Afederally backed loan program to help Canada’s hog producers recover from a severe financial crisis is receiving less response than expected.
According to Farm Credit Canada, lending institutions have so far approved 73 loans for $269 million, with a federal reserve fund covering $159 million of that.
FCC is the biggest single lender, approving 43 loans worth $74 million. Other institutions have approved another 30 loans for $195 million.
The Hog Industry Loan Loss Reserve Program is the cornerstone of a multimillion-dollar federal initiative for Canada’s debt-ridden hog farmers. Eligible producers can apply to have long-term debt payments restructured over 15 years, enabling them to ride out the current financial crisis. Ottawa is backing the program with a $400-million loan guarantee.
Hog producers must present lenders with viable business plans to qualify for loan restructuring. Many have said banks are rejecting their applications because they cannot show viability in a depressed market.
But the application figures suggest not that farmers are getting turned down, but that they’re not applying.
“It’s well below expected demand for sure,” said Remi Lemoine, FCC’s senior vice-president of portfolio and credit risk.
However, industry officials believe final figures, when they come out, will be much higher than they are now.
“There’s more in the process. I think the dollar values are going to be higher once you start seeing those come through,” said Andrew Dickson, Manitoba Pork Council general manager.
Dickson said he knows of two major lending institutions each currently reviewing at least 30 loan applications under the program.
He said final results on take-up won’t be known until the program ends March 1.
Lemoine said last week FCC has another 63 loan applications worth $50 million awaiting approval. The federal farm lending agency has rejected, or sent back for revision, 35 applications worth $33 million.
The Canadian Pork Council met with lenders earlier this month to discuss the program’s progress.
Lemoine suggested three reasons why applications so far are lower than expected.
“It’s well below expected demand for sure.”
– remi lemoi ne, ffc
Some producers may have refinanced their operations before the program came out last fall. Others are hanging in by reducing herds and selling off assets. Still others are simply getting out of business.
Lemoine said FCC restructured a lot of hog producers’ loans before the program even began. It adjusted $170 million worth of debt by reorganizing payment schedules and relaxing security requirements.
Dickson cal led the loan program “a mixed success so far” because many producers are so deep in debt they can’t meet viability tests.
That’s particularly true in Alberta and Ontario and to a lesser extent in Manitoba, he said.
But the program will still be a “critical element in terms of helping this industry get back on its feet.”
Dickson said Manitoba Pork Council emphasizes producers must pay off outstanding cash advances under the federal Advance Payments Program as a first requirement of the loan program.
APP loans are currently in a stay of default. If producers don’t pay theirs off by October, they’ll be subject to an interest penalty of three per cent above the Bank of Canada prime rate, Dickson said. [email protected]