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Friday, June 2, 2023

Canada Approves Millions in Temporary Interest Rate Relief for Farmers as Inflation Hedge

The federal government has approved millions of dollars in temporary interest rate relief for farmers to help them recoup higher-than-usual production costs rising as a result of inflation.

“Canadian producers have been facing higher costs of production brought on by general inflation,” Agriculture and Agri-Food Canada, the federal agriculture department, wrote in a Regulatory Impact Analysis Statement, as first reported by Blacklock’s Reporter.

“Year-over-year volatility has created cumulative pressures for farms, most of which are farm families facing inflation of household expenses as well,” added the statement, which was included in a regulatory notice posted to the Canada Gazette on May 24, announcing an amendment to the Agricultural Marketing Programs Regulations (2023).

The amendment provides a temporary 40-percent hike in maximum interest-free cash advances to farmers effective immediately—increasing the maximum from $250,000 for program year 2022 to $350,000 for program year 2023—under the federal Advance Payments Program (APP).

The statement added that the temporary interest-relief measure will aid farmers “as they weather the continuing financial pressures” brought on by rising inflation.

Through the APP, farmers are able to draw cash advances of up to $1 million against their year-end sale of crops or livestock. The federal government covers interest costs for farmers on the “interest-free” portion of the cash advance.

Farmers then make repayments to the cash advances over time as they sell their agricultural products. They have up to 18 months to fully repay the advances on most commodities, such as grain and oilseed crops, and up to 24 months for cattle and bison advances.

‘Challenging Times’

Previously, the interest-free portion of the APP that farmers were able to claim was capped at $100,000. In June 2022, the federal government announced it was raising this amount to $250,000 for the program’s 2022 and 2023 years.

At the time, Ottawa estimated the move would save Canadian farmers on average $5,500 in interest costs over the next two years.

“This change will represent total savings of up to $61 million over two years for approximately 11,000 producers,” said an AAFC press release on June 23, 2022.

Now, cabinet has further increased the interest-free portion of the APP to $350,000 for the 2023 program year. The interest-relief measure is estimated to cost taxpayers $11.8 million.

The Agriculture Department added that eligible participating farmers who claim the extra interest-free advance “could save an additional $3,600 in interest costs on average for the year.”

“This change will represent total savings of up to $12.4 million,” said a May 10 AAFC news release. “The Government of Canada remains committed to ensuring producers have the resources they need to sustain their livelihoods through challenging times.”

The Liberal government’s Budget 2023 proposed providing $13 million of funding to the Agriculture Department for the 2023–24 fiscal year to cover the APP’s increased interest-free loan limit.

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