Competition intensifies for cash advances to Manitoba farmers
Manitoba farmers have many options for low-interest, interest-free cash advances on their upcoming 2021 crops, including news from the Manitoba market, FarmCash, operated by the Alberta Wheat Commission (AWC).
FarmCash joins the Manitoba Crop Alliance (MCA), the Canadian Canola Growers Association (CCGA) and the Manitoba Livestock Cash Advance Inc. – staunch administrators of the federal government’s Advance Payment Program (APP) in this province.
Despite FarmCash’s decision this year to expand beyond Alberta where it started in 2018, recent changes to the AAP, including the requirement to make financial statements public with fiscal 2020, could see fewer directors in the future.
The MCA through one of its founders, the Manitoba Corn Growers Association, has been issuing advances for 40 years.
The CCGA and its predecessor, the Prairie Canola Growers’ Council, have been doing this for 37 years.
Officials from both organizations say they are not concerned that FarmCash is trying to poach its customers.
Meanwhile, administrators report strong early demand for spring advances, in part because of the low interest rates.
As with last year’s cash advance program, farmers with enough seeded acres or, later, stored crops, can borrow up to $ 100,000 interest-free, plus an additional $ 900,000 at low interest rates.
Farmers can use the loans as they see fit, as long as they pay them back as they deliver their crops. This includes providing cash flow so that farmers can get better prices rather than having to sell to pay their bills when prices are poor.
Why is this important: Agriculture is a high-risk, capital-intensive, low-margin business. Access to low-interest loans secured against production gives farmers more flexibility, including timing of sales when prices are higher.
FarmCash, MCA and CCGA officials all said in separate interviews that their good service is what draws farmers to them.
“We continue to be an option for Manitoba farmers looking for a cash advance,” MCA CEO Pam de Rocquigny said in an interview on March 15.
“We have a very loyal clientele and I think they come to us thanks to our service.
“We are proud to be here for 40 years.”
Once the paperwork is complete, MCA’s goal is to issue a loan in three to five business days, she added.
The CCGA and FarmCash have the same goal.
The CCGA experienced delays a year ago due to COVID-19, but quickly caught up, Dave Gallant, the association’s director of finance and operations, said in an interview on March 16.
“We are ready to process the advances no matter if COVID lasts six months or six years,” he said.
While farmers applying through MCA can complete a PDF application online, or print it and then email, fax or file the completed form, CCGA and FarmCash applications can in some cases be done online.
“We’re definitely seeing huge adoption from our customers on the online side,” said Gallant. “And we have a lot of positive feedback from our customers about the changes and how easy they are.”
FarmCash not only issues cash advances, but offers advice to farmers on how to best use their loans if they wish, said Syeda Khurram, COO of FarmCash, in an interview on March 17.
“We pride ourselves on our easy online application process and high level of service and our ability to release loans in three to five business days to meet their (farmers’) needs in a timely, transparent and timely manner. effective, ”she said.
The CCGA and FarmCash offer very low interest rates – bank prime rate minus 0.75% – and do not charge an administration fee.
The MCA rate is the bank’s prime rate minus 0.25% and charges an administration fee of $ 250. De Rocquigny noted that it was competitive with banks and credit unions.
Although MCA has offered advances to farmers outside of Manitoba in the past, it now serves only that province. MCA is not concerned about FarmCash coming to Manitoba.
“There are obviously differences between the suppliers in the province and probably quite striking differences when it comes to the CCGA, ourselves, Alberta Wheat (Commission)…”
The CCGA is also not worried, Gallant said, noting that when the advance program started in 1957, the Canadian Wheat Board was the sole trustee, up from 32 now.
CCGA publishes advancements on a wide range of crops, livestock and honey.
“Our goal at the CCGA has always been to be that one-stop-shop for the average farm in Western Canada to meet all of their cash needs,” he said.
This is also the goal of FarmCash, which extends to Saskatchewan and British Columbia, as well as Alberta.
“During the pandemic, we saw a very high demand for FarmCash from producers outside of Alberta,” said Khurram. “They were facing delays in their cash advances and FarmCash is there to meet their short-term needs…
“We did a thorough analysis and as a result we saw the need and the demand for this service for them…”
But it’s not easy to gain market share where other treasury managers are well established, Gallant said.
“We haven’t seen a significant change in market share in Alberta,” he said. “Their business model is a little different, and it will be interesting to see how it works for farmers in Manitoba and Saskatchewan who want to take out an advance with an Alberta association.
“Basically, clients don’t move between admins. They stay relatively loyal to the admin they’ve been dealing with, so we don’t think there will be a big impact. “
One advantage is that FarmCash incentivizes new farmers to take advances, Gallant added.
“What you’ve seen over the past two years is that some of the smaller directors have given up,” he said.
And if the choices are good for farmers, the more associations there are offering cash advances, the more farmers pay for administration, Gallant said. Boards will have to decide whether the cost of administering the advances is worth it for the farmers they serve, he added.
The CCGA typically lends over $ 1.6 billion per year and is able to borrow at a low rate and fund its program on the small margin it earns between the cost of borrowing and the loan.
“The only farmers who pay for this are those who use the CCGA program,” Gallant said.
FarmCash has invested $ 400,000 in its program, Khurram said. Presumably, this is the revenue generated by the AWC levy. But the goal is to make FarmCash self-sufficient, she said.
Last year, AAFC “made it clear that the revenue generated by the program is to be directed towards the delivery of the AP and for the benefit of program participants,” the ministry said in an email on March 18. APP contingency fund to cover unforeseen costs of program execution. Once this fund is established, part of the income generated by the program can be used to support activities unrelated to the APP. “
Over the years, questions have been raised about the possibility of transforming the APP – a government program – into another source of income for associations.
Some farmers have criticized the CCGA for failing to report income, including income from issuing advances. As a private, not-for-profit company, it is not required to make its financial statements public.
But “starting in the 2020 program year, administrators are required to post their prepayment program financial statements on their web page,” AAFC said.
The new rules will likely see fewer directors in three to five years, Gallant said.
“Where there is duplication of service, it wouldn’t surprise me if small administrators choose not to continue because the new rules make it less attractive,” he said.