The Rural Voice, 1983-11, Page 10F.C.C. and
affordable credit
In 1929 the government of Canada
established the Canadian Farm Loan
Board because the lending institu-
tions of the time were not meeting the
financial needs of the farming in-
dustry. In 1959 this board was replac-
ed with the Farm Credit Corporation
(F.C.C.)
The F.C.C. is charged with the task
of assisting Canadian farmers to
C.F.A. Shocked at
Indications
of Restrictions
on F.C.C.
Borrowing
Ottawa, Ontario, June 21, 1983 - The Cana-
dian Federation of Agriculture is shocked at in-
dications that the Federal Government may be
unduly restricting the authority of the Farm
Credit Corporation to borrow funds to meet
farmers' credit needs. Farmers were told for
years that their urgent requests for greaser
funds for the FCC would be met by legislation
authorizing the Corporation to borrow in
many markets on its own account. That legisla-
tion is now law. 11 would be an affront to
farmers and to Parliament if the government
now proceeded to prevent the FCC from play-
ing the leading role in provision of Tong -term
credit to farmers that is its proper function.
This is a long-term and a short-term issue. In
the short-term it is that substantial additional
funds are needed now by the FCC to meet the
legitimate credit needs of farmers, especially
for those entering the business. The current
need for funds arises out of the pent-up de-
mand by investors following the decline of in-
terest rales from high levels of last year, plus a
continuing need for refinancing. Indications
that the FCC will not be permitted to borrow
the S500 million it requires, or only a portion
of it, are very disturbing.
The long-term issue is whether government is
going to continue its policy of recent years -one
that the new legislation was designed to correct
- of reducing the role of the FCC in the lending
field. The CFA is unequivocally opposed to
such a policy. Any concept That the FCC be
regarded as a lender of last resort, or in any
sense other than the central source of Tong -term
lending funds for agriculture, is
unacceptable. ❑
establish viable farm enterprises. This
usually takes the form of first mor-
tgages on farm property and chattel
mortgages.
Since 1975 a farmer does not need
to borrow long-term money entirely
on equity. Now, if he can
demonstrate re -payment ability, the
F.C.C. will supply the money. This
can be used to make permanent im-
provements, refinance existing debt,
purchase livestock and machinery,
etc.
Previously a borrower had to be a
full-time farmer to quality for a loan.
It is now recognized that this prevents
beginning farmers from having off -
the -farm jobs in order to subsidize
the budding enterprise. Today a
beginning farmer with an F.C.C.
loan is allowed to earn off -farm in-
come for a period of five years before
he is required to go full-time.
Also, there is the Farm Syndicates
Credit Act, administered by the
F.C.C., where a group of farmers can
borrow funds for joint equipment,
e.g. grain dryer, combine.
Source of Funds
The funds of the F.C.C. come
from two main sources. The first are
loans and advances from the Cana-
dian Minister of Finance; the second
from repayment of loans by bor-
rowers and recently also from bor-
rowings in the money markets.
The share of the Ministry of
Finance has decreased, while more
funds from farmer repayments has
taken its place. In 1976/77 farmer
repayments were $87 million or 24 per
cent. This increased to $160.3 million
or 34 per cent in 1979/80. This drop-
ped to $133.1 million or 23 per cent
last year, reflecting the difficult
financial climate for agriculture.
In a way one can say that the funds
from government for the F.C.C.
came from Canadian savers in the
form of Government of Canada
Bonds. The F.C.C. rates were set
twice yearly at one per cent above
Government bonds.
This changed in December, 1982
PG. 8 THE RURAL VOICE, NOVEMBER 1983
when the Crown corporation rate was
adopted as the basis for calculation.
This made the rates drop immediately
by two and a half percentage points,
except for syndicate loans.
While the size of loans by the
F.C.C. have increased by 71 per cent
between 1975/76 from $64,446 to
$110,298 in 1979/80, the real increase
in 1975 dollars has been 24 per cent.
In other words, the $110, 298 was
worth only $80, 148 in 1980. At the
same time the net assets of the bor-
rowers increased by 12 per cent in
constant dollars.
Funds to Save Family Farm
The 1981 annual meeting of the
Canadian Federation of Agriculture,
representing Canadian farmers from
coast to coast, asked for an im-
mediate increase of funds for the
F.C.C. by $150 million at a maximum
rate of 12 3/4 per cent.
This was considered essential for
the survival of the family farm. This
sentiment was echoed by the Chris-
tian Farmers Federation of Ont.
(C.F.F.O.). They asked, a month
later, for an unstated amount of addi-
tional money for F.C.C. at the maxi-
mum interest rate of 12 per cent.
The only real difference between
the two demands was that the
C.F.F.O. wanted to exclude farmers
with an equity of 75 per cent or more,
while the C.F.A. wanted no exclu-
sions.
In November 1981 the C.F.A.
repeated its call for more money and
added a demand that farmers be eligi-
ble for Small Business Development
Bonds (S.B.D.B.).
The MacEachen Budget
When then Finance Minister
MacEachen brought in the federal
budget at the end of June 1982, he
obviously ran scared because of the
size of the projected $19.6 billion
federal deficit. Nevertheless, there
was finally some response. A Special
Farm Financial Assistance Program
was put in place. The total amount
was $100 million in 1983 and again in