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

Chicken Deflation

"What a pile of rubbish" was the comment I received on my proposal for steady dropping of retail chicken prices in Canada (see Blog Posting Easy Road to Riches: Raping of the Canadian Consumer)

They obviously felt no more needed to be said.  Short & sweet.

Perhaps I'm being asked to prove my case.

In doing so, we'll also learn why the #ChickenMafia had better prepare Plan "B", a plan to immediately start dropping retail prices, and keep them dropping for at least the next 20 years.  It might soon come in handy.

Central banks around the world have electronically issued trillions of dollars and equivalents for expanding the monetary base to prop up the dangerously weakened economy.  That hot and easy money was used by the bankers and speculators on Wall Street et al to pay their greedy bonuses, and inflate the stock market, housing, and commodities (eg. copper, gold, steel, corn, etc.), driving up prices everywhere.  If the prices didn't go up, at least the quantity in the consumer package went down or to poorer quality, thereby inflating the $/kg prices.


Corporations enjoyed lower interest rates on their debt, downsized their staff, and therefore increased their profits.  They used the hot easy money to buy back their stock from the stockmarket.  With fewer outstanding stocks, their earnings per outstanding share soared, creating a mirage that all was well, driving up their share price through speculation even more.

Many Canadian farmers used Farm Credit Canada ("FCC") to overdose on easy payment, interest-only loans against their farm.  Since 1971, farm debt has been increasing at an average rate of 5.94%/yr, doubling and re-doubling farm debt every 11.8 years.

Credit Unions have tripled their market share of farm loans since 1971.  Banks were following suit up until 1999 when the Dot Com bubble burst, banks were badly hurt, and they had to pull in their horns.  FCC has been on a tear since 1993, probably ordered to do so in a delayed response to tight credit after the 1990 recession, Mad Cow, and similar issues.

While I personally have no proof, it has been repeatedly reported elsewhere that Supply Management farmers in Canada were allowed to cook their books, cook the loan applications, and FCC cooked their own books so that the Monopoly SM farmers could use their alleged equity in their SM quota as loan collateral, enabling them to overdose on easy credit, even more than all other farming sectors.

This will not end well.

The money velocity in Canada has been dropping and staying low since Dot Com Bubble Burst in Year 2000, so we're now at 1.6.

Similarly, US money velocity has been dropping since 1997.  Notice how low Money Velocity got in the 1929 Crash.  Where does your crystal ball tell you we are headed?

The problem is that consumers represent 75% of the economy.  With rising price inflation, wages stuck in suspended animation of the 1990's, layoffs, underemployment, and weak job prospects, consumers were forced into a tough decision.  Consumers could balance their family's books for income vs. expenses by curtailing their spending, or they could run up their HELOC (Home Equity Line of Credit) and credit card debt, landing themselves somewhere between "temporary survival", and "party on".  Most households decided (or were forced to) run up their debt, and now Canadians have one of the highest personal debt levels, even more spendthrift than the proverbial drunken US sailor.

Now that 0% down and 40 year amortizations on home mortgages are dead and gone, and credit card interest rates are at or above 20%, Canadians are in deep trouble, possibly more financial trouble than ever before.  This is one of the reasons why more and more Canadians are being forced to buy less healthy, cheaper food (see Blog posting Health Consequence of Food Monopolies).  As these trends continue, the expensive pre-packaged processed foods will be losing more and more market share.  People will choose, or be forced by finances to choose, lower cost menu items.  The 50,000 SKU's (Stock Keeping Units, brands, items) for sale in today's typical grocery store will be greatly thinned (eg. 20 types of ketchup will become 2).  Those suppliers who remain will have their profit margins squeezed and retail prices reduced, or those products will rot on the grocery store shelves, rarely purchased by the poor consumers.

Canadian food processors will be run over by US and European processors looking to dump huge quantities of processed foods at volume variance discount prices so as to keep their factories running.  This will be facilitated by the recent CETA trade agreement between Canada and the European Union, and NAFTA with the US.

This is the headwind into which Premier Kathleen Wynne wishes to double Ontario's agri-food business in the next 7 years.  That will certainly be a challenge.

With everybody else dropping food prices, this will not be the time for the #ChickenMafia or #EggMafia to think they have a trapped consumer who is forced to buy their product, regardless of the price.  Jacking up the price of chicken and eggs when everybody else is dropping prices will not go over well with consumers.

If the Mafia want to keep their heads and avoid the Canadian version of the French Revolution and their guillotine, the #ChickenMafia and #EggMafia should consider drafting Plan "B" for the rapid and continuous dropping of their retail prices for at least the next 20 years.

2013/11/25:   More on FCC here, and here