interest) rate… is 2%,” he said. “If you borrowed the same amount of money at prime today, it would save you just under $ 10,000 a year. We certainly don’t see this as a panacea that solves all the world’s problems, but it does make low cost cash available to farmers if they borrow anyway and who doesn’t borrow today?

“At current rates, it’s almost free when you’re at two percent.”

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