February, 2000

National Farmers Union Submission to

Farm Credit Corporation

on Possible Legislative Changes to the

Farm Credit Corporation Act

Introduction:

The National Farmers Union welcomes the opportunity to make a
written submission to the Farm Credit Corporation in regard to its mandate,
after our Executive met with FCC representatives in Saskatoon last month.

The National Farmers Union is a voluntary, non-partisan,
direct-membership national farm organization working to maintain the family farm
as the cornerstone of Canadian food production. We recognize credit as an
essential need in farm production and planning. FCC was established specifically
to serve that need in the farm community.

However, FCC's practice has often fallen well short of that goal.
Long-standing issues include attitudes which are often adversarial rather than
cooperative, and FCC's lack of transparency and accountability to the client
community. These problems too often obstruct what should be a shared
constructive approach to farmers' credit challenges .

The changes that are being proposed to FCC's mandate do not
address these problems. In fact, they threaten to create others. Too often, FCC
already acts too much like a private lender whose only goal is to maximize
profits. The proposed changes seem likely to exacerbate that trend.

The NFU believes it is essential for FCC to keep its central and
exclusive focus on farm credit, and to base all its programs on
commitment to its primary purpose: helping Canadian farm families make a living
farming in a sustainable way.

Comments and Criticisms:

The NFU views with alarm the current proposal to "expand" the
mandate of FCC in ways which would significantly dilute its focus while leaving
major existing problems unaddressed.

In its background paper "Eye on the Horizon - Serving the
Changing Needs of Agriculture", FCC describes its 40-year record "helping
finance the transformation of agriculture into the multi-billion-dollar industry
it is today." It emphasizes what it sees as the "sophisticated, competitive,
global" nature of Canadian agriculture, but says nothing about long-term
sustainability. The future of farming, to judge from the paper, lies not in
producing abundant, safe, quality food for Canadians, but in producing
diversified products for export.

The paper provides a quantitative overview of FCC's present
operations. It cites numbers of FCC "customers", numbers of loans approved,
numbers of accounts, numbers of employees, and the size of its portfolio. These
numbers, however, fail to reflect the quality of the services offered or their
effects on the farmers on the receiving end.

Too often in its actions against farmers, the Corporation's
personnel come across as acrimonious and even vindictive in their attitude. FCC
has been known to take back farm assets even when it cost more to get the farm
family off the land than it would have cost to negotiate a "win-win" solution to
keep them farming. In these situations, farmers become victims of FCC.

Another on-going problem is lack of transparency and lack of
access for farmers to the details of their FCC accounts. This access is
particularly important when the farmer is in a financial crisis and FCC is
moving to foreclose. In too many cases, instead of providing the affected farmer
with pertinent information in a timely fashion, the Corporation and the
Department of Agriculture pass the buck back and forth between them while the
farmer waits in vain, without even a functional avenue of appeal.

Without significant improvement in these areas, FCC is practically
indistinguishable from private lenders. In that case, one must question the
appropriateness of public involvement. If the proposed changes to FCC's mandate
are intended to improve the service the Corporation provides as a public body,
these existing problems must be solved first. However, there is no mention of
these matters in the background paper.

Even on the matters it purports to address, "Eye on the
Horizon" provides very little of substance. On the key question of the
nature and ownership of enterprises eligible for FCC financing, it devotes a
mere two lines to what is clearly a proposal for sweeping changes. The
presentation notes for the consultation meetings are entitled "Legislative
Presentation", but as with the background paper, one searches in vain for
anything resembling an actual legislative proposal.

FCC states that it wants to be granted the "ability to lend to all
farm-related businesses, without the constraint of the agribusiness being owned
primarily by farmers." But it does not explain what this would mean. The NFU
finds both the vagueness and the thrust of this eligibility proposal
unacceptable. In order to comment properly, farmers need to know what is
actually being proposed and how that may differ from what is currently the case.

First of all, what is meant by "all farm-related businesses"?
According to the background paper, FCC's mandate since 1993 already includes
"farm-related businesses that are farmer-controlled and include a farming
operation". Does the present proposal aim to broaden the definition (not given)
of "farm-related"? "Eye on the Horizon" and the presentation notes leave
it unclear whether the "farm-related" criterion is even on the table as subject
to change.

The other problem raised in this key segment of the proposal is
the removal of the requirement that the enterprise receiving the loan be owned
primarily by farmers. The background paper and presentation notes refer to this
as a "constraint". The NFU disagrees. That provision, far from being a
"constraint", keeps FCC's focus where it should be: on farming.

The presentation notes also contain an allusion to "farm-related
businesses that benefit the primary producer without the farmer-owned
constraint". This suggests a further loophole of woolly wording that could be
used to justify practically any decision. The list of businesses which
supposedly "benefit the primary producer" is a long one: seed companies,
agro-chemical companies, bio-tech companies, machinery companies, meat packing
companies, grain companies, railways, trucking companies, construction
companies, even banks. FCC could make a loan to any of these companies and
justify it by claiming that although the business was not farmer-owned, it was
"farm-related" and would "benefit the primary producer". Unfortunately the
history of farming in this country shows that the "benefits" usually flow the
other way.

In Ontario, FCC has already demonstrated what such an "expanded"
mandate could lead to. Last year, the FCC loaned $600,000 to a non-farmer to set
up a bottled water business near Flesherton in Grey County. The proponent in
this case, Doug Hatch, is a lawyer, not a farmer, and the activity
involved is the extraction of groundwater for bottling, not agriculture
or a value-added farm-related business. Moreover, bona fide farmers in the area,
which has been hard hit by recent droughts, see a risk that the planned water
taking will affect already-low groundwater levels and threaten the water supply
for their own farms.

When local Grey County residents challenged the FCC's involvement
in this water-bottling business, a senior official of the Crown corporation
claimed that under its new mandate, FCC could lend money for anything on farm
land. Although this statement has since been retracted, the loan to Mr. Hatch
remains in place - and there are indications that this case is not an isolated
one.

Even more important, the NFU sees an uncanny similarity between
the statement about financing "anything that can go on farm land" and the
changes to the mandate now being proposed in "Eye on the Horizon". After
all, if water-bottling can be considered a "farm-related business" because it
occurs on (what was previously) farm land, an equally valid argument could
surely be made for a toxic waste incinerator, a housing development, a
micro-chip factory or a small nuclear reactor. If drawing down the water table
qualifies as a way to "serve agriculture and enhance rural Canada", presumably
these other types of enterprise should be given consideration as well. And if
there is no requirement that the loan be made to a farmer actually involved in
farming, then the field is wide open, both literally and figuratively.

"Eye on the Horizon" claims that the proposed changes to
FCC's mandate would "enhance FCC's ability to serve agriculture." In order to
legitimately make this claim, one would have to rewrite the dictionary, making
"enhance" a synonym for "assure" and "serve" another word for "profit from", and
redefining "agriculture" as any activity situated in a rural area, regardless of
whether it benefits or damages the people or the land.

Conclusion and Recommendations:

"Eye on the Horizon" sketches out proposals which would
take the "Farm" right out of "Farm Credit Corporation", rob farmers of the
potential benefits of a credit service geared specifically to their needs, and
put farming at an increasing disadvantage vis-a-vis other sectors of the rural
economy. It fails to address major existing problems with FCC's services,
leaving intact a system which too often victimizes the farmers it is supposed to
assist. It emphasizes export agriculture and neglects production for the
domestic market, thereby reinforcing the impression that FCC may tend to give
preferential treatment to operations geared to the export market.

For all these reasons, the National Farmers Union dissents from
the approach put forward in the background paper and presentation notes for this
consultation. We urge FCC to give priority to correcting the problems with its
current services to farmers, make its operations more farmer-friendly, and stop
trying to mimic private lenders competing in the global marketplace. At thesame
time we ask FCC to abandon its pursuit of the "ability to lend to all
farm-related businesses without the constraint (sic) of the agribusiness being
owned primarily by farmers." It is inappropriate for FCC to diversify out of
farming.

In place of the changes being proposed, the NFU recommends the
following:

1. That the mandate of FCC retain the criteria of "farm-related
businesses that are farmer-controlled and include a farming operation";

2. That the definitions involved in these criteria be clarified
and if necessary further defined, with full input from the farm community, so as
to ensure that FCC loans continue to serve, and not adversely affect, farmers
and rural communities;

3. That FCC firmly and consistently enforce these criteria in
every FCC transaction;

4. That FCC ensure that farmers have ready access to the details
of their own accounts, and put in place a functional and timely appeal process
for use when adequate access is not provided;

5. That FCC personnel be trained in the elements of conflict
resolution, "win-win" negotiating, seeking understanding, synergizing, etc., so
that they are equipped to assist rather than victimize farmers in financial
crisis;

6. That FCC affirm its commitment to supporting food production
for the domestic market, and guarantee that it will not give preferential
treatment to export-oriented agricultural enterprises.

Respectfully submitted

National Farmers Union