Regulations Amending the Agricultural Marketing Programs Regulations (2023): SOR/2023-80

Canada Gazette, Part II, Volume 157, Number 11

Registration
SOR/2023-80 May 4, 2023

AGRICULTURAL MARKETING PROGRAMS ACT

P.C. 2023-401 May 4, 2023

Whereas the Minister of Finance concurs with the recommendation of the Minister of Agriculture and Agri-Food that the annexed Regulations be made;

Therefore, Her Excellency the Governor General in Council, on the recommendation of the Minister of Agriculture and Agri-Food, makes the annexed Regulations Amending the Agricultural Marketing Programs Regulations (2023) under paragraph 40(1)(c)footnote a of the Agricultural Marketing Programs Act footnote b.

Regulations Amending the Agricultural Marketing Programs Regulations (2023)

Amendment

1 Subsection 10(5) of the Agricultural Marketing Programs Regulations footnote 1 is replaced by the following:

(5) For the purposes of subsection 9(1) of the Act, the amount fixed by regulation is $250,000 for program year 2022 and $350,000 for program year 2023.

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.)

Executive summary

Issues: Canadian producers have been facing higher costs of production brought on by general inflation, increased costs on key inputs—like fertilizer, due to Russia’s war against Ukraine—supply chain disruptions and higher debt-servicing costs due to the surge in interest rates. Over the past three years, agricultural production costs in Canada have increased by nearly 30%. These higher costs of production create cash flow challenges for producers as they must commit to paying for their farm inputs (e.g. seed, fertilizer and feed) before knowing what their revenues will be for that year. The year-over-year volatility has created cumulative pressures for farms, most of which are farm families facing inflation of household expenses as well.

Description: This amendment to the Agricultural Marketing Programs Regulations temporarily increases the interest-free loan limit under the Advance Payments Program (APP) to $350,000 for all eligible agricultural producers for the 2023 program year. The current overall loan limit of $1 million remains the same.

Rationale: The increase to the interest-free loan limit under the APP will reduce the cost of the program for producers and improve their access to cash flow to help manage significant increases to their input costs, such as fuel and fertilizer. This change will help producers as they weather the continuing financial pressures from the previous growing seasons and support their continued efforts to produce agricultural commodities for Canada and the world.

Issues

Canadian producers have been facing higher costs of production brought on by general inflation, increased costs on key inputs–like fertilizer, due to Russia’s war against Ukraine, supply chain disruptions and higher debt-servicing costs due to the surge in interest rates. Over the past three years, agricultural production costs in Canada have increased by nearly 30%. Forecasts from Agriculture and Agri-Food Canada show that the costs of the main items, such as feed, fertilizer, energy and labour, will remain above the five-years moving average. Interest rate hikes in the past year have further contributed to the pressures faced by the sector as Agriculture and Agri-Food Canada’s (AAFC) forecasts suggest a yearly increase of more than 20% in interest costs for producers from 2022 to 2023. These higher costs of production create cash flow challenges for producers as they must commit to paying for their farm inputs (e.g. seed, fertilizer and feed) before knowing what their revenues will be for that year.

While some commodity prices have also increased during this period, this is not uniform across farm types and sizes. Fruit and vegetable and livestock farms expect a decline in net operating income for 2022 below the five-year average. Year-over-year volatility has created cumulative pressures for farms, most of which are farm families facing inflation of household expenses as well.

APP advances provide cash flow in the form of loans which can be held by producers until they are able to market their commodities; as a result, producers facing increased input costs can use the program to access the funds they need to cover their operating costs until they are able to sell their commodities and do so at a lower cost than would be possible through private lenders, such as banks and credit unions. The interest-free portion of the loans further reduces the short-term loan costs.

Background

The APP is a statutory program under the Agricultural Marketing Programs Act and its regulations. It is a federal loan guarantee program that provides eligible agricultural producers with access to low and no-interest cash advances to increase their cash flow over the production and marketing period and increase marketing opportunities, allowing producers to sell when it is most opportune for them. 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. Most major agricultural commodities are eligible under the program, including grains and oilseeds, fruits and vegetables and livestock.

The program is administered by 30 industry associations (APP administrators) across the country which issue advances using credit they are able to negotiate with their lender(s) [banks, credit unions, etc.]. Because of the federal guarantee, APP administrators are able to negotiate lower interest rates, which allows them to offer competitive interest rates to producers on the interest-bearing portion of advances. Advances are typically available starting on April 1 of each year until March 31 of the following year (when advances for the next program year become available). The maximum APP advance is $1 million (i.e. $1 million against a crop value of $2 million), with the federal government typically paying the interest to the lender on the first $100,000 advanced to each producer.

Producers are required to make repayments within 30 days of a sale of the commodity on which an advance was obtained, with up to 18 months to fully repay advances on most eligible commodities, including grain and oilseed crops (with up to 24 months for cattle and bison advances). For example, the application deadline for 2022 advances closed on March 31, 2023, with a repayment deadline of September 30, 2023. New advances for the 2023 program year were available beginning on April 1, 2023, with an advance deadline of March 31, 2024, and a repayment deadline of September 30, 2024. As APP advances are guaranteed under the Act, where necessary, AAFC will repay defaulted advances to the lender, which then become debts to the Crown. This, however, is a rare occurrence under the program (only around 1% of advances per program year) and historically, AAFC is able to recover 50% of these debts.

On average, 19 803 producers obtain APP advances totalling $2.8 billion per program year, including $1.9 billion in interest-free amounts and $913 million in interest-bearing amounts (where the producer is responsible for the interest).

In 2019, to assist Canadian producers impacted by trade restrictions imposed by China on Canadian canola, the interest-free advance limit was temporarily increased to $500,000 for 2019 advances on canola. This change resulted in the number of canola advances increasing by 10% and the value increasing by 68% ($1.2 billion) over the previous year ($717 million). At the same time, the overall advance limit per producer was permanently increased from $400,000 to $1 million to address increases in operating costs and the size of farms since the last limit increase in 2007.

In 2022, the interest-free limit was increased from $100,000 to $250,000 for the 2022 and 2023 APP program years. For the 2022 program year, $3.53 billion has been issued to 18 686 producers. As a result of factors such as increased costs, increased interest rates and the temporary interest-free limit increase for 2022, the total number of advances was 7% higher and the value of advances was 47.5% higher than in 2021 ($2.39 billion). The new interest-free limit came into force on June 20, 2022. Since then, over 9 400 producers have taken advantage of the limit increase by obtaining interest-free advances over $100,000 which totals an additional $1.05 billion in interest-free advances for producers.

This regulatory amendment increases the interest-free loan limit under the APP to $350,000 for all eligible agricultural producers for the 2023 program year. The current overall loan limit will remain at $1 million. This program change will decrease the cost of the program for producers and increase producer access to cash flow under the program for the 2023 program years to support Canadian farmers facing liquidity issues, and to help to ensure that Canada’s contributions to global food supplies will be as high as possible this growing season.

Objective

The objective of this initiative is to temporarily increase the APP’s interest-free limit for the 2023 program year from $250,000 to $350,000 in order to reduce the cost of the program for producers and increase access to cash flow to help agricultural producers cover high input costs, such as fuel and fertilizer, over the spring and summer months until they are able to sell their commodities.

Description

The amendments to the Agricultural Marketing Programs Regulations have been made by replacing subsection 10(5) with the following in section 10 (Fixed Amounts):

(5) For the purposes of subsection 9(1) of the Act, the amount fixed by regulation is $250,000 for program year 2022 and $350,000 for program year 2023.

Regulatory development

Consultation

AAFC recently undertook a legislative review of the Agricultural Marketing Programs Act (AMPA) which governs the APP. Through engagement with the sector as part of this review, it was determined that many stakeholders are in favour of an increase to the interest-free limit. According to the producer survey conducted for the review, 24% of non-APP participants felt that a higher interest-free limit could entice them to participate in the program. Additionally, 39% of producers felt that the current interest-free limit was too low. Nearly half (46%) of APP administrators also felt the limit was too low. Of those in favour of an increase to the interest-free limit, an increase from $100,000 to $200,000 was the most common recommendation.

On March 29, 2023, following the announcement in Budget 2023 that the Government would be seeking to make this change, federal officials consulted with APP administrators on the change. The majority felt that their producers would welcome the change, especially large farming operations that produced enough products to qualify for advances over $250,000. Concern was expressed that small farming operations would not benefit from this program change, as they would not produce enough products to qualify for advances over $250,000. Budget 2023 committed the Government to consulting with the provinces and territories on ways to extend help to small agricultural producers who demonstrate urgent financial need.

Modern treaty obligations and Indigenous engagement and consultation

An assessment of modern treaty implications was conducted on the amendment. The assessment did not identify any modern treaty implications or obligations. Indigenous partners have indicated that financial resources for agricultural opportunities are generally inaccessible to Indigenous peoples. AAFC will continue to engage with First Nations, Inuit, and Métis groups to help to improve access to capital. AAFC will also monitor and assess for implications during the delivery of funds.

Regulatory analysis

Benefits and costs

It is expected that this program change will result in incremental costs to Government of $11.8 million for the 2023 program year, with the costs split between the 2023–2024 and 2024–2025 fiscal years. These cost estimates include the expected costs to Government of paying the interest directly to lenders on the additional interest-free portion of advances (up to an additional $100,000 on top of the previous $250,000 limit). As the Department is not expecting any increase in defaulted amounts, no associated costs are included in these amounts.

In order to cover the costs of delivering the program, the not-for-profit industry associations charge producers interest rates slightly above what they pay their lenders on the interest-bearing portion of advances, as well as administrative and other fees. Due to this program change, there is a risk that these organizations will incur additional costs in the form of the loss of a portion of the interest they would normally make on the interest-bearing portion of the APP advances they issue. It is expected that this increase could cost administrators an additional $621,000 in lost interest revenue. While it is expected that many of the larger associations will be able to absorb these losses, the smaller organizations may need to increase fees and other interest rates to help offset the lost revenue and cover the costs of delivering the program.

The benefit to producers will be in the form of increased interest savings on advances over $250,000 and up to $350,000. It is expected that this program change will provide approximately 3 450 participants with a combined additional $12.4 million in interest savings for the 2023 program year. These estimates account for existing participants with advances over $250,000 (up to $350,000) and the average rate of interest charged by APP administrators across the program.

Overall, the cost impact of this regulatory amendment is a cost to Government in bearing the added interest payments for 2023. As such, the Government is providing a transfer payment to producers; however, in doing so, it generates corresponding benefits in the form of an increase in the interest-free portion of the APP to provide participating farmers with access to affordable financing at a time when supply chain issues and increasing operating costs are threatening their ability to grow their crops.

Small business lens

Analysis under the small business lens concluded that the Regulations would impact small businesses, as defined under Treasury Board Secretariat’s Policy on Limiting Regulatory Burden on Business (fewer than 100 employees or less than $5 million in annual gross revenues). The majority of Canadian farms fall under this definition. The increase to the interest-free limit is not anticipated to result in additional direct costs to small businesses. It will increase the affordability of the APP and, therefore, increases farming businesses access to credit with which to cover their operating costs over the growing season.

One-for-one rule

The one-for-one rule does not apply. This temporary increase to the interest-free loan limit 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 initiative. The review indicated that the temporary increase to the interest-free limit 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 initiative. The findings of this assessment were the following:

This 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’s commitment to gender equality.

Implementation, compliance and enforcement, and service standards

For the majority of producers, the 2023 APP program year began on April 1, 2023. APP administrators have begun issuing advances for the 2023 program year. The Regulations will come into force upon registration.

Once approved, the Government will announce that it has amended the Agricultural Marketing Programs Regulations to increase the APP’s interest-free loan limit from $250,000 to $350,000 for the 2023 program year. The regulatory change will not be retroactive for the period between the start of the 2023 program year and the coming into force of the amendment to the Regulations, meaning that the Government will only cover the interest on advances up to $250,000 over this period. Once the regulatory amendment is made, the Government will begin covering the interest on the additional amounts over $250,000 up to $350,000 for both outstanding and new advances.

As the program change was announced in Budget 2023, AAFC has already begun working with the 30 APP administrators to take the steps necessary to implement the program change once the regulatory amendments come into force. This will include amending the 2023 advance guarantee agreements, promotion of the interest-free limit increase, and any other steps necessary to implement the increased interest-free limit.

Contact

Justin Sugawara
Director
Financial Guarantee Programs Division
Programs Branch
Agriculture and Agri-Food Canada
Email: justin.sugawara@AGR.GC.CA