COVID-19 and new government cash advance rules are slowing Canada’s biggest cash advance administrator from getting badly needed money to farmers this spring.
But the Canadian Canola Growers Association (CCGA) says it’s now in a better position to serve farmers no matter how long the pandemic lasts.
In mid-March CCGA CEO Rick White moved 50 employees focused on the Advance Payments Program (APP) home to work to avoid having to shut down if one ever tested positive for COVID-19.
“We positioned ourselves to ride out COVID-19 as long as we need to and not impact farmers who use the program,” Dave Gallant, CCGA’s director of finance and operations, said in an interview April 28.
“If this thing lasts six months even though my people will be at home, there will (eventually) be no impact to farmer service because we did what we did when we did it.
“Over the next three to four weeks we hope to be through that backlog and then processing at a normal pace.”
Unfortunately, two weeks of preparatory work was lost while setting staff up at home, creating a backlog of applications, Gallant said.
Why it matters: Many farmers rely on spring cash advances to cover seeding costs, including many newer farmers with limited equity who are obliged to pay cash before receiving inputs. Delayed advances slows their seeding progress.
Under the federal APP administered by a number of farm organizations, farmers can get loans of up $1 million based on production they expect to, or already have.
The first $100,000 is interest free and low interest rates apply to the rest.
Farmers repay the ‘advances’ when they sell their production.
The program provides farmers with cash flow to seed, or to store crops until prices improve.
Everyone in the agricultural supply chain is working all out to get the crop seeded, except it seems the CCGA, one Manitoba farmer wrote in an April 17 email to the Manitoba Co-operator.
“I am at the mercy of the APP program administered by CCGA. Only being in my third year of operation, my low equity makes me ineligible for company administered input financing, meaning I have no choice but to pay up front for my fertilizer, seed, and chemical before it can be brought onto my yard,” the farmer wrote. “Unfortunately due to delays in processing my application I have not been able to pick up and pay for my input supplies.”
The farmer, who also has an off-farm job in the agricultural sector, said he knows many other farmers are in the same boat.
The farmer suggested CCGA should hire more staff and have them work overtime to get advances out faster.
The CCGA has done both, Gallant said. It hired four new employees to process advance applications and staff are working Saturdays, he said.
“We’ve got staff working hundreds of hours of overtime,” Gallant said. “Everybody is pitching in.”
Just prior to press time the farmer found out his advance had been disbursed April 30, 38 days after the CCGA received his application on March 23.
The CCGA is asking farmers not to call to inquire about their advances because it stops staff from processing applications, Gallant said.
“There are some people who need the money right away, they are financially challenged and they can be a little upset and we understand that,” he said. “We understand the expectation of having the money quickly to them. But we are doing the best we can to make sure we can continue to do that.”
In addition to delays from moving staff, the federal government introduced new rules requiring program administers to dig deeper into farmers’ creditworthiness.
White asked Ottawa to relax the rules, and it did on some effective April 18, Gallant said.
“We have a big backlog,” White said during a webinar on canola issues April 28. “We are chewing through it now and we are starting to see the backlog starting to move the correct way.
Traditionally the CCGA issues advances in three to five working days, but Gallant stressed every farmer and application are different.
“If you’re looking for a million-dollar advance it’s going to take more than five days,” he said. “But if you’re looking for a $100,000 advance and you’ve had 10 years of advances with CCGA, never had a default, once we get back to normal times certainly three to five days is more than realistic to get those advances issued.”
The CCGA delivers 97 per cent of the advance payments issued for grains and oilseed crops in Western Canada, Gallant said. That’s usually around 10,000 advances totalling about $1.5 billion, but last year because the federal government boosted the interest-free portion on canola up to $500,000, it rolled out 11,000 advances, he said.
White said farmers aren’t asking as much for a higher limit on the interest-free portion mostly because the interest rate is very low now.
“Our interest rate at CCGA, on advances over the $100,000, is CIBC prime minus 0.75 per cent,” White said.
“It’s very, very low… I hate to say it — it’s not interest free, but it’s almost free (at 1.7 per cent), even in the interest bearing given the low rates we’re experiencing right now.”
That’s down dramatically from last year’s rate of 3.45 per cent.
Bank prime rate is around 2.45 per cent.
While the CCGA interest rate is just 1.7 per cent, the blended rate on loans above the $100,000 interest-free portion is even lower. For example, the effective interest rate on a $1-million advance payment from the CCGA is 1.53 per cent, Gallant said. The farmer would pay $15,300 interest for one year, he said.
“If they were borrowing at (bank) prime and pay 2.45 per cent on a million dollars it would cost them $24,500 for that same loan, so they could save $9,200 (with a CCGA advance),” Gallant said. “And that’s at (bank) prime, and I would guarantee you most farmers are walking out of the bank with prime plus a half at best (2.95 per cent).”