Question Period Note: Advance Payments Program

Producers have had a difficult harvest and are grappling with trade and domestic issues. How can the Advance Payments Program assist producers?

FIRST RESPONSE:

1. The Advance Payments Program is a federal loan guarantee program which helps provide agricultural producers with easy access to low-interest cash advances.

2. The Government made rapid changes in 2019 to the APP to help producers manage cash flow by increasing the loan limit from $400,000 to $1 million.

3. As of June 1, the APP has issued over $856 million in advances for 2020, an increase of $64 million over 2019.

4. On March 23, in response to COVID-19 and the requests from nine APP administrators, the Government announced several Stays of Default.

5. A six month Stay of Default was granted on 2018 advances for grain, oilseed, pulse, cattle and bison productions, with a new repayment deadline of September 30, 2020. Also, a six month Stay of Default on 2019 advances was granted on flowers and potted plants, with a new repayment deadline of October 31, 2020.

6. As of April 1, producers were able to access 2020 advances, including the $100,000 interest-free to address cash flow concerns.

7. If an APP administrator makes the request, the Government can implement another stay of default if producers are facing significant challenges repaying their advances.

    

RESPONSIVE ON PARTICIPATION IN THE STAYS OF DEFAULT:

1. Approximately 3,000 producers were eligible for the Stays of Default announced on March 23 at a value of $173 million.

RESPONSIVE ON DELAYS TO PROCESS APPLICATIONS:

1. On May 13, flexibility was granted to all program administrators by simplifying the application process for advances over $400,000.

2. Program administrators facing challenges in this new COVID working environment have made significant efforts to reduce their processing delays.

3. As of June 1st, processing delays from the Canadian Canola Growers Association (CCGA), the largest program administrator, have almost been resolved. All future applications are expected to be processed within their regular service standard of 3 to 5 business days.

The Advance Payments Program (APP) is a federal loan guarantee program that provides agricultural producers with easy access to low-interest cash advances. The APP allows Canadian farmers to obtain cash advances on the expected value of their commodities, thus helping them meet their financial needs over their production and marketing cycle. This helps provide marketing flexibility so producers can sell their products based on market conditions rather than the need for cash flow. Farmers can receive cash advances of up to 50% of the expected market value of the eligible agricultural products they will produce or already have in storage.

On June 3, 2019, the Government announced amendends to the Agricultural Marketing Programs Regulations to assist with the impacts from the reduced marketing opportunities on Canadian canola with China. The maximum APP advance a producer can have at any time was increased from $400,000 to $1 million for all producers on a permanent basis, with the Government of Canada continuing to pay the interest on the first $100,000 advanced per program year. For 2019 canola advances only, the interest-free portion was increased by $400,000, allowing canola producers to receive up to $500,000 interest-free. The numbers for the last two years of the APP are:

• 2019 advances: $3.0 billion advanced (up 31%) with $2.5 billion in interest free (up 64%);
• 2018 advances: $2.3 billion advanced with $1.5 billion in interest free.

Producers who receive an APP advance are required to reimburse it as they sell their products, with up to 18 months for full repayment for advances on most agricultural products (24 months for cattle and bison). For each program year, producers have access to a new $100,000 interest free portion. The important dates are:

Available Application Deadline Repayment Deadline
• 2019 advances: April 1, 2019 March 31, 2020 September 30, 2020
• 2020 advances: April 1, 2020 March 31, 2021 September 30, 2021

Program Administration

APP advances are made available across Canada through 34 industry associations (administrators). APP administrators sign annual tripartite agreements with their financial institution (i.e., lender) and the Minister of Agriculture and Agri-Food, which authorizes them to deliver the Program to producers. Once their agreement is signed, APP administrators become responsible for the day-to-day delivery of the Program. They assess a producer's eligibility, coordinate the application process, determine advance amounts and manage the producer's file until full repayment, while respecting the terms and conditions of their agreements.

Agriculture and Agri-Food Canada’s role is to oversee all aspects of the delivery of the program by the APP administrators, including the overall compliance with Program requirements and setting Program policies. In addition, the Government pays the interest on the interest-free portion of the producer’s advance, and acts as a guarantor on the loans for the lenders in case of a default of payment by producers.

If a producer does not repay his APP advance by the repayment deadline, he is declared in default and the administrator applies financial penalties to the outstanding APP amount owed by the producer. The administrator and producer will collaborate to develop a repayment agreement for the full repayment, within the next three years, of the outstanding amount and penalty interest. When administrators are unsuccessful in getting producers to repay their defaults, then the Government is transferred the file/debt and it will take actions, such as legal recourse, to attempt to recover the debt to the Crown. Neither the Minister nor the department have the delegated authority to forgive an outstanding APP debt.

Stay of Default

When producers are facing significant challenges in repaying their APP advances because of a severe event out of their control, and they risk going into payment default, the Minister can implement a “Stay of Default”. The Agricultural Marketing Programs Act, which governs the APP, allows the Minister to delay the repayment of the advances. At the request of an APP administrator, the Minister can order the payment defaults to be stayed for a specified period on any terms and conditions the Minister believes appropriate. The Minister can only implement a Stay of Default when defaults are impending, which is typically 4 months before the repayment deadline (e.g., the earliest would be May 30, 2020, for 2019 crop advances with repayment deadline of September 30, 2020).

The initial six month Stay of Default, which was introduced in summer 2019 for 2018 advances on grains, oilseeds and pulses was extended for an additional six months to September 30, 2020. Producers have the option to repay their 2018 outstanding advances with amounts advanced under the 2019 program year. Producers continue to reimburse their 2018 advances. As of March 2, 2020, there was approximately $125,000 million outstanding from the initial $323 million stay of default.

For the two new Stays of Default announced on March 23, 2020, 380 cattle and bison producers are participating with advances valued at approximately $31 million, as well as 16 producers of cut flowers and potted plants with advances valued at approximately $1 million.

On May 13, 2020, flexibility regarding the credit worthiness requirements for advances over $400,000 was granted for all program administrators. The minimum credit score a producer needs to have to obtain an advance above $400,000 was lowered; provided the producer has demonstrated the ability to meet their financial obligations in the past.

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