Manitoba farmers have lots of options for low- and no-interest cash advances on their soon-to-be-seeded 2021 crops, including new to the Manitoba market, FarmCash, operated by the Alberta Wheat Commission (AWC).
FarmCash joins the Manitoba Crop Alliance (MCA), Canadian Canola Growers Association (CCGA) and Manitoba Livestock Cash Advance Inc. — stalwart administrators of the federal government’s Advance Payment Program (APP) in this province.
Despite FarmCash’s decision this year to expand beyond Alberta where it began in 2018, recent changes to AAP, including having to make financial statements public sharing with the 2020 fiscal year, could see fewer administrators in the future.
The MCA through one of its legacy founders, the Manitoba Corn Growers Association, has been issuing advances for 40 years.
The CCGA, and its predecessor the Prairie Canola Growers’ Council, have been doing it for 37 years.
Officials with both organizations say they aren’t concerned with FarmCash trying to poach their clients.
Meanwhile, administrators report strong early demand for spring advances, partly because of the low interest rates.
As with last year’s cash advance program, farmers with enough seeded acres, or later on, stored crops, can borrow up to $100,000 interest free, plus up to another $900,000 at low interest rates.
Farmers can use the loans how they see fit so long as they repay them as they deliver their crops. That includes providing cash flow so farmers can hold out for better prices rather than being forced to sell to pay bills when prices are poor.
Why it matters: Farming is a high-risk, capital-intensive, low-margin endeavour. Access to low-interest-rate loans secured against production gives farmers more flexibility, including timing sales when prices are higher.
Officials with FarmCash, MCA and CCGA all said in separate interviews their good service is what draws farmers to them.
“We continue to be an option for Manitoba farmers looking for a cash advance,” MCA CEO Pam de Rocquigny said in an interview March 15.
“We have a really loyal client base and I think they come to us because of our service.
“We’re proud to have been here for 40 years.”
Once the paperwork is done, MCA’s goal is to issue a loan in three to five business days, she added.
The CCGA and FarmCash have the same target.
The CCGA experienced some delays a year ago due to COVID-19, but soon caught up, Dave Gallant, the association’s director of finance and operations said in an interview March 16.
“We’re ready to process advances no matter if COVID lasts six months or six years,” he said.
While farmers applying through MCA can fill out a PDF application online, or print it and then email, fax or drop off the filled-out form, CCGA and FarmCash application in some cases can all be done online.
“We are definitely seeing a huge uptake from our customers on the online side,” Gallant said. “And we’ve got lots of positive comments from our customers about the changes and how easy it is.”
FarmCash not only issues advances, but is offering farmers advice on how to make best use of their loans if they want it, Syeda Khurram, FarmCash’s chief operating officer, said in an interview March 17.
“We pride ourselves on our easy, online application process and our high level of service and ability to release loans in three to five business days to meet their (farmer) needs in a timely fashion seamlessly and efficiently,” she said.
Both CCGA and FarmCash offer very low interest rates — bank prime minus 0.75 per cent — and don’t charge an administration fee.
The MCA’s rate is bank prime minus 0.25 per cent and charges a $250 administration fee. De Rocquigny noted it’s competitive with banks and credit unions.
Although the MCA has offered advances to farmers outside of Manitoba in the past, now it only serves this province. The MCA isn’t concerned about FarmCash coming to Manitoba.
“There are obviously differences between the providers in the province and probably quite striking differences in terms of the CCGA, ourselves, Alberta Wheat (Commission)… ”
The CCGA isn’t worried either, Gallant said, noting that when the advance program began in 1957 the Canadian Wheat Board was the sole administrator, compared to 32 now.
The CCGA issues advances on a wide array of crops, livestock and honey.
“Our goal at CCGA has always been to be that one-stop shop for the average western Canadian farm to get all its cash needs met,” he said.
That’s FarmCash’s goal too as it expands to Saskatchewan and British Columbia, as well as Alberta.
“During the pandemic we saw a very high demand for FarmCash from producers outside of Alberta,” Khurram said. “They were facing backlog delay in their cash advances and FarmCash is there to meet their short-term needs…
“We did an extensive analysis and as a result we saw a need and demand to have this service available for them… ”
But it’s not easy to gain market share where other cash administrators are well established, Gallant said.
“We haven’t seen a significant change in market share in Alberta,” he said. “Their business model is a little bit different, and it will be interesting to see how that works for farmers from Manitoba and Saskatchewan wanting to take out an advance with an Alberta association.
“Basically customers don’t move between administrators. They remain relatively loyal to the administrator they have been dealing with so we don’t believe there will be much of an impact at all.”
One advantage is FarmCash is getting new farmers to take advances, Gallant added.
“What you have seen the last couple of years is some of the smaller administrators have dropped off,” he said.
And while choices are good for farmers, the more associations offering cash advances the more farmers pay for administration, Gallant said. Boards will have to decide if the cost of administering advances is worth it to the farmers they serve, he added.
The CCGA typically loans more than $1.6 billion a year and is able to borrow at a low rate and fund its program on the small margin it earns between the cost of borrowing and lending.
“The only farmers paying for it are the ones using the program at CCGA,” Gallant said.
FarmCash has invested $400,000 in its program, Khurram said. Presumably that’s revenue earned through AWC’s checkoff. But the goal is to make FarmCash self-sufficient, she said.
Last year AAFC “clarified that revenue generated from the program must be directed toward the delivery of the APP and to the benefit of program participants,” the department said in an email March 18. “Also under this policy, administrators are required to establish an APP Contingency Fund to cover any unforeseen costs of program delivery. Once this fund is established, a portion of its program-generated revenue may be used to support activities not related to the APP.”
Over the years questions have been raised about the potential to turn APP — a government program — into another revenue stream for associations.
Some farmers have criticized the CCGA for failing to report its earnings, including those from issuing advances. As a private, not-for-profit it’s not compelled to make its financial statements public.
But “starting with the 2020 program year, administrators are required to publish their Advance Payments Program financials on their web page,” AAFC said.
The new rules will likely see fewer administrators in three to five years, Gallant said.
“Where you have duplication of service it wouldn’t surprise me that smaller administrators may choose to not continue forward because the new rules make it less attractive to do so,” he said.