Regulations Amending the Agricultural Marketing Programs Regulations: SOR/2022-152

Canada Gazette, Part II, Volume 156, Number 14

Registration
SOR/2022-152 June 21, 2022

AGRICULTURAL MARKETING PROGRAMS ACT

P.C. 2022-717 June 20, 2022

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 under paragraph 40(1)(c)^{footnote a} of the Agricultural Marketing Programs Act^{footnote b}.

Regulations Amending the Agricultural Marketing Programs Regulations

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 $250,000 for program year 2023.

(6) The following definitions apply in this section.

program year 2019

means the program year that ends on March 31, 2021. (année de programme 2019)

program year 2022

means the program year that ends on March 31, 2024. (année de programme 2022)

program year 2023

means the program year that ends on March 31, 2025. (année de programme 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

The war in Ukraine is leading to increasing challenges to global food security from supply chain disruptions in agricultural commodities, as well as in key inputs for agriculture, in particular fertilizer exports from Russia. Furthermore, Canadian producers have an important role to play in minimizing impacts to global food security, and are being called upon to supply critical agricultural products in the wake of the disruption caused by the crisis in Ukraine.

The Russia-Ukraine conflict has disrupted supply chains and increased farm input costs, including fuel and fertilizer. Farm production expenses are forecast to have already increased by 9.9% in 2021. Agriculture and Agri-Food Canada (AAFC) recently completed a scenario to estimate the impact on farm income from the Russia-Ukraine conflict. Compared to 2021, the 2022 scenario estimates represent a 45% increase in fertilizer prices, a 13% increase in feed prices, and a 26% increase in machinery fuel prices. As a result, it is expected that total operating expenses will increase by another 10.2% in 2022, which would be the largest increase since 1981. While the conflict has also increased grain prices, many producers will need access to cash flow over the spring and summer months in order to be able to grow their crops and sell them in the fall.

Given the nature of the ongoing conflict and other existing challenges facing the agriculture sector, such as a sustained inflation, increasing interest rates, successive disruptions from climate change events, supply chain disruptions and reduced rail performance, and continued labour shortages, it is expected that many producers will continue to face liquidity issues beyond the 2022 growing season into 2023. The World Bank recently released its Commodity Markets Report reporting that the impacts from the Russia-Ukraine conflict on agriculture inputs and fertilizer prices are expected to extend into 2023 and beyond.

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.

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 lenders (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 currently 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 2021 advances closed on March 31, 2022, with a repayment deadline of September 30, 2022. New advances for the 2022 program year were available beginning on April 1, 2022, with a repayment deadline of September 30, 2023. 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, 20 784 producers obtain APP advances totalling $2.4 billion per program year, including $1.5 billion in interest-free amounts and $869 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 70% ($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.

For the 2022 program year, AAFC has already temporarily waived a requirement under the program for pre-production advances to be issued in two instalments (60% pre-seeding and 40% post-seeding) to provide additional cash flow at the start of the production cycle for important inputs such as fuel, fertilizer and seed. APP program data as of April 27, 2022, indicated that demand for 2022 APP advances has increased over the same period in the previous year. The number of advances has increased by 2% while the total value of advances has increased by 35% percent. These increases indicate that there is already real need for the APP advances in 2022.

This regulatory amendment increases the interest-free loan limit under the APP to $250,000 for all eligible agricultural producers for the 2022 and 2023 program years. 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 2022 and 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 year and next.

Objective

The objective of this proposal is to temporarily increase the APP’s interest-free limit 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

Subsections 9(1) and 40(2) of the Agricultural Marketing Programs Act allow the interest-free limit under the APP to be increased by regulation at the recommendation of the Minister of Agriculture and Agri-Food and with the concurrence of the Minister of Finance.

The amendments to the Agricultural Marketing Programs Regulations have been made by adding the following subsections to 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 $250,000 for program year 2023; and
• (6) The following definitions apply in this section.

Program year 2019 means the program year that ends on March 31, 2021.

Program year 2022 means the program year that ends on March 31, 2024.

Program year 2023 means the program year that ends on March 31, 2025.

Regulatory development

Consultation

On April 8, 2022, the Grain Farmers of Ontario, representing 28 000 grain and oilseed farmers wrote to the government expressing concern about high fertilizer and fuel prices and requesting government action/compensation. Consultations with the Canadian Bankers Association (CBA) has revealed that highly impacted producers, such as smaller farms with limited liquidity, may not be able to plant their crops this year given high input costs and a lack of access to inputs, such as fertilizer.

AAFC is currently undertaking 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.

Modern treaty obligations and Indigenous engagement and consultation

There are no modern treaty obligations related to this proposal.

Regulatory analysis

Benefits and costs

It is expected that this program change will result in incremental costs to government of $30.2 million in fiscal year 2022–2023 and $34.7 million for 2023–2024 on an accrual basis. These cost estimates include both the expected costs to government of paying the interest directly to lenders on the additional interest-free portion of advances (up to an additional $150,000 on top of the previous $100,000 limit) and an increase in costs resulting from a slight increase in defaulted advances paid by the Department under the guarantee. As defaulted advances paid by AAFC under the guarantee become debts to the Crown, these cost estimates are net of expected recovery amounts in each of these fiscal years.

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. Many of these associations will be able to absorb these losses, especially when increases in participation bring in new revenue, while other smaller organizations may need to increase fees and other interest rates to help offset the lost revenue.

The benefit to producers will be in the form of increased interest savings on advances over $100,000. It is expected that this program change will provide approximately 11 000 participants with an additional $22.8 million in interest savings for the 2022 program year and $27.4 million for 2023. These estimates account for existing participants with advances over $100,000 (up to $250,000); an assumed participation increase of approximately 10%, which occurred following a similar interest-free limit increase in 2019; 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 producers and acting as a guarantor for defaulted advances. As a result, 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 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 proposed regulation will impact small businesses. The increase to the interest-free limit is not anticipated to result in additional direct costs to small or large farming businesses. It will increase the affordability of the APP, especially for small to medium size farming businesses, and therefore increase their access to credit with which to cover their operating costs over the growing season.

One-for-one rule

This temporary increase to the interest-free 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 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 proposal. The findings of this assessment were

• 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; and
• while advances will be given to more males given the make up of the sector, increasing interest-free loan limit is very unlikely to exacerbate gender differences in the sector.

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 2022 APP program year began on April 1, 2022. APP administrators have begun issuing advances for the 2022 program year.

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 $100,000 to $250,000 for the 2022 and 2023 program years. The regulatory change will not be retroactive for the period between the start of the 2022 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 $100,000 over this period. Once the regulatory amendment is made, the government will begin covering the interest on the additional amounts over $100,000 up to $250,000 for both outstanding and new advances.

AAFC will work 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 2022 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