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Credit Crunch Hits The Pork Industry

“Every pig farmer’s risk rating is worse now than it was 18 months ago.”

– STEPHEN MOFFETT, CPC

Canada’s pork producers are worried the current financial crisis, coupled with continuing tough times in the industry, is causing them a serious credit crunch.

The Canadian Pork Council is asking Ottawa to further loosen an already-extended repayment deadline for advance payments in order to improve hog producers’ credit ratings with lending institutions.

As an 18-month financial crisis continues for Canada’s hog industry, producers find it increasingly hard to get operating loans to keep going, said Stephen Moffett, a CPC director.

“It goes without saying that every pig farmer’s risk rating is worse now than it was 18 months ago just because of the fact that you’re a pig farmer,” said Moffett, who chairs the council’s safety net committee.

“We know anecdotally that farmers are being told their risk ratings are deteriorating, interest rate premiums are increasing and access to credit is becoming more difficult.”

Federal Agriculture Minister Gerry Ritz recently agreed to extend a repayment deadline for emergency advance payments to hog producers for another 15 months. Ottawa announced the program in February 2008. The original repayment deadline of June 2009 is now September 2010.

Ritz announced the extension just before the recent federal budget.

Hog farmers are allowed to borrow up to $400,000 against future sales, with the first $100,000 interest free. In Manitoba, 160 producers have taken out 180 loans worth $31 million under the program, according to the Manitoba Pork Council, which administers the program in the province.

But CPC wants Ritz to tack on a repayment schedule after the new deadline expires for farmers still unable to make full restitution.

A repayment schedule may enable producers who still owe on their advance payments to maintain credit with banks by showing they have plans to repay, said Moffett from his farm at Sussex, New Brunswick.

He said it’s critical for Ottawa to approve the repayment schedule so producers can retain some ability to borrow money.

“As time goes on, it becomes very difficult to run a business if you don’t have access to the kind of capital you need to do the things you need to do,” he said.

“If you don’t have sufficient operating capital, you start running your business not the way you should.”

CPC also wants the federal government to bear the cost of administering the advance program, which farmers currently pay, said Moffett.

“It’s a difficult thing to go out and ask (producers) to send in money to pay for administration when they’re not making any money.”

Mike Hoffort, Farm Credit Canada’s vice-president of Prairie operations, said interest in buying hog operations is much lower than it was a few years ago.

“With the challenges the industry has had, there’s definitely less demand for new money in that area.”

Hoffort said FCC isn’t in the same marketplace as other financial institutions. The federal farm lending agency deals mostly in land, facilities and breeding livestock, not operating loans.

But Hoffort acknowledged hog farmers today find it harder to borrow money than grain growers, who had a good crop with firm prices last year.

“In cases where some of those farms have taken on additional debt for cash flow in what’s been very challenging circumstances, there may be some caution in terms of how much more debt will be advanced to those operations,” he said from FCC’s head office in Regina.

“With any farm, once you get to certain debt load levels, everybody gets cautious in terms of investment and how much more money can be lent to that operation in a reasonable fashion.” [email protected]

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