Canada’s hog farmers will soon learn the terms of a federal loan guarantee program to help them through their worst financial crisis in recent memory.
Ottawa will launch the program in late September or early October, according to government officials.
The government will guarantee long-term loans to hog producers, up to a yet-to-be-determined point, to help them restructure their operations. Governmentbacked loans are a key part of a federal hog industry restructuring program announced August 15.
Details are still vague because negotiations between the federal government and lending institutions are at a critical stage.
“The level of risk sharing is at the heart of negotiations right now,” said Martin Crevier, Agriculture and Agri-Food Canada’s assistant director of financial guarantee programs.
Crevier was tight lipped about the loan guarantee program, saying only talks with the banks are going well.
“There’s no show stopper. The banks are co-operating. What’s on the table right now, the banks are willing to play.”
Sources say the program will involve bundling producers’ short-term debts into long-term credit packages to be paid off over 10 to 15 years.
To continue operating, borrowers will also be allowed working capital above and beyond what they already owe, to be paid off within a year. It would work something like a bank overdraft.
To qualify for the program, producers must present a business plan based on their collateral, projected cash flow and past performance. Plans must be credible for producers to be admitted, said Crevier.
“If a guy’s on the verge of bankruptcy, he won’t be able to participate in this program.”
One important condition is that loans must be first used to pay off outstanding Advance Payments Program advances. Western Canadian hog producers currently owe $61 million in APPs ($32 million in Manitoba alone). The repayment deadline was extended from September 2008 to October 2010. No further extensions are foreseen.
The loan guarantee program aims at helping viable producers stay in the business until times get better. Crevier would not say how many producers may qualify or how much money the government could be on the hook for.
For producers looking to exit the industry, the government also has a $75-million transition program to close barns and cease production for at least three years.
The program allows producers to tender bids for the amount of money they need to leave the industry, based on their level of production.
The Canadian Pork Council will administer the program. But it is complicated and the council is still working out the details.
“We’re still trying to firm it up,” said Gary Stordy, a CPC spokesperson.
A third federal initiative involves spending $17 million on market research and promotion to increase pork sales abroad.
Andrew Dickson, Manitoba Pork Council general manager, said government guarantees will send a “very strong message” to banks and credit unions that the hog industry is still worth investing in.
He pointed to Statistics Canada surveys which showed the average net worth of a Manitoba hog farm rose from $1.4 million in 2001 to $2.7 million in 2007.
“That says this is a sound industry. It‘s just running into tough times right now,” Dickson said. [email protected]