Thank you for the opportunity to be here today to provide the banking industry’s input to the Committee’s study on the acquisition of Canadian farmland and its potential impact on the farming sector. The Canadian Bankers Association represents 59 domestic banks, foreign bank subsidiaries and foreign bank branches operating in Canada and their 280,000 employees. With me today are representatives from Canada’s five largest banks who have considerable agricultural expertise and distinct ties to the farming community.
I would like to begin by highlighting the role the banking industry plays in the agricultural sector.
The Canadian banking industry has a longstanding commitment to the agricultural sector. Lending to the agricultural sector represents a significant part of bank financing to SMEs, with over 14 per cent of authorized SME loans extended to agriculture. Banks have $34 billion in loans outstanding to Canadian farmers through operating and term loans as well as mortgages, representing about 37 per cent of the total agriculture financing market. Breaking this down further, according to Statistics Canada, banks provide more than half of non-mortgage loans and around 22 per cent of mortgages to farmers. Regardless of the size of the farm operation, Canadian banks apply the same prudent lending practices and comprehensive risk management systems to the agricultural sector as they do in every other line of business. In addition to financing, banks also provide a variety of services to assist farming operations of all sizes, from cash management and deposit services, to providing trade and exporting services.
As active participants in the agricultural financing marketplace, banks compete with each other as well as with credit unions, financing and leasing operations, and Farm Credit Canada (FCC). As a crown corporation in the agriculture sector, FCC is a significant, market dominant, player with 27 per cent of the agriculture financing market, and almost half of farm mortgage debt in Canada.
Turning directly to the subject of the Committee’s study, the banking industry appreciates the complexities involved in farmland acquisition and the importance of farmland to the agriculture sector for both established and new farmers. There are a number of factors influencing farmland prices in Canada. Historically low interest rates, relatively strong commodities prices and growing demand for urban land development are among some of these factors. Furthermore, the size, number and demographics of farming operations have changed considerably. According to Statistics Canada, from 1991 to 2011, the average farm area increased by about 30 per cent while the number of farm operators decreased by almost 25 per cent. At the same time, we are seeing the age of farm operators increasing. Further, rising farmland prices has had an impact on farmer’s balance sheets, with land now representing two-thirds of all farm assets – up from 54 per cent in 2005.
The evolution towards larger farm operations and an aging farm population are contributors to increased interest in buying and selling farmland. For farmers who have devoted a lifetime of hard work in their farm operations, they view their farmland as an investment to support their retirement. Selling farmland is a big decision for farmers who wish to retire. Banks not only assist farmers in these transactions but also provide valuable advice around retirement and succession planning for themselves and their children.
On the other hand, banks provide assistance to young farmers who wish to begin a career in the agricultural sector and need advice to understand the options that are available with respect to farmland, including leasing, renting and mortgage financing. Young farmers may also need significant capital investment such as purchasing equipment or machinery to begin a new farming operation. Banks can provide the full suite of services and financial advice needed to begin a new operation. The federal government’s Canadian Agricultural Loans Act (CALA) program, which helps young farmers purchase land, buildings, machinery and equipment, is also available.
As farming continues to change, banks continue to adapt products and services to meet their client’s needs. Banks have dedicated agricultural bankers who have the expertise and knowledge to understand both the challenges and opportunities that are characteristic of the sector. Banks make ongoing communication with their farming clients a priority in order to ensure their needs are being met and to support them when making financial decisions, including buying or selling farmland.
I would like thank the Committee again for the opportunity to provide the banking industry’s input to this study. We would be happy to answer your questions.