FCC: A Plot to Kill Supply Management?

Is Farm Credit Canada an ally of Small Flockers and the public, helping to eliminate Supply Management?

In yesterday's Blog (Chicken Deflation) I showed  how Farm Credit Canada started in 1993 to loan more and more money, rising from 14.02% market share in 1993, to 30.2% market share in 2012.

From 1981 to 1996, the Canadian farm products increased in value faster
than the debt carried to create those products (green curve).  After 1996,
the debt charges increased faster than the increase in production value
(red curve), putting the average Canadian farm into a decline in productivity.

From 1981 to 1996, Canadian farmers were producing more and more value-added products as a percent of the outstanding debt they were carrying.  They were improving at 1.57% per year.  This means that they were improving their financial status during this period.  This means they were using borrowed money to enhance their farm.

By 1996, that all changed.

After 1996, farmers were racking up more and more debt, and the debt was increasing faster than the extra goods they were producing.  The value-added products being produced were increasing at 3.66%/yr, but the debt was increasing at 4.77%/yr. for 1981 to 2010 (all available Stats Can data).  When you ratio the product value to the debt, we learn that Canadian farmers are producing less and less on a % basis of the debt, declining at 2.86% per year.  This is obviously a growing problem that farmers will eventually have to deal with.  Farmers have overdosed on debt.

Is there a debt trafficker who helped induce farmers down this slippery slope to ruin?

Was this all FCC's fault?

It's possible that its not all FCC's fault, but it appears FCC helped enable the foolish behaviour of others.  FCC takes orders from their governmental masters.  Farmers are up to their eyeballs in debt.  As long as they can continue with their interest-only loans, and the currently low-low discount loan interest rates, the farmers can continue on their current course and speed.

However, once interest rates start to go up, or income drops (due to general economic malaise, retail price rollbacks, or otherwise), it's going to be a tough time for them.

It is unknown which agriculture sector is holding most of the debt, but I'm sure many of the SM farmers have used their quota as a mirage of capital asset that they have pledged as collateral.  As times get tougher and tougher, loan losses will mount.  Government, press, or the public will scream, loan files will be tightened, additional collateral will be sought rather than the quota, and #ChickenMafia and #EggMafia will have to ante-up, or their loans will be called.

If you're a farmer with a revolving term loan from FCC, you'd better read your loan fine print to see all the wonderful things FCC can do to you.

If you are one of these farmers, I would appreciate hearing from you so we can learn first-hand about the fine details of the farm debt situation in your region.  Leave  a comment below, or send me an email.

Once FCC has fixed their loan book with additional personal guarantees, collateral, hypothecation, and other financial wizardry, all the risk will sit on the farmer's shoulders.  These greedy or naive farmers will have to wade through the swamps of economic troubles while carrying FCC on their shoulders.

Thanks, FCC.

2013/11/25:   More on FCC