Just this morning we talked about the fire Finance Minister Jim Flaherty is coming under for blaming the banks for irresponsible lending, while giving Farm Credit Canada (FCC) free reign with farm mortgages. With so much criticism surrounding another separate Crown organization lately, the Canada Mortgage and Housing Company, many don’t even know about the FCC, or have heard of it before. So, just what is it?
The FCC actually began as the Canadian Farm Loan Board (CFLB) in 1927, and its main objective was to provide long-term mortgages to farmers. After the Second World War in 1942, the Veteran’s Land Administration Act (VLA) became part of the Board’s mandate, as a way to help veterans that were returning from the war and wanted to begin a career in farming. At the time, the VLA was the biggest source of farm mortgages in Canada. It wasn’t until 1959 when the Farm Credit Act (FCA) was then introduced. This Act founded the FCC, which offered one product – capital of up to $8 million for farms, with an interest rate of 5 per cent.
Since the time of its creation, the FCC has experienced vast growth. Today, they are still the largest agricultural term lender in Canada, and the organization, as well as the Acts its founded on, have gone through many amendments – most of them to benefit farmers and to give them the funding needed to properly run and maintain a farm. In 1993, the Farm Credit Corporation Act was also passed, which gave farmers even more funding to not only run their farm, but also to take on value-adding agricultural projects that go “beyond the farm gate.”
All of this is good for farmers, yes. But just like low mortgage rates at the big banks can be good for consumers while putting the economy at risk, critics have put the FCC under the microscope lately, saying that this Crown organization is doing the exact same thing. And the CD Howe Institute pointed out just this week that it’s gone from taking on 20 per cent of the market share to 30 per cent in the last ten years alone. Its loan portfolio has been growing steadily for the past two decades, and the organization currently has loans to farmers and agribusinesses worth more than $25 billion.
But the Institute’s concerns were already being addressed. The federal government has asked the Office of the Superintendent of Financial Institutions (OSFI) to perform a risk assessment of the FCC. The OSFI will be presenting their findings to the departments of finance and agriculture, but won’t be releasing them publicly.
The Agriculture Minister, Gerry Ritz, has recently stated that he doesn’t understand the criticism the FCC has received lately, mostly from private lenders.
“They are constantly under pressure from the chartered banks and credit unions to do less, not more,” he said. “I’m here to say very publicly that I expect Farm Credit (Canada) to continue to play the dynamic role they play in the farm sector.”
He also said that FCC’s role could get even bigger in the future, although he didn’t expand on what that growth would include. And while that may sound alarming to those that already think FCC plays too active a role in the lending business, he says that Canadians have no need to worry. Unlike with the CMHC, it’s not their tax dollars that are on the line with the FCC.
“We want to assure Canadians that even in doing that they don’t have money at risk,” Ritz says.
When speaking about the business operations at FCC, a spokesperson from the Crown organization, Trevor Sutter stated, “Government entities are routinely examined as part of proper oversight. Our risk models indicate the level of risk on new loans and the strength of the overall portfolio has never been better.”
