Draft Regulations Amending the Agricultural Marketing Programs Regulations

Transcription

1 CFA Overview: Draft Regulations Amending the Agricultural Marketing Programs Regulations The following includes an overview of the proposed regulatory amendments included in Canada Gazette volume 149, No. 28 July 11, 2015 relating to the legislative amendments included in Bill C-18, the Agricultural Growth Act. 1) Expansion to the types of agricultural products eligible under the APP. o Elk antler velvet and bees, as examples. o Certain classes of breeding stock that are otherwise ineligible Proposed regulations specify that additional livestock categories, such as hogs and cattle raised for breeding stock, would be eligible for advances o For the purposes of the regulations, livestock is defined to include rabbit, red deer, boar, goat, and elk. o Cervid antler velvet and beers are also designated as eligible agricultural products. o In terms of breeding animals: Cattle are eligible if they are intended to be sold during the production period for which the advance is made. Hogs if: less than 12 months old, intended to be sold for breeding during the advance production period, or more than 10 months old, if they are intended to be sold for purposes other than for breeding during the advance production period. Comments: The addition of new forms of livestock and other eligible products should expand access to the program for a number of producers that previously couldn t receive advances on their product. However, it is important to note that additional classes of breeding animals are currently limited to cattle and hogs. This regulatory consultation represents the final opportunity in the foreseeable future to have additional classes of breeding stock or additional agricultural products included in the regulations. Also, while bees have been included as eligible products, it is important to recognize that this only those relates to bees produced for marketing, not honey production. Any breeding animal must be produced with the intention of marketing it within that production period/program year (can extend as long as 24 months for certain livestock). Intention to market will not be assessed through identification of individual animals, but based on average cull rates and other historical business information. Where a major marketing issue arises for an entire segment of the industrry, stays of default are still available to extend the repayment period, where deemed necessary by the Minister. 1

2 2) Additional classes of security would be allowed, including the assignment of cash investments and other risk management products that cover similar risks to BRM programs. o This would enable producers that were previously limited by BRM coverage to receive the full eligible advance, through pledging other sources of security Comments: Given the declines in AgriStability support and the low participation rates we continue to see across Canada (which continue to decline), additional security options present real value to the sector in terms of increased capacity for advances. Uptake of the program remains below AAFC s desired outcome and we believe that expansion of security options alongside awareness raising efforts can increase the attractiveness and utility of the program moving forward. Additional sources of security will be individually considered moving forward, with the possibility of using either individual products or the combination of a number of products to demonstrate the necessary security. This flexibility is required, given that any security must reflect adequate multi-peril risk protection. 3) Allow for third parties to act as loan guarantors, expanding access for cooperatives and corporations with numerous stakeholders (all no longer have to provide personal guarantees) Comments: This should reduce the administrative burden for corporations and ensure that signatories with the appropriate authority can proceed through the program without additional delays associated with reaching out to additional signatories. It is important to note that any such guarantor would assume full liability if an advance was not repaid on schedule. As such, they must have sufficient, demonstrable assets. However, guarantors are not required to be shareholders in the business itself. 4) Advance repayment flexibility would be increased, such as no penalty if an advance is paid back through sale of security instead of the actual agricultural products, under certain circumstances. o Avoid putting a producer s loan into default, reducing the administrative burden for both producers and administrators. Comments: The regulations specifically provide for situations where producers die, are legally incapable of making decisions, have access to the proceeds of other acceptable forms of security, or through proof of sale of a commodity that had received an advance through the same administrator. Additional repayment flexibility will assist producers in marketing their products at a time that makes sense. 2

3 Broadening acceptable security through these regulations to include financial collateral and letters of guarantee from financial institutions should go some way in this regard, but emphasis is needed to ensure the flexibility continues to expand. 5) Allowable overpayment limits for producers would be increased from $6,000 to $10,000, reducing penalties to producers who find themselves in overpayment situations. o o 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. Producer limits pertaining to receiving an advance that exceeds the eligible amount and repayments without appropriate documentation would now have harmonized and expanded limits. Increased limits mean that penalties would not be applied unless the new, higher limit is surpassed. Both limits being the same should increase program understanding through reduced complexity. Comments: Improved consistency should simplify the program and also provide additional capacity for overpayment errors associated with changes in market value. Given that advances are provided on 50% of the value of a given product, the $10,000 limits should provide sufficient flexibility for potential overpayments. 6) Improved consistency in: o Producer penalty applications; o Cash advance maximum determinations; o Administrator liability calculations; and o Default management. Comments: Administrators liability percentages will be calculated at 3% if they have not completed a program year, otherwise it will be calculated using up to the 5 most recently completed program years. This reflects a change from the current holdback approach, which saw administrators hold a portion of funds as a form of liability protection. Instead, the administrator s liability percentage will simply be reduced from the total advance available to the producer, encouraging administrators to minimize their default rates in order to remain competitive. 3

4 7) Attribution rules both for total eligible limits and how they are attributed to individuals involved are better defined. Comments: The attribution rules are very complex, but based on previous discussions with AAFC, these reflect a more accurate set of attribution rules that are less focused on blood relations and instead focused on real ownership/management relationships. Examples are included in the attached document. Any individual with less than 25% involvement in a farm corporation will not be considered related under the proposed regulations, which also strive to redefine relatedness. Therefore, their individual advance limits would not be affected by any advances the corporation takes on and vice versa. 4

5 8) Third-party administrators are held accountable for their APP loan risks, in part through an administrator s percentage of liability (APL). o Higher histories of default result in a higher percentage, measured through calculations over 5 years rather than 2, with a simplified method of calculation. Will reduce volatility and improve consistency for producers. Comments: This relates back to the change from a holdback approach, recognizing that administrators will now reduce advances to producers by the appropriate administrators percentage and no longer holdback funds in the administrator s own accounts. 9) Rules for administrators requesting a stay of default have not been predictable, the proposed regulations outline a time frame within which a stay can be requested. This will require the Minister only order a default be stayed within a period of four months before a default is impending. o Also simplifying and clarifying the provisions for third-party administrators to manage loan defaults and for the government to make guarantee payments. Comments: This measure should improve clarity regarding the expectations as to when a stay of default can be ordered, providing producers a clearer period upon which to base expectations of a stay of default. The previous regulations cited impending defaults, which while generally treated as meaning 4 months, left room for interpretation within the regulations. Qualitative Benefits anticipated: Increased number of producers eligible for the APP advances Savings for administrators through streamlining the program Incremental increase of $937,000 starting in as a result of expanded eligibility. 5