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FCC Has Unfair Advantage, Credit Unions Charge

“Our strategy is not to undercut competitors to win business, but it is to be competitive.”


Farm Credit Canada is using its governmentsupplied funds to expand its role in agriculture lending to the point that the survival of some community credit unions is in jeopardy, says Pam Skotnitsky, associate vice-president for government affairs at SaskCentral.

“We have a situation in which smaller, local community-based credit unions have to compete for producer business with a large Crown financial institution that is able to source funds at lower rates because of government backing and, seemingly, with underwriting criteria that is often more liberal than credit unions can comfortably accept,” she told the Commons agriculture committee June 9. “In some areas, continued competition from the FCC puts into question the future of credit unions in some communities.”

Skotnitsky, who is also Chair of the Agr icultural Sub-Committee of Credit Union Central of Canada’s Legislative Affairs Committee, said credit unions aren’t opposed to competition. The federal government didn’t consult with the credit unions and other financial institutions when it broadened FCC’s mandate in 2001. “This could have been an opportunity to explore ways in which the FCC, credit unions, and other financial institutions could complement one another with their strengths and help serve producers in a mutually beneficial way.”

The FCC has rapidly increased its market share to the point that it is strongest competition faced by credit unions in the agriculture market, she noted. In 1993, FCC has 9.5 per cent of the farm debt and now it holds more than 28 per cent of it.

Greg Stewart, FCC president and CEO, said it is its goal to be competitive and to provide a fair alternative to farmers and agribusiness operators. “Our strategy is not to undercut competitors to win business, but it is to be competitive,” he said. The government requires FCC to source all its funds from the Consolidated Revenue Fund.

“In the past year, we made over 18,000 loans and nearly 25 per cent were to new customers,” he said. “We focus on the primary producer as well as suppliers and processors along the full value chain. The FCC portfolio has grown for each of the last 16 consecutive years and now stands at the $17 billion mark. FCC profits are reinvested to develop more loans and services to benefit agriculture and agri-food.

FCC’s portfolio grew 14 per cent in 2008-2009 and net disbursements reached $5.1 billion. “Our portfolio has increased in every sector except hogs. Primary production is our core business and that represents 88 per cent of our portfolio. The remaining 12 per cent is agri-business and agri-food lending.”

More than 25,000 people have taken those FCC courses to improve management in the last two years.

Despite the turmoil in the livestock sector, other parts of the business are doing through the recession, he noted. “Eight to 10 months ago, there was concern about the availability of credit. We continue to see very strong competition for higher quality, supply managed and larger loans, and for the most part, the predictions regarding tighter credit have not materialized.”

FCC is also preparing for the transfer of farmers to the younger generation, he said. “In fact, in 2008-2009, FCC disbursed nearly $1.6 billion to young farmers, those under the age of 40. That represents more than 30 per cent of total net disbursements in the past year. ”

Skotnitsky said the competition from FCC is unfair. Credit unions can’t tap the government for funds. “When we’re looking at what kind of lending rates we’re able to provide and what type of terms we have to be cognizant of where we’re raising our capital as well as where we’re raising our funds and our deposit rates on the other side. All of this is considered when we’re actually providing a loan out to our members. As well, our income taxes and policies at the end of the day also need to be considered into our cost equation. We’re not able to compete to the extent that FCC is to be able to out in the marketplace.”

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