Regulations Amending the Agricultural Marketing Programs Regulations: SOR/2019-157
Canada Gazette, Part II, Volume 153, Number 12
SOR/2019-157 May 29, 2019
AGRICULTURAL MARKETING PROGRAMS ACT
P.C. 2019-594 May 28, 2019
Whereas the Minister of Finance concurs in the recommendation of the Minister of Agriculture and Agri-Food to make the annexed Regulations;
Therefore, Her Excellency the Governor General in Council, on the recommendation of the Minister of Agriculture and Agri-Food, pursuant to paragraph 40(1)(c) footnote a of the Agricultural Marketing Programs Act footnote b, makes the annexed Regulations Amending the Agricultural Marketing Programs Regulations.
Regulations Amending the Agricultural Marketing Programs Regulations
1 The Agricultural Marketing Programs Regulations footnote 1 are amended by adding the following after section 9:
10 (1) For the purposes of subsection 5(5) of the Act, the amount fixed by regulation is $7.5 billion.
(2) For the purposes of subsection 9(1) of the Act, the amount fixed by regulation is, for canola producers, $500,000 for program year 2019.
(3) For the purposes of paragraph 20(1)(b) of the Act, the amount fixed by regulation is $1 million.
(4) For the purposes of subsection 20(1.1) of the Act, the amount fixed by regulation is $1 million.
(5) In subsection (2), program year 2019 means the program year that ends on March 31, 2021.
Coming into Force
2 These Regulations come into force on the day on which they are registered.
REGULATORY IMPACT ANALYSIS STATEMENT
(This statement is not part of the Regulations.)
Issues: Since the loan limits under the Advance Payments Program (APP) were last increased in 2007, farm sizes and input costs have increased considerably. Market disruptions within specific agricultural sectors, such as China’s recent trade restrictions on Canadian canola, have the potential to further reduce revenues and increase costs for affected producers.
Description: This proposal is to amend the Agricultural Marketing Programs Regulations in order to increase the overall loan limit under the APP to $1 million for all eligible agricultural producers on an ongoing basis. The current limit on the interest-free portion of advances for all eligible agricultural producers will remain at $100,000, with the exception of a temporary increase to $500,000 in the 2019 program year for advances on canola.
Rationale: The increase to the overall loan limit under the APP will provide agricultural producers, including those with large farming operations, with access to more credit at low rates in order to help manage increased operating costs and other expenses resulting from an increasingly volatile international marketplace. This is especially important for producers who face additional costs and reduced cash flow as a result of market access issues, such as China’s recent trade restrictions on Canadian canola.
Since loan limits under the APP were last increased in 2007, farm operating expenses have increased by more than 50%, when adjusted for inflation. The number of farms with sales above $1 million increased from 4% of the farm population to 10% between 2007 and 2017. Over the past several years, producers and producer organizations have expressed concern that the previous APP loan limits were no longer sufficient to address the financial needs of many producers. As a result, there have been requests from the industry to increase these loan limits to better reflect the costs they incur in running their farming businesses.
In addition to the normal increases in farm operating costs over time, market-related issues, such as China’s recent trade restrictions on Canadian canola, can result in additional costs while also reducing farm revenues. Canola is Canada’s most valuable crop and China is its biggest export market. Canola seed exports to China, in terms of volume, represented close to 50% of total Canadian canola seed exports to all markets in 2018, with a value of $2.7 billion in 2018.
Should the market outlook for canola prices suggest a further decline, producers may continue to hold onto their stocks on-farm rather than selling, incurring additional holding costs and creating cash flow challenges.
The APP is specifically designed to respond to cash flow and market challenges faced by Canada’s agricultural producers. APP advances can be held by producers until they are able to market their commodities; as a result, producers facing market access challenges can use the program to access the funds they need to continue operations until they are able to sell their commodities.
The APP is a federal loan guarantee program that provides agricultural producers with access to low- and no-interest cash advances to support flexibility in marketing opportunities, allowing producers to sell when they can find the best prices. Under the program, producers can access cash advances of up to 50% of the estimated market value of eligible agricultural products being produced or held in storage. Prior to these regulatory amendments, the maximum APP advance was $400,000 (i.e. $400,000 against a crop value of $800,000), with the federal government paying the interest on the first $100,000 advanced to a producer. The program is administered by 36 industry associations across the country.
Advances are typically available starting in April of each year, and must be repaid within 60 days of the producer selling the commodity. Most major agricultural commodities are eligible under the program, including canola and other grains and oilseeds. For grain and oilseed crops, the repayment period is up to 18 months from the start of the production period. The application deadline for 2018 advances closed on March 31, 2019, with a repayment deadline of September 30, 2019. New advances for the 2019 program year were available beginning on April 1, 2019, with a repayment deadline of September 30, 2020.
Program data as of April 30, 2019, indicated that demand for 2019 APP advances had increased from the same period last year. The total value of canola advances increased by 10%. Many canola producers also produce other grain and oilseed crops, and rotate these crops from year to year to maximize production and revenue and reduce production risks.
These regulatory amendments increase the overall loan limit under the APP to $1 million for all eligible agricultural producers on an ongoing basis. The current limit on the interest-free portion of advances for all eligible agricultural producers will remain at $100,000, with the exception of a temporary increase to $500,000 in the 2019 program year for advances on canola. These program changes are intended to make the APP more responsive to producers’ cash flow needs over their production and marketing cycles, while also providing additional support on a temporary basis to producers that are affected by China’s recent trade restrictions on Canadian canola.
The APP is a statutory program under the Agricultural Marketing Programs Act and the Agricultural Marketing Programs Regulations.
The objective of this proposal is to
- permanently increase the overall loan limit under the APP to allow the program to be more responsive to the cash flow needs of agricultural producers; and
- temporarily increase the interest-free limit to assist producers who are directly affected by the recent trade restrictions on Canadian canola imposed by China.
Subsections 5(5), 9(1), 20(1.1) and paragraph 20(1)(b) of the Agricultural Marketing Programs Act allow program limits under the APP to be increased by regulation.
The amendments to the Agricultural Marketing Programs Regulations required a new section to be added. A new section 10 (Fixed Amounts) has been added, which includes the following subsections:
- subsection 5(5) of the Act, increases the maximum aggregate contingent liability on principal outstanding to $7.5 billion from the current limit of $5 billion to account for the increases to the APP loan limits;
- subsection 9(1) of the Act, increases the limit on the interest-free portion of APP advances on canola to the first $500,000 advanced per producer per program year from the first $100,000 until March 31, 2021, in the 2019 program year. The limit on the interest-free portion of advances on eligible agricultural commodities other than canola will remain at $100,000 and will revert to $100,000 for canola advances on April 1, 2020, for the 2020 program year;
- subsection 20(1) of the Act, increases the overall APP loan limit to $1 million from $400,000 per producer, per program year for advances on all eligible agricultural products; and
- subsection 20(1.1) of the Act, increases the amount a producer can have outstanding at any one time under the program to $1 million from $400,000.
On April 1, 2019, a government-industry working group was formed to work towards a coordinated and collaborative approach to resolving this issue of restricted access to China’s market for Canadian canola, including examining options for alternative markets. This working group is co-chaired by the Canola Council of Canada and Agriculture and Agri-Food Canada (AAFC). It includes representatives from the Canadian Food Inspection Agency, the Canadian Canola Growers Association, Richardson, Viterra, and Alberta, Manitoba, and Saskatchewan governments.
Further, as Canada’s largest APP administrator and issuer of canola advances, the Canadian Canola Growers Association (CCGA) has been consulted on the impacts for participating canola producers of China’s border restrictions on Canadian canola.
Producers and producer groups have indicated on a number of occasions that the previous program limits were too low to provide sufficient cash flow to adequately address current farm operating costs, especially for large farming operations. There have been requests for government to increase these limits to address this issue.
Modern treaty obligations and Indigenous engagement and consultation
There are no modern treaty obligations related to this proposal.
Costs and benefits
The APP is a statutory program, which sources funds from the Consolidated Revenue Fund. Current financial authorities provide for an annual federal allocation of $72.4 million.
This proposal would result in an incremental cost for the 2019–2020 program year of $66.8 million, and an annual incremental cost thereafter estimated at $46.4 million, for a total projected program cost of $139.2 million for the 2019–2020 program year, and $118.8 million annually thereafter.
Small business lens
The proposed changes to the regulations are not anticipated to result in additional direct costs to small or large farming businesses. Given the increase in the interest-free and total advance limits, producers will have access to more credit at a lower rate.
The not-for-profit industry associations that deliver the program will incur additional costs. These associations have several sources of revenues, such as application fees, interest income, and default management fees to help cover these costs.
The proposal to temporarily increase loan limits under the APP will not result in an increase or decrease in administrative burden to farming businesses.
Strategic environmental assessment
In accordance with The Cabinet Directive on the Environmental Assessment of Policy, Plan and Program Proposals, an initial review was conducted for this proposal. The review indicated that the proposal does not require further environmental analysis because it is seeking renewal or extension to an existing program and is of low environmental risk.
Gender-based analysis plus
A gender-based analysis plus (GBA+) assessment was undertaken for this proposal. The findings of this assessment were that
- the majority of advances delivered through the Advance Payments Program have been issued in the grains and oilseeds sector which is highly male dominated;
- the program is open to all agricultural producers of eligible commodities who meet the definition of a “producer” set out in the Agricultural Marketing Programs Act, factors such as gender, age, culture, education, etc. are not considered in determining program eligibility;
- the program will continue to benefit all eligible producers in the sector proportionately; and
- while advances will be given to more males given the make up of the sector, increasing loan limits is very unlikely to exacerbate gender differences in the sector.
The proposed initiative complies with AAFC’s statutory obligations involving gender and diversity considerations, aligns with the principles outlined in the Canadian Charter of Rights and Freedoms and the Canadian Human Rights Act, and supports the broader Government of Canada commitment to gender equality. Under Budget 2019, AAFC has committed to developing a strategy to reduce gender gaps across the agriculture and agri-food value chain.
Implementation, compliance and enforcement, and service standards
The 2019 APP program year began on April 1, 2019, and APP administrators have already begun to issue advances for 2019.
On May 1, 2019, it was announced that the Government would be amending the Agricultural Marketing Programs Regulations to makes these increases to the APP loan limits. Once the required authorities are in place, APP administrators and the agricultural sector will be notified that the increase to the overall loan limit is being made a permanent feature of the program for producers of all APP eligible commodities.
The 36 APP administrators will need to adjust their operations to issue advances under the new loan limits. Several changes will be required. They include amendments to the 2019 advance guarantee agreements, measures to minimize the risk of increased defaults, and changes to the IM/IT systems used to administer the program. Once the required changes are in place, APP Administrators will make advances under the new limits available to eligible agricultural producers.
Financial Guarantee Programs Division
Agriculture and Agri-Food Canada