2013-2014 Evaluation of the Canadian Agricultural Loans Act Program

Recommendation:

The evaluation includes one recommendation:

AAFC should review its current awareness efforts and if necessary, work to increase awareness of CALA among lenders and producers. This involves:

• improve program awareness;
• improve clarity of guidelines about program eligibility and of the CALA claims process; and
• increase awareness of and training on the new online registration system.

Lenders play a crucial role in awareness, delivery, and take-up of the CALA program. It is important that lenders are supportive of and comfortable using the CALA program. Given the concern expressed by lenders regarding claim procedures, it would be beneficial to ensure that lenders have a clear and accurate understanding of what types of loans are guaranteed and how the claims process operates. Improved program awareness of lenders has the potential to improve program take-up.

Furthermore, lenders indicated that financial institutions do not use the program because of the administrative burden and associated costs. Promoting and supporting the use of the new online registration system would demonstrate the ease of registering a CALA loan and could increase the likelihood that lenders present the program as an option to producers.

1.1 Program Context

The CALA program is the newest iteration of a federal government program designed to increase the availability of loans for the improvement and development of farms, and the processing, distribution, and marketing of products of farming by cooperative associations. The earliest iteration of the program was established in 1944 with the Farm Improvement Loans Act, which was replaced in 1988 by the Farm Improvement and Marketing Cooperatives Loans Act (FIMCLA) and later revised in 1995 under the same name. On June 18, 2009 the CALA program received Royal Assent. Table 1.1 illustrates the key elements of FIMCLA versus CALA.

The major changes to the program design introduced by CALA were:

• inclusion of beginning/startup farmers and intergenerational farmers to address the aging population of Canadian farmers;^{Footnote 5}
• increasing the percentage of the value of the asset purchased eligible for a loan for beginning farmers;
• increased loan limits to better reflect current market prices for agricultural assets and keep CALA in synch with Canadian Small Business Financing Program; and
• including cooperatives that are not wholly owned by farmers.

The CALA program operates outside of the core suite of the Business Risk Management (BRM) programs offered as part of AAFC’s national agricultural policy framework, Growing Forward 2 (GF2).^{Footnote 6} The CALA program is intended to help farmers and other participants in the agricultural and agri-food industry to make changes to their operations that will help increase their competitiveness and profitability, to meet consumer demands for food safety and environmental performance, and to manage risk proactively.^{Footnote 7}

The objectives of the CALA program are threefold. They are: to make guaranteed loans accessible to farmers and agricultural cooperatives on preferred terms; to provide famers access to loans for farm improvement; and to increase accessibility to loans for agricultural marketing cooperatives for the processing, distributing, and marketing of products of farming. Ultimately, as farmers and cooperatives invest in their agricultural enterprises, Canadian agricultural productivity is increased and sustained.^{Footnote 8}

Between June 18, 2009 to December 5, 2012 (end of data collection phase for this evaluation), 7,950 CALA-backed loans were issued, averaging 191 loans per month (Table 1.2).^{Footnote 9} Program take-up is concentrated in Saskatchewan, accounting for 85.2% of the total loans backed by the program. Manitoba, Alberta, and Ontario, together, account for 11.7% of the loans with the remaining 3.1% spread across the remaining provinces. Almost all loans (99.7%) were issued to farmers; only 25 loans were issued to cooperatives. Just over two-thirds (67.5%) of loans were issued for the purchase of implements.^{Footnote 10}

1.2 Design and Delivery

CALA is a loan guarantee program that improves producers’ access to financing investments in their operations. Through the program, financial institutions offer producers/cooperatives low interest rates,^{Footnote 11} a longer repayment period,^{Footnote 12} and lower down payments^{Footnote 13} compared to conventional bank loans. Financial institutions receive a guarantee in the event of a loss due to loan default covering 95% of the net loss to financial institutions.^{Footnote 14} The exposure of the federal government to claims made by a single financial institution is mitigated through the 5-year limited liability specified in the Act.^{Footnote 15}

Lenders present the CALA program as an option to farmers/cooperatives seeking financing for the purchase of agricultural assets/improvements. The lending institutions follow their internal lending guidelines, taking into consideration the loan terms offered by CALA. CALA’s maximum floating rate is prime +1% and its maximum fixed rate is the comparable residential mortgage rate +1%. CALA offers different repayment terms depending on loan purpose. CALA offers a ten year repayment period for the majority of its loans, and a 15 year repayment period for land loans. The repayment terms under the program are more favourable for some asset classes, such as livestock for which the normal repayment period would be five years or less, but could be extended if a producer was experiencing difficulties. Approved loans are registered with the CALA program.

Loans registered with CALA require a registration fee of 0.85% of the total loan value. In the event of a loan going into default and the lender realizing a loss, a claim is made against the program. Upon review of loan eligibility and losses to the lender, a payment is issued to financial institutions, and the case is forwarded to the collections division of AAFC Corporate Management Branch for recovery.

In 2010/11, the CALA program began integrating an online registration system for loans designed in conjunction with Industry Canada for the Canadian Small Business Financing Program (CSBFP). The new online registration system streamlines the registration of loans with the CALA system. This system improves the transparency of the program, as well as reducing the administrative cost of issuing loans for financial institutions.

Responsibilities of lenders with respect to program delivery include:

• determining borrower and loan purpose eligibility for a CALA backed loan;
• submitting application form and registration fee to the CALA program;
• submitting amendments to loan terms to the CALA program;
• realizing loan security in the event of a default;
• filing a claim with the CALA program in the event of loan security being insufficient to cover the defaulted loan;
• paying the registration fee; and
• notifying the CALA program of a default.

Responsibilities of CALA program staff with respect to program delivery include:

• maintaining lending guidelines;
• corresponding (e.g., telephone, email) with lenders and producers;
• registering loans with the CALA program;
• reviewing cooperative applications/proposals for loans above the $500,000 program limit;
• providing eligibility rulings and advice to lenders;
• reviewing compromise settlement agreements;
• registering revision of loan terms, and defaults;
• determining eligibility of claims;
• dispensing eligible claim amount to lenders; and
• forwarding claims to AAFC's Corporate Management Branch for recovery.

The CALA program is available to farmers and cooperatives for the purchase of real property and other purchases. The types of real property (15 year maximum repayment terms) covered by the CALA program include:

• land;
• construction, repair or alteration of, or additions to, any building or structure on a farm; and
• purchase, movement to and installing on a farm of complete or partially complete structures and, where necessary, the completion of the installed structures.

The following is a list of other purposes (10 year maximum repayment terms) eligible under the CALA program:

• Major repair/overhaul of tools implements, apparatus, and machines;
• Improvement or development of land;
• Consolidation/refinancing;
• Shares for intergenerational farm transfers;
• Clearing, breaking, irrigating and reclaiming land;
• Implements (e.g., tractor, hay baler, swather);
• Livestock (breeding stock only); and
• Purchase or installation of equipment affixed to real or immovable property (e.g., electrical, ventilation).

1.3 Program Resources

The CALA program is wholly funded through statutory funding. Table 1.3 presents the AAFC expenditures for CALA for fiscal years 2009/10 to 2011/12. AAFC expenditures totaled $6.6 million, which includes both Vote 1 ($4.3 million) and Vote 10 ($2.3 million).^{Footnote 16} Vote 1 (Salaries, Non-Pay Operating) includes AAFC’s expenditures to deliver the program. Vote 10 (Grants and Contributions) include AAFC payments resulting from defaulted loans (principal, interest, legal, and other).

As can be seen in Table 1.3, CALA program expenditures have changed substantially. The large Grants and Contributions amount in 2009/10 is the result of a large claim ($2.3 million) made by a cooperative funded under FIMCLA.^{Footnote 17} Since that year, claims have been much smaller, as illustrated by the lower Grants and Contributions amounts in 2010/2011 and 2011/2012. The new online registration system, shared by CALA/CSBFP, was brought into the program in 2010/11(system went live in 2012/13); costing a total of $2.2 million ($1.5 million in 2010/11, and $730,000 in 2011/12).^{Footnote 18} During the evaluation period CALA operated with 6 FTE’s.^{Footnote 19}

Table 1.4 presents the revenues and recoveries for CALA for fiscal years 2009/10 to 2011/12. Program revenues (from registration fees) and recoveries (from loan defaults) totaled $3.5 million.^{Footnote 20} Over the same period, 34 (0.4%) claims for loss have been paid by the program. All but one of the claims was from loans issued under FIMCLA. Registration fees accounted for $3.1 million (89.9%) of the total. Registration fees are deposited into the Consolidated Revenue Fund and, therefore, do not directly offset program funding or losses due to claims. Revenues from registration fees have remained relatively stable over the evaluation period (on average, $93,068 per month).^{Footnote 21}

2.1 Evaluation Approach

The evaluation was conducted by AAFC’s OAE employing internal and external resources to complete the research and analysis. The evaluation collected and examined both primary and secondary data from multiple lines of evidence to address the evaluation issues and questions.

2.2 Evaluation Scope

As per the 2009 Treasury Board Directive on the Evaluation Function (2009), the evaluation examined the program’s relevance and performance. Specifically, the evaluation examined: continued need for the program; alignment with government priorities and alignment with federal roles and responsibilities; achievement of intended outcomes; and the extent to which the program demonstrates efficiency and economy.

The evaluation examined the period from CALA’s implementation on June 18, 2009 to December 5, 2012. Evaluation activities were undertaken between November 2012 and July 2013, inclusive.

2.3 Data Collection Methods

The evaluation included several lines of evidence.

A document/literature review was completed to gain a comprehensive understanding of the program and its forerunners, and to gather information relevant to the evaluation questions. The review examined foundational documents and other program documents, as well as relevant literature.

Program administrative and financial data from the CALA program were examined to determine program costs and administrative activities over the evaluation period. These data included information on program payments, program expenditures, the number of applications processed, and details of the loans backed by the CALA program.

A national survey was conducted by an external consultant specifically for the evaluation with Canadian producers who had received a CALA backed loan. The sample frame was randomly selected from the population of Canadian producers with a CALA loan registered in the evaluation period. A total of 327 completions were obtained, resulting in an overall sample error of ± 5.3% at the 95% confidence level.^{Footnote 22} The majority of survey respondents’ were located in Saskatchewan and had large operations relative to the average farm size in Canada, and in Saskatchewan.^{Footnote 23} The survey was conducted in February and March of 2013. A breakdown of survey participation by province and loan purpose is contained in Table 2.1.

Twenty-three interview sessions with a total of 30 key informants were conducted to gather perspectives on CALA from key stakeholder groups. Interviewees were selected to include government officials familiar with program delivery and management at AAFC and other departments, as well as representatives from financial institutions. Table 1.2 summarizes the number of key informants by organizational group.

A provincial program scan was undertaken that consisted of a document/literature review of provincial lending programs for capital assets, as well as interviews with eight provincial representatives. Fourteen programs from eight provinces were selected based on their similarities to the CALA program, the prominence of the agricultural sector in their corresponding province, and/or the population size of their corresponding province. Programs in the following provinces were examined: New Brunswick, Nova Scotia, Quebec, Ontario, Manitoba, Saskatchewan, Alberta, and British Columbia.^{Footnote 24}

2.4 Methodological Limitations

There are two considerations or limitations to note when examining or interpreting the evaluation results and findings.

First, the net or incremental impact of the CALA program on farmers could not be estimated due to producers obtaining multiple loans from various lenders.

However, program take-up and loan amounts could be compared to stated goals/expectations and maximum limits set for the program.

Second, results of the interviews with financial institution representatives are not meant to be representative (i.e., generalizable) to all lenders. Rather, the interviews provide insight into the perspectives of a variety of types of lenders from different regions, particularly where agriculture is a primary economic sector.

3.1 Relevance

3.2 Effectiveness

The evaluation explored program use, impact, and take-up.

The CALA program has helped producers to improve operations and productivity. Loans backed by the CALA program have helped to improve the value of farm operations and increase investments, which have facilitated the productivity and sustainability of operations.

Between June 18, 2009 and December 5, 2012 the CALA program backed a total of $446 million worth of loans.^{Footnote 79} Three-quarters (75.3%) of the producers/cooperatives surveyed reported that the overall value of their operations increased as a result of the investment made from the farm improvement loan.^{Footnote 80} Close to eight out of 10 (78.9%) respondents attributed the interest rate associated with the farm improvement loan as allowing them to further invest in their operations.^{Footnote 81}

The majority (76.5%) of beginning/startup farmers surveyed agreed/strongly agreed that the low interest rate allowed them to invest more in their operation. Beginning/startup farmers typically took out significantly larger loans, almost 89% larger on average, than existing farmers.^{Footnote 82} The majority (76.5%) of surveyed beginning/startup farmers also attributed the lower down payment compared to a conventional bank loan as a contributing factor as to why they were able to invest more in their operation.

CALA loan limits appear to be reasonable. Generally, CALA loans were small ($56,000) relative to the maximum limit available.

Lenders and government staff indicated that the expansion of loan limits under CALA allows the program to better address the current needs of the agricultural sector by allowing greater use of the program for the purchase of larger assets. The CALA program is typically being used for small purchases, rather than for purchases of large agricultural implements (e.g., combine harvesters, self-propelled sprayers) or large parcels of land (e.g., full sections). The average CALA loan of $56,130 is well below the maximum loan limit of $500,000 for real property (buildings and land) and $350,000 for all other purchases (e.g., equipment, implements, livestock, and intergenerational loans). Loans issued by FCC in 2011 were substantially larger than those obtained through the CALA program even though FCC loans were still well below the maximum amounts allowed by CALA.^{Footnote 83} Only 19 producers over the evaluation period had CALA loans for the maximum allowable amount.^{Footnote 84}

The majority of loans (67.5%) issued over the evaluation period were for the purchase of agricultural implements. The average size of loans for implements was significantly smaller than loans for the purchase of land (Table 3.4).^{Footnote 85}

The maximum loan size was reported by lenders and surveyed producers as being insufficient for real property and assets other than real property. Less than half of producers surveyed agreed that the loan limits for real property (43.6%) and things other than real property (41.6%) meet their needs.^{Footnote 86} Producers with operations of more than 3,200 acres or with multiple CALA backed loans were less likely to agree that the loan limits were sufficient to meet their needs.^{Footnote 87} Concern over the maximum loan limits, particularly for loan amounts for real property, emerges at a time when the price of land has been significantly increasing.^{Footnote 88}

Producers who use CALA tend to access the program multiple times, and intend to use the program in the future. Over half (55.8%) of all surveyed producers/cooperatives reported having multiple loans registered with the CALA program. The majority (89.3%) of producers/cooperatives surveyed who plan on expanding their operation within the next five years plan to use the CALA program again.^{Footnote 89} Surveyed producers also access other sources of credit as nearly half (45.3%) of surveyed producers who have received loans backed by the CALA program have also secured loans from banks/credit unions, provincial programs, and from the FCC. The vast majority (94.3%) of these individuals have also accessed loans from the FCC.

Take-up of CALA by producers and financial institutions reflect the current economic conditions. Low interest rates and high commodity prices are expected to continue in the short term.

When the CALA program was introduced, it was thought that the program would guarantee $217 million annually or $1 billion over five years.^{Footnote 90} Between June 18, 2009 and December 5, 2012, the CALA program has guaranteed a total of $446 million worth of loans, an average of $128.7 million per year, much lower than expected.^{Footnote 91} During interviews program staff explained that the use of the CALA program is partially dependent on the current economic environment (price of commodities and cost of borrowing). In times of low interest rates and high commodity prices, the cost of borrowing diminishes and loans are easier for producers to obtain. In times of high interest rates and poor commodity prices, use of the program is expected to increase.

The evaluation period is characterized by low interest rates and high commodity prices. Between 2005 and 2010, the Farm Product Price Index for grains, oilseeds, and livestock increased substantially.^{Footnote 92} The prime interest rate decreased from 8.6% in 1995 to 3% in 2012.^{Footnote 93} During the same time, the number of CALA/FIMCLA backed loans also decreased from 11,305 in 1995 to 2,311 in 2011-12.^{Footnote 94}

While the Bank of Canada has held its benchmark interest rate unchanged for the past 32 months, this trend is not expected to last. Policy makers have hinted that the Bank of Canada (as of spring 2013) intends to raise borrowing costs in the near future.^{Footnote 96},^{Footnote 97} It should be noted that although grains and oilseed prices are expected to plateau due to higher global supply, the prices are expected to remain high.^{Footnote 98}

Although the economic conditions may not be changing, farmers’ perceptions are that current and future risks to their operations are increasing. In the 2013 Farm Financial Survey, producers expressed greater concern about the economy over the next five years as well as greater concern over weather conditions than they did in the 2011 survey.^{Footnote 99}

The national survey conducted for this evaluation found that over half (57%) of the participants viewed the registration fee as being reasonable and not impacting program uptake, whereas 21% of the respondents found the fee unreasonable. Other government programs, have registration fees as part of their programs. The CSBFP has a registration fee of 2% of the total amount loaned that must be paid by the borrower to the lender. The Farm Service Agency of United States Department of Agriculture also has a fee of 1.5% of the guaranteed portion of the loan under their loan program to producers.^{Footnote 100}

Given the current forecasted economic conditions, program take-up is not expected to increase in the short-term. The structure of the CALA program allows for the program to easily react to changes in market conditions on an as needed basis.

CALA is a lender-driven program. Low awareness and hesitation in using the program on the part of financial institutions also affects program take-up. The lenders are the producers' primary source of program information and the decision-makers on whether the producers obtain a CALA loan.

Program staff felt that the lack of knowledge about the CALA program among producers might be inhibiting take-up as they are unaware of how to qualify for or how to access the CALA loan guarantee. Program take-up and use by farmers is, in part, a function of program visibility and the promotion of the program by lending institutions. Program awareness is primarily driven by lending institutions, as 86% of surveyed producers reported that they first learned about the CALA program through lenders.

The program is also promoted to the agricultural sector by the AAFC through publications, media, advertisements, producer associations and trade shows; however, only 6.3% of producers surveyed learned about the program through those sources. Lenders reported that producers who typically requested CALA backed loans had previously secured a CALA backed loan.

Participation in the CALA program is driven by the financial institutions as they are the primary source of information about the CALA program and make the decision as to whether or not to issue a loan, and few farmers (30.9% of those surveyed) actually request CALA backed loans. Lender participation in the CALA program is a function of: program awareness; ease/cost of participation; previous experience with the program; willingness to lend to the agricultural sector; and how the CALA backed credit product compares to lender’s other credit products.

Lenders reported that registering a CALA loan required additional paperwork and was viewed to be cumbersome as the lenders are required to collect additional information above and beyond what they would normally gather when administering a loan. As a result, the administrative cost to lenders of issuing a CALA backed loan was higher than other similar loan products. The interview data indicates that, in the current economic environment, some lenders may not offer the program as their own credit products match, or beat, the terms offered through the CALA program.

To address lenders’ issues with the program, as well as the limitations of the program’s database,^{Footnote 101} a new online registration system was implemented in 2012/13.^{Footnote 102} The new system utilizes an online registration system used by the CSBFP. Introducing the new electronic registration system changes presents new challenges. The first challenge is creating awareness of the new system among lenders who are not currently participating in the CALA program. The second challenge is the need to train/assist lenders in using the new system. The program officials do expect lender familiarity with the online registration process to improve program take-up. As well, the online system lessened the administrative burden on lenders, thereby reducing the cost of participating in the program. None of the lenders interviewed reported had experience using the new online registration system.^{Footnote 103}

Based on key informant interviews, a few lenders explained their hesitation to use the CALA program due to past negative experiences with the program or its precursor. Between 1988 and 2004, 20% of all claims to the program were rejected due to eligibility issues resulting from program rigidity and ineligible loans registered with the program.^{Footnote 104} As a result, some financial institutions became reluctant to submit claims for defaulted loans that were similar to claims that had previously been rejected, creating a negative perception of the value of the program’s guarantee. CALA program staff are available to lenders to provide eligibility rulings if there are any questions.

3.3 Efficiency and Economy

The evaluation explored program delivery costs and the level of financial risk the program poses to the federal government.

The CALA program has been delivered as planned, and meets all of their service standards.

Program management and staff interviewed confirmed the application, registration, and claims processes of the program are being delivered as planned. The program meets their three service standards, consistently responding to telephone and email inquiries within one and two days, respectively, and registering loans within 15 business days.^{Footnote 105}

Program administration costs are low. CALA reduces the cost of the program to the federal government but is not intended to operate as a cost recovered program.

The department receives $2.1million annually for CALA from statutory funding, which covers the salaries of program staff and the maintenance fee for the new automated system.^{Footnote 106} For the 2009/10 to 2011/12 fiscal years administrative costs totaled $4.3 million, including $350,729 used for advertising and $2.2 million for an online registration system.^{Footnote 107} The average Vote 1 operating expenditure per year is $1.4 million, which is well below the allotted budget.

The CALA loan guarantee portion of the program is cost-neutral, as the claims paid out by the CALA program to lenders are offset by registration fees and recoveries. From 2009-10 to 2011-12, the CALA program operated with an average net cost of $1,033,670 after paying claims and collecting registration fees and defaults (see Table 3.5).^{Footnote 108}

Program registration fees (in the absence of claims-Vote 10) have the potential to offset 53.2% of the program’s average expenditure.^{Footnote 109} The revenues generated from program registration fees do not directly offset program costs or the costs of defaults as revenues are deposited into the Consolidated Revenue Fund. Collections done by the Corporate Management team are not intended to operate as cost recovery, but as a method of reducing the cost of the program to the federal government.

Program administration costs are kept low because of the key role financial institutions have as the lender. Using the lending institutions as the gatekeepers to the program lowers the burden placed upon the program in the terms of loan administration. Financial institutions provide the expertise required to conduct risk assessments and the issuance of loans. In the event of a default, lenders are required to engage in collection efforts just as they would for a non-CALA backed loan. This serves to reduce the number and amount of claims made against the guarantee as financial institutions are required to recover whatever losses possible from the default.

In a comparison with other loan programs, the CALA program costs are low. The average AAFC administrative cost per loan was $239.85 or $4.31 per $1,000 of loan from 2009-10 to 2011-12.^{Footnote 110} The CSBFP, based on 2008 information, averaged $344 per loan based on 9,015 loans worth one billion with $3.1 million in administrative costs.^{Footnote 111} The FCC, based on 2010-11 information, averaged $6,444 per loan based on 42, 021 loans worth $6.2 billion with $270.9 million in administrative costs.^{Footnote 112} While this is not a direct comparison, the similar delivery of CSBFP indicates that that the CALA program administrative costs are comparable or less than other federal loans programs.

CALA is a low risk program as it poses limited exposure to risk for the Government of Canada. This is accomplished through the lenders conducting their own due diligence on each CALA loan application.

The structure of the program places financial institutions as its first line of defence to ensure that borrowers and loan type qualify for the loan and to engage in collections in the event of a loan going into default. Over the evaluation period, the number of claims paid out by the CALA program have been low and claims have been indirectly offset by registration fees and recoveries.

Overall, claims to the program are low with the median size of a claim being $16,509.83.^{Footnote 113} Since June 18, 2009 only 35 claims have been paid by the program during the evaluation period. As previously discussed in Section 1.3, the majority (74%) of the claim amounts paid out by the program during the evaluation period was the result of one defaulting cooperative.^{Footnote 114}

Lending risks are assessed and mitigated by the financial institutions. Borrowers must qualify for CALA backed loans in the same manner they would if the loan was not backed by the CALA program. The operating premise is important, as poor risk management is not just bad for lenders, but bad for borrowers as well. The impact of poor risk management by lending institutions can have negative effects extending into rural communities and even the broader economy.^{Footnote 115} Appropriate prudence when administering CALA loan guarantees is integral to the health of both the financial and the agricultural sectors.

The CALA program’s exposure to risk from a single lender is also mitigated through a diminishing rate of payment for claims. The amount paid out by the CALA program is dependent on the total amount of claims paid out to a lender during a fiscal year and the four preceding fiscal years. The guarantee offered by the CALA program is limited to 90% of the first million, 50% of the second million, and 10% for all amounts thereafter.^{Footnote 116}

In the event of a loan default, the lending institution follows its procedure for the realization of security and loan repayment, thereby reducing the number of defaulted loans resulting in a claim. Only in the event where a lending institution is unable to receive sufficient repayment by the borrower is a claim made to the CALA program. The vast majority of defaulted loans were issued under FIMCLA; only one default during the evaluation period was issued under CALA. Currently loan defaults under CALA are limited as the loans are still fairly recent; the median age of a defaulted loan being only 90 months during the evaluation period and at the time of the evaluation the oldest CALA backed loan was 42 months old.^{Footnote 117}

While claims are infrequent, the recovery rate is low; for every eight dollars paid out in claims, only one dollar is recovered from the borrower.^{Footnote 118} The main reason is these defaulted loans that have resulted in claims have already been subject to the lender’s recovery process prior to the claim being submitted to CALA. As a result, it is very difficult to recover claims paid out to financial institutions as lenders have already done their due diligence and collected what they could.

4.1 Conclusions

The CALA program continues to offer beneficial financing options to Canadian producers and cooperatives. Its expansion appears to be particularly beneficial to beginning/startup farmers, which aligns well with the priorities of the Canadian government. Intergenerational transfer loans are also supported, although there has been almost no demand for this feature.

CALA is a low risk, low cost way to support the agricultural sector. Program risk is lowered due to the involvement of lenders in qualifying loans and collecting on defaulted loans, resulting in fewer defaults and fewer claims. The cost of the program is low as revenues from registration fees indirectly offset program costs. The structure of the program limits the federal government’s exposure to risk from individual financial institutions and the number of claims for defaulted loans is low.

The CALA program provides equal access to farm improvement loans across Canada, regardless of province, size, or age of operation. Provincial financial assistance offerings to the agriculture sector are not consistent across Canada, which creates gaps in financial products/solutions for the agricultural sector. The CALA program can both complement and supplement provincial programs and ensure producers have access to the same competitive loan terms across the country.

Producers and lenders expressed concerns about the loan limits being too low for large purchases such as land and equipment. However, producers use the CALA program for small purchases. Nearly half of surveyed producers had accessed financing elsewhere, primarily with the FCC, which issues larger loans. One reason for the apparent contradiction may be related to the fact that CALA loans are obtained mainly by large scale producers and that their loan levels for land and equipment needs are much larger than what can be backed by CALA.

The lower than expected take-up of CALA by producers and cooperatives may reflect the current economic conditions of low interest rates, high commodity prices, and easy access to loans from lenders. When interest rates rise and commodity prices decrease, demand for the program is expected to rise.

Recommendation:

The evaluation includes one recommendation:

Lenders play a crucial role in awareness, delivery, and take-up of the CALA program. Therefore, it is important that lenders are supportive of and comfortable using the CALA program. Given the concern expressed by lenders regarding claim procedures, it would be beneficial to ensure that lenders have a clear and accurate understanding of what types of loans are guaranteed and how the claims process operates. Improved program awareness of lenders has the potential to improve program take-up.

Also, lenders indicated that financial institutions do not use the program because of the administrative burden and associated costs. Therefore, promoting and supporting the use of the new on-line registration system would demonstrate the ease of registering a CALA loan and could increase the likelihood that lenders present the program as an option.