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Hog Program May Lend Less Than Expected

“I know the industry is short a billion dollars.”

– andrew dickson, mpc

Pork producers worry that a federally guaranteed loan program for the financially troubled hog industry may lend only a fraction of the money originally hoped for.

Ottawa has set aside $400 million in cash as a reserve to backstop special long-term loans from lending institutions to help producers through a financial crisis. The banks will lend money beyond that amount.

The $400 million is only a guarantee. The cash will be freed up if people renege on their loans.

But there’s concern the banks may lend based on the federal guarantee and not put up a lot of new money.

“People are wondering, are the banks just going to lend the cash they got from the federal government or are they going to lend on top of that?” said Andrew Dickson, Manitoba Pork Council general manager. “I know the industry is short a billion dollars.”

Dickson said he hopes the banks and the government will combine to lend the industry about $800 million under the Hog Industry Loan Loss Reserve Program (HILLRP).

CORNERSTONE

The loan program is the cornerstone of a strategy to help restore stability to the financially ravaged hog industry, which has been steadily losing money for several years.

Ottawa is also contributing $75 million to help producers exit the industry by idling their barns for at least three years. It will spend another $18 million on pork promotion.

Financial institutions participating in HILLRP include: Farm Credit Canada, Bank of Montreal, Bank of Nova Scotia, Royal Bank of Canada, CIBC, National Bank of Canada, Alberta Treasury Branch and a number of credit unions. Manitoba credit unions on board include Steinbach, Rosenort, Austin, Sunova and Access.

The federal guarantee ranges up to 90 per cent of a loan in the first year and declines after that.

How much financial institutions will actually lend won’t be known for at least two more months because negotiations and approvals take time, said Dickson.

The program is crucial because it takes short-term debt and “terms it out” over 10 to 15 years, giving producers time to recover from the current crisis, he said.

“It gives them a huge breathing room and it restores their

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current working capital position.”

To qualify for loans, producers must present a viable business plan to show they can ride out the current storm.

How many producers will qualify? “That’s the number one question,” said Dickson.

He said he hoped banks will look at producers’ financial statements for 2007, when many were still in reasonable shape, look at projections for 2010, when markets are expected to recover, and ignore 2008, when everyone lost money.

But producers who were in bad shape going into 2007 are in really bad shape now and will have trouble developing a recovery plan, Dickson said.

“Their ability to show a viable plan, how would they do it, even based on 2007 numbers?”

The loan program also has a catch: producers must first use the money to pay off outstanding liabilities under the Advance Payments Program.

Canada’s hog producers owe APP over $300 million, including $62 million in Western Canada and $32 million in Manitoba.

The Manitoba Pork Council administers APP in the West through the Manitoba Pork Credit Corporation, an arm’s-length agency. The Steinbach Credit Union advances the money to MPCC, which lends it to farmers. Producers repay the advances to MPCC, which in turn repays the SCU. The federal government guarantees the loans and pays interest charges on the first $100,000.

SCU recently withdrew as MPCC’s lender and the Royal Bank has taken over. [email protected]

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