Vol. 149, No. 28 — July 11, 2015

Regulations Amending the Agricultural Marketing Programs Regulations

Statutory authority

Agricultural Marketing Programs Act

Sponsoring department

Department of Agriculture and Agri-Food

REGULATORY IMPACT ANALYSIS STATEMENT

(This statement is not part of the Regulations.)

Issues

The Advance Payments Program (APP) is a federal financial loan guarantee program, governed by the Agricultural Marketing Programs Act (AMPA), which allows agricultural producers to obtain cash advances on the value of their agricultural commodities either in pre-production or in storage. Cash advances are used by producers to improve cash flow and give them the necessary financial flexibility to sell their products when market conditions are most favourable. A producer can receive up to $400,000 in cash advances each year, with the Government of Canada paying the interest on the first $100,000.

Under AMPA, Agriculture and Agri-Food Canada (AAFC) is required to complete a periodic legislative review of the programs governed by the Act. In the fall of 2010, a review of AMPA was undertaken and concluded that the APP was well liked by all stakeholders and continued to be a relevant and important tool for agricultural producers. However, stakeholders agreed that improvements to the APP were necessary to reduce administrative complexity and improve producer access to the program.

Following this review, improvements have been made to AMPA to reflect the comments of stakeholders. These improvements are being made as a result of changes introduced by the Agricultural Growth Act (AGA) that received royal assent on February 25, 2015, and include

Regulatory amendments are necessary to ensure that the Agricultural Marketing Programs Regulations, which govern the APP, are consistent with AMPA.

Background

There are four stakeholder groups involved in the APP. The first group of stakeholders consists of the producers who can apply to the program and obtain cash advances. The proposed regulatory changes would broaden producer access to the program and make it easier for producers to understand and comply with program rules.

The second group of stakeholders consists of the third-party administrators (producer organizations and one provincial government agency) that administer the APP for producers. The proposed regulatory changes would help to streamline the administrative process and ease reporting requirements such as the requirement to provide proof of sale.

The third group of stakeholders consists of the financial institutions (e.g. chartered banks, credit unions) that provide financing to the third-party administrators. This financing is subsequently advanced to producers through the APP. The proposed regulatory change would not have an impact on financial institutions.

The fourth stakeholder is the Government of Canada, which subsidizes interest costs and guarantees the repayment of advances to the financial institutions.

Objectives

The primary goal of these proposed regulatory changes is to ensure that the Regulations governing the APP are reflective of the feedback received during the legislative and program reviews and are consistent with changes made to AMPA via the AGA.

Specifically, these proposed regulatory changes would

Description

The following describes the proposed regulatory changes required to achieve each of these objectives. The majority of the proposed regulatory amendments are triggered from the changes made to AMPA via the AGA.

Broaden access

The proposed regulatory changes would allow for the limited expansion of the types of agricultural products eligible under the APP, such as elk antler velvet and bees. Further, the AGA has allowed for the designation, through regulation, of certain classes of breeding stock that are otherwise specified as ineligible. The proposed regulatory amendments specify that additional livestock categories, such as hogs and cattle raised for sale as breeding stock, would be eligible for APP advances.

Currently, AMPA limits a producer’s APP loan to the dollar value of the producer’s coverage under Business Risk Management (BRM) programs (AgriInsurance and AgriStability). To further broaden producer access to the APP, additional classes of security would be allowed, including the assignment of cash investments and other insurance and risk management products that cover similar risks to the current BRM programs listed in the schedule of AMPA. This change would enable producers who cannot receive the full eligible advance, because of shortfalls in their pledged security, to pledge additional or alternative securities in order to receive the maximum advance amounts under the program.

In addition, the proposed regulatory amendments would allow for third parties (e.g. financial institutions or individuals) to act as loan guarantors, which would facilitate program access for groups such as cooperatives and corporations with numerous shareholders that would no longer be required to have all shareholders provide personal guarantees.

Added flexibility

Loan repayment requirements would be made more flexible. For example, loan repayments without penalty when the producer repays the advance with proceeds from a security instead of the sale of the agricultural product associated with the loan will be allowed under certain circumstances. This change would avoid putting a producer’s loan into default, which would then initiate additional and time-consuming processes for both the producer and the third-party administrator.

Allowable overpayment limits for producers would be increased from $6,000 to $10,000, thus reducing penalties to producers who find themselves in an overpayment situation. For example, where a producer experiences a crop failure that is too small for them to receive a production insurance payment but large enough to reduce the amount that they are eligible for under the program, they would be allowed a shortfall of up to $10,000 before being subject to an interest penalty for the overpayment.

Streamlined program delivery

The proposed regulatory changes would provide increased consistency in how the APP is delivered amongst all third-party administrators.

These changes would improve the consistency in the way in which

Specifically, producer limits pertaining to receiving an advance that exceeds the eligible amount (an overpayment as mentioned above) and to repayments made without appropriate documentation would now have harmonized and expanded limits. The increased limits mean that penalties would not be applied unless the new, higher limit is surpassed. Furthermore, the fact that both limits would now be the same would make it easier for administrators and producers to remember the rules for both situations.

The proposed regulatory changes would better define the rules concerning how the amount of an eligible cash advance is determined and how cash advances are attributed among related producers (e.g. a corporation and its shareholders) for the purpose of enforcing the program limits (i.e. the first $100,000 of a cash advance is interest free and the maximum cash advance is $400,000). This would add clarity for third-party administrators and would also result in greater access to advances for eligible producers.

Third-party administrators are held accountable for their APP loan risks, in part through an administrator’s percentage of liability (APL). Administrators with high loan defaults have a higher APL, which will limit their lending capacities to producers. The proposed regulatory amendments would change how the APL is measured by calculating it over five years rather than two years, and by simplifying the method of calculation. This would make the APL less volatile from one year to the next and it would make it easier for administrators to understand how their program history affects their APL.

The rules associated with third-party administrators requesting a stay of default have not been predictable or consistent. The proposed Regulations would establish a particular time frame within which a stay may be requested. This would improve predictability and consistency amongst third-party administrators and producers. As well, the proposed changes would simplify the process and clarify the provisions for third-party administrators to manage loan defaults and for the Government to make payments under the guarantee.

“One-for-One” Rule

The “One-for-One” Rule does not apply as the proposed amendments will not result in direct administrative costs or savings for businesses. Changes in the administrative burden resulting from the proposed regulatory amendments are only expected to impact the third-party administrators. Third-party administrators, for the purpose of the “One-for-One” Rule, are not considered businesses, as they are administering the APP on behalf of AAFC, are not engaging in commercial activity, and are intended to operate on a cost-recovery basis only.

Small business lens

The small business lens does not apply, as the proposed amendments do not impose any additional administrative or compliance costs on small businesses.

Consultation

The main conclusions from the legislative review that could be addressed through regulatory changes (and, where required, through concomitant legislative changes) were the following: APP eligibility could be broadened, rigid programming processes could be made more flexible, and APP administration could be streamlined. These recommendations resulted in the proposed regulatory amendments.

Stakeholders were consulted throughout the legislative review of AMPA, which identified the need for the proposed regulatory amendments. The legislative review consisted of three components:

The sources of information used to complete the above-mentioned activities included the following:

Benefits and costs

Cost-benefit statement
  Base Year 2016 Final Year 2025 Total Net Present Value (2016–2025) Annualized Net Present Value (2016–2025)
A. Quantifiable impacts
Benefits
Interest-free portion of cash advance $937,900 $521,448 $6,853,956 $975,849
Costs
AAFC payment of interest free portion cash advance $937,900 $521,448 $6,853,956 $975,849
Net financial impact $0.0 $0.0 $0.0 $0.0
B. Qualitative impacts        
Qualitative benefits
  • Regulatory changes will increase the number of producers eligible for a cash advance under the APP, allowing more producers the financial flexibility to make timely marketing decisions.
  • For third-party administrators, changes to streamline the administrative process will result in unquantifiable savings, but will result in less time spent on processes deemed unnecessary and more time on the day-to-day management of the program.
Note:
  • Total Net Present Value — is the future cash flow of the benefits and costs for the years 2016–2025, expressed in 2016 dollars using the Treasury Board (TB) Net Present Value (NPV) model and discounted by 7%. A 1% annual growth rate has been applied to the 2016 benefits and costs to reflect increased annual producer uptake of the program, and does not represent adjustments for inflation.
  • Base Year 2016 — is the expected benefits and costs resulting from the proposed regulatory changes commencing in 2016 and is valued at $937,900 for both benefits and costs.
  • Final Year 2025 — is the 2016 NPV of the expected 2025 benefits and costs calculated using the TB-defined discount rate of 7% and is valued at $521,488 for both benefits and costs.
  • Annualized Net Present Value — is the net present value of the benefits and costs as represented by a series of annual payments for the period of 2016–2025 at the TB-defined discount rate of 7%.
  • The program is expected to remain well within its statutory allotment of $65.9 million annually. Further, when combined with the concomitant changes to AMPA, where minor administrative savings have been identified, the overall changes to the program should remain cost neutral.
Producers

The proposed regulatory changes would broaden APP access for agricultural producers across Canada through increased program flexibility and streamlined administrative requirements. The changes would also increase the number of commodities whose producers are eligible for an APP cash advance.

The proposed amendments (addition of new commodities, third-party guarantors, etc.) are expected to increase producer uptake of the APP. As AAFC pays the interest costs for the first $100,000 of each APP cash advance, AAFC estimates the monetized benefit to producers to be approximately $937,900 per annum in saved interest costs. If it were not for the APP, producers would have to borrow this money and pay interest to the lender.

The resulting increase in cash advances on new eligible commodities, and on new producers who were considered ineligible to participate in APP before these regulatory changes, would also have a qualitative benefit for these new producers. Cash advances help to improve a producer’s cash flow to assist with production costs and allow more time to make marketing decisions when prices are more favourable.

The proposed regulatory changes are not expected to result in any increased cost to producers to participate in the APP.

Third-party administrators

The proposed regulatory changes would result in non-monetized benefits for third-party administrators. Increased program flexibility and the streamlining of the administrative process are directly related to comments received by third-party administrators during the consultation process and would enable administrators to reduce effort put into elements of the program deemed unnecessary and refocus these resources on the day-to-day management of the program.

The proposed regulatory changes are not expected to result in any increased cost to third-party administrators.

Federal government

As a result of the proposed regulatory changes, it is expected that producer participation in the APP would increase. The additions of new eligibility commodities, third-party guarantors and new securities to secure APP cash advance are some of the changes that would broaden producer access and increase the number of cash advances issued in a program year.

Since AAFC pays the interest of the first $100,000 borrowed for each producer, it is estimated that AAFC’s program cost will incrementally increase by $937,900 starting in 2016–17 as a result of these regulatory amendments.

The proposed regulatory changes are consequential to the legislative amendments made to AMPA when the AGA received royal assent on February 25, 2015. The legislative changes are forecasted to result in cost savings that would offset the incremental costs associated with these proposed regulatory amendments. With the proposed regulatory changes, the program would stay within its $65.9 million annual allocation.

Financial institutions

The proposed amendments would not result in any increased costs or benefits for financial institutions.

Implementation, enforcement and service standards

The proposed regulatory amendments would come into force on the day on which they are registered. They would provide increased clarity and consistency in the application and interpretation of the Agricultural Marketing Programs Regulations. Changes to the program would be communicated to administrators during the normal course of business. Additional communications for producers would also be issued via the APP Web site and other available media.

Contact

Rosser Lloyd
Director General
Programs Branch
Agriculture and Agri-Food Canada
1341 Baseline Road
Tower 7, Floor 7, Room 243
Ottawa, Ontario
K1A 0C5
Telephone: 613-773-2116
Email: rosser.lloyd@agr.gc.ca

PROPOSED REGULATORY TEXT

Notice is given that the Governor in Council, pursuant to subsection 4.1(3) (see footnote a) and section 40 (see footnote b) of the Agricultural Marketing Programs Act (see footnote c), proposes to make the annexed Regulations Amending the Agricultural Marketing Programs Regulations.

Interested persons may make representations concerning the proposed Regulations within 30 days after the date of publication of this notice. All such representations must cite the Canada Gazette, Part I, and the date of publication of this notice, and be addressed to Rosser Lloyd, Director General, Business Risk Management Programs Directorate, Department of Agriculture and Agri-Food, 1341 Baseline Road, Ottawa, Ontario K1A 0C5 (Tel.: 613-773-2116; Fax: 613-773-2098; email: rosser.lloyd@agr.gc.ca).

Ottawa, June 18, 2015

JURICA ČAPKUN
Assistant Clerk of the Privy Council

REGULATIONS AMENDING THE AGRICULTURAL MARKETING PROGRAMS REGULATIONS

AMENDMENTS

1. Section 1 of the Agricultural Marketing Programs Regulations (see footnote 1) is replaced by the following:

1. The following definitions apply in these Regulations.

“Act” means the Agricultural Marketing Programs Act. (Loi)

“financial institution” has the same meaning as in section 2 of the Bank Act. (institution financière)

PRESUMPTION — RELATED PRODUCERS

1.01 (1) For the purposes of paragraph 3(2)(e) of the Act, a producer is presumed to be related to another producer in any of the following circumstances:

(2) For the purposes of paragraph (1)(a), “common-law partner” means an individual who has been cohabiting with a producer in a conjugal relationship for a period of at least one year.

2. The Regulations are amended by adding the following after section 1.2:

DESIGNATIONS

1.3 For the purposes of the definition “livestock” in subsection 2(1) of the Act, rabbit, red deer, boar, goat and elk are designated as livestock.

1.4 Cervid antler velvet and bees are designated as agricultural products that are subject to Part I of the Act.

1.5 The following classes of breeding animals are designated as being subject to Part I of the Act:

3. The heading before section 3 and sections 3 and 4 of the Regulations are replaced by the following:

ADMINISTRATOR’S PERCENTAGE

3. (1) For the purposes of paragraph 19(1)(c) of the Act, the administrator’s percentage is 3% if they have not completed at least one program year.

(2) For the purposes of paragraph 19(1)(c) of the Act, the administrator’s percentage shall be calculated using the five most recently completed program years, or if an administrator has completed at least one program year but less than five program years, using all of the completed program years, in accordance with the following formula:

(A ⁄ B) × 100

where

A is the sum of the total of the outstanding principal balances of producers who are in default in each of those program years calculated 10 months after the completion of each program year; and

B is the sum of the total principal amount advanced in each of those program years.

(3) For the purposes of element A, calculation of the outstanding principal balances shall exclude amounts owed by a deceased producer who is in default or by a producer who is in default and who has been deemed legally incapable of making decisions.

4. The heading before section 5 and section 5 of the Regulations are replaced by the following:

ATTRIBUTABLE PERCENTAGES FOR RELATED PRODUCERS

5. (1) For the purposes of subsections 9(2) and 20(2) of the Act, the amounts received by, or attributed to, related producers are attributable in the following manner:

(2) For the purposes of this section, a producer is not to be attributed the same advance more than once either directly or indirectly.

(3) If a producer is a partnership, corporation or cooperative, that producer is not to be attributed any amount received by a related producer that is an individual.

5. Paragraph 6(b) of the Regulations is replaced by the following:

6. Paragraph 6.1(2)(b) of the Regulations is replaced by the following:

7. Section 6.2 of the Regulations is replaced by the following:

6.2 For the purposes of section 12 of the Act, the required security is one or a combination of the following:

GUARANTOR

6.3 For the purposes of subparagraphs 10(1)(c)(ii) and (d)(ii) of the Act, a guarantor is

8. (1) Paragraph 7(1)(a) of the Regulations is replaced by the following:

(2) Subparagraph 7(1)(b)(ii) of the Regulations is replaced by the following:

(3) Clauses 7(1)(b)(v)(A) to (C) of the Regulations are replaced by the following:

(4) Paragraph 7(1)(c) of the Regulations is replaced by the following:

(5) Subsection 7(1.1) of the Regulations is repealed.

(6) Paragraph 7(2)(a) of the Regulations is replaced by the following:

(7) Paragraph 7(2)(d) of the Regulations is amended by striking out “and” after subparagraph (ii) and by replacing subparagraph (iii) with the following:

9. The heading before section 8 and section 8 of the Regulations are replaced by the following:

REPAYMENT

8. (1) If a producer that is an individual dies, no penalty for failing to provide a proof of sale for an agricultural product will be imposed under the repayment agreement if a repayment of an advance is made on behalf of that producer.

(2) If a producer that is an individual is declared legally incapable of making decisions, no penalty for failing to provide a proof of sale for an agricultural product will be imposed under the repayment agreement if a repayment of an advance is made on behalf of that producer.

(3) A producer may make a repayment of an advance with the proceeds from a security referred to in section 6.2, subject to any terms and conditions set out in the repayment agreement, and will not be penalized under the repayment agreement for failing to provide proof of sale for an agricultural product.

(4) With respect to an advance received for agricultural products under a repayment agreement, subject to any terms and conditions set out in that agreement, a producer may use a proof of sale for any of those agricultural products when making a repayment.

STAYS OF DEFAULT

9. For the purposes of subsection 21(2) of the Act, the Minister may order a default to be stayed within a period of four months before a default is impending.

COMING INTO FORCE

10. (1) Subject to subsections (2) and (3), these Regulations come into force on the day on which they are registered.

(2) Section 4 comes into force on the day on which subsection 127(2) of the Agricultural Growth Act, chapter 2 of the Statutes of Canada, 2015, comes into force.

(3) Section 6.2 of the Agricultural Marketing Programs Regulations, as enacted by section 7, comes into force on the day on which section 130 of the Agricultural Growth Act, chapter 2 of the Statutes of Canada, 2015, comes into force.

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