This document was prepared
by the staff of the Parliamentary Research Branch to provide Canadian
Parliamentarians with plain language background and analysis of proposed
government legislation. Legislative summaries are not government documents.
They have no official legal status and do not constitute legal advice
or opinion. Please note, the Legislative Summary describes the bill as
of the date shown at the beginning of the document. For the latest published
version of the bill, please consult the parliamentary internet site at
www.parl.gc.ca.
LS-403E
BILL C-25:
AN ACT TO AMEND THE
FARM CREDIT CORPORATION ACT AND TO
MAKE CONSEQUENTIAL AMENDMENTS TO OTHER ACTS
Prepared by:
Jean-Denis Fréchette
Senior Analyst
Economics Division
23 April 2001
Revised 8 June 2001
LEGISLATIVE HISTORY OF BILL
C-25
HOUSE
OF COMMONS
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SENATE
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Bill
Stage |
Date |
Bill
Stage |
Date |
First
Reading: |
5 April 2001
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First
Reading: |
12 June 2001
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Second
Reading: |
1 May 2001
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Second
Reading: |
12 June 2001
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Committee
Report: |
17 May 2001
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Committee
Report: |
13 June 2001
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Report
Stage: |
7 June 2001
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Report
Stage: |
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Third
Reading: |
11 June 2001
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Third
Reading: |
14 June 2001
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Royal Assent: 14 June 2001
Statutes of Canada 2001, c.22
N.B. Any substantive changes in this Legislative
Summary which have been made since the preceding issue are indicated
in bold print.
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TABLE
OF CONTENTS
BACKGROUND
DESCRIPTION
AND ANALYSIS
A.
Change of the Corporations Name and Definition of
Business
Related to Farming (clauses 1 to 4)
B.
Expanded Financial and Management Services and Mission of the Corporation
(clause 5)
C.
Corporate Governance: Clarification of the Position of Chief Executive
Officer (clause 6)
D.
Risk Management (clause 7)
E.
Transitional Provisions and Consequential Amendments (clauses 8 to 22)
COMMENTS
BILL C-25: AN ACT TO AMEND THE
FARM CREDIT CORPORATION ACT AND TO
MAKE CONSEQUENTIAL AMENDMENTS TO OTHER ACTS*
BACKGROUND
On 5 April 2001, the Honourable Lyle Vanclief, Minister
of Agriculture and Agri-Food, tabled Bill C-25, An Act to amend the Farm
Credit Corporation Act and to make consequential amendments to other Acts,
for first reading in the House of Commons.
This legislative reform is the first to occur since the
major changes made in 1993. To meet the new requirements of the
market, the Farm Credit Corporation (the Corporation)(1)
underwent a rejuvenation process designed to equip it more fully for its
role as an agricultural lender. In fact, market globalization had
already begun to make its impact felt in the agri-food sector in Canada,
primarily in the form of a tendency toward diversification and an increase
in added value. As a result of its new mandate, the Corporation
had been given an opportunity to provide specialized financial services
to farmers and groups of farmers whose commercial activities extended
beyond the primary sector.
Bill C-25 proposes to further broaden the Corporations
mandate by allowing it not merely to improve and increase the range of
products and services it already offers to primary producers but also
to offer financial services and advice to downstream and upstream farming
businesses, whether or not they are owned by farmers. This is a
major change to the existing Farm Credit Corporation Act; after
increasing the range of the products and services it provided to farmers
in 1993, the Corporation will now be able to broaden its clientele, again
in order to meet more effectively the emerging needs for financing in
Canadas agricultural sector. In fact, the Corporation is reacting
to market conditions in which various farming sectors primary production,
processing, suppliers of inputs have become more interdependent
than ever and require a varied and integrated range of financial services.
For its new expanded clientele, the Corporation would
like to provide a number of additional services, including:
-
loans for different kinds of agri-businesses;
-
the capacity to provide share capital;
-
an expansion of the range of its lease-financing
services;
-
an extensive range of commercial management services
such those relating to property and succession planning;
-
the creation of subsidiaries to diversify its services;
and
-
a broader range of risk-management tools that might
be offered in partnership with financial consortia.
The reason for this expansion and this diversification
of its activities is the Corporations wish to position itself better
on the agricultural scene in Canada in order to provide support for rural
communities in their economic development while attempting to ensure that
its main focus will continue to be primary production.(2)
To prepare for the proposed legislative changes in Bill
C-25, the Corporation has held consultations with more than 100 regional
and national stakeholders in the agricultural sector, which include organizations
of farmers representing most types of farming as well as financial institutions
such as the banks and the credit unions.
DESCRIPTION
AND ANALYSIS
A.
Change of the Corporations Name and Definition of
Business
Related to Farming (clauses 1 to 4)
Clauses 1 to 3 change the title of the Act and the name
of the Corporation, which now becomes Farm Credit Canada (FCC),
while clause 4 continues the Corporation as a body corporate under its
new name.
Although this change of name is in accordance with the
guidelines published by the Treasury Board in its Federal Identity
Program (created primarily to provide Canadians with clearer and
more standardized information, especially on the Internet), the choice
of the French name (Financement agricole Canada) is nevertheless something
of a surprise. In fact, when a federal government agency changes
its name, the current trend although this is not based on any directive
that has been issued is to harmonize the English and French names
so that they can share the same logo, if not to contract them. This
is what was done, for example, in the case of the Business Development
Bank of Canada / Banque de développement du Canada, the logo of
which, BDC, is identical in both official languages.
Bill C-25 changes the English name from Farm Credit
Corporation to Farm Credit Canada (FCC). It would
appear that Parliament found it difficult to devise a French equivalent
that could also be reflected in the FCC logo or an English equivalent
for FAC. The new French logo FAC may well also give
rise to confusion because it is pronounced more or less in the same way
as the logo for the Quebec farm credit agency, the Financière agricole
du Québec (FAQ).
The Corporation wishes to broaden its clientele base
to include agri-businesses, whether or not they are owned by a majority
of farmers, provided that they benefit farmers. According to subclause
3(2), a business related to farming is a business that
primarily produces, transports, stores, distributes, supplies, processes
or adds value to inputs to or outputs from farming operations.
In its explanatory notes on the Bill, the Corporation gives as an example
the fact that a corner grocery store would not meet the above-mentioned
criteria but a fruit and vegetable store that purchased its supplies directly
from a producer would meet them.
Although this definition is relatively complete, the
concept of primarily carrying on certain activities could,
on the other hand, give rise to more than one interpretation because it
is not specifically defined in the Bill. The problem as to what
is meant by primarily in this context could arise in particular
in the case of high value-added businesses. For example, is the
primary activity of a small or medium-sized brewing business the
adding of value to barley, which would mean that it was an agri-business
subject to the Bill?
As will be seen in the next section, subclause 5(1) of
the Bill sets out the Corporations mission, and this could provide
a better understanding of the kinds of customers targeted by the Corporation.
B.
Expanded Financial and Management Services and Mission of the Corporation
(clause 5)
Clause 5 of the Bill deals with the main amendments to
the financial and management products and services that the Corporation
wishes to offer in order to respond better to the new requirements of
the agricultural market.
Subclause 5(1) of the Bill amends subsection 4(1) of
the Farm Credit Corporation Act to allow the Corporation to offer
not only its current services but also financial and commercial services
that are personalized for farming operations and for small and medium-sized
agri-businesses by indicating that these businesses must be related to
farming. In addition, in order to dissipate any apparent doubt concerning
the new customers of the Corporation, the provision indicates that the
primary focus of the activities of the Corporation shall be on farming
operations, including family farms. Consequently, although
the Bill is silent as to what a family farm might be, Parliament has given
the Corporation a mission in which the activities may well go beyond the
primary sector but must nevertheless provide benefits for farmers.
Subclauses 5(2) and 5(3) of the Bill extend the powers
of the Corporation to include the making of loans for the payment of costs
associated with carrying on a business related to farming and for the
acquisition or improvement of property held by such a business.
Subclause 5(4) is the focal point of Bill C-25 because
it makes the most substantial changes in, or additions to, the provision
of financial products and services by the Corporation. The provision
permits the Corporation to:
-
provide services and products that complement those
currently available from the public and private sectors (paragraph
5(4)(f.1));
-
procure the incorporation, dissolution or amalgamation
of subsidiaries (paragraph 5(4)(f.2)) in order to diversify
the range of financial and management services it provides, including
the creation of partnerships (see paragraph 5(4)(f.5));
-
clarify the powers it holds with respect to lease-financing
services for farming operations (paragraph 5(4)(f.3));
-
dispose of farmland acquired by the Corporation
(paragraph 5(4)(f.4.1));
-
acquire equity interests in farming operations (paragraph
5(4)(f.4)); and
-
clarify its ability to conclude arrangements with
other financial organizations in order to offer full financial services
in its provision of financial services (paragraph 5(4)(f.5)).
Offering business management services, whether or not
this is done in association with other organizations, in addition to the
whole range of services already provided and the power to create subsidiaries
in order to extend these services appears to put the Corporation in a
better position to serve farmers. However, the possibility of directly
offering lease financing to, and attracting risk capital into, the farming
sector also raises more questions.
It should be noted that the Corporation already provides
lease-financing services in partnership with CULEASE Financial Services,
and this makes it possible to combine the latter companys expertise
in leasing with the Corporations national network of agricultural
equipment dealers. Although the Corporation is involved in a very
specific market that requires particular expertise, this clarification
of the Corporations role with respect to lease financing could well
annoy a number of financial institutions such as the banks. With
the legislative amendments that also permit the Corporation to own and
to lease various assets such as equipment and real estate, the possibility
of providing lease-financing services could become a powerful marketing
tool for the Corporation.
Finally, because the agricultural sector is capitalistic
and Canadas strategy of increasing the level of added value in agriculture
will require the start-up of businesses and encouragement for the growth
of existing small business, access to risk capital may in fact appear
as a need. However, investors wishing to offer venture capital are
generally also looking for quick and high rates of return. In farming,
it would appear that there are very few sectors with the exception of
biotechnology that would meet these criteria. It is generally recognized
that venture capital is not as widely available in Canada as in the United
States, but the banks, the BDC and private investors already provide this
kind of financing. The Corporation would like to be able to play
a role as catalyst in order to encourage investors to offer more venture
capital in the agricultural sector, but it may be asked why it wishes
to intervene in this way. If there is currently an imperfection
in the market, this imperfection may explain the Corporations desire
to correct the situation. However, it can also be assumed that venture
capital is not particularly present in the agri-food sector quite simply
because this sector is not conducive to this kind of financing.
C.
Corporate Governance: Clarification of the Position of Chief Executive
Officer (clause 6)
The Governor in Council is responsible for appointing
the Chairperson of the Board and the President of the Corporation.
However, subsection 7(2) of the existing Act, which provides that the
chief executive officer is responsible for the supervision of the business
of the Corporation, does not define which of these two officers
is the Chief Executive Officer who would, in that capacity, be responsible
for the general management of the Corporation. Subclause 6(1) of
the Bill provides that the President of the Corporation is responsible
for supervising the business of the Corporation.
However, subclause 6(2) gives the Board the power to
authorize a director to act as Chairperson as long as the office is vacant.
In the existing Act, an acting appointment if the Chairperson is
absent or unable to act or if the office of the Chairperson is vacant
is given de facto to the President of the Corporation.
The Bill also gives the board the power to appoint an
acting chief executive officer if this office becomes vacant or if the
President of the Corporation is absent or unable to act (subclause 6(3)).
Such an acting status may be held for not more than 90 days, following
which the approval of the Governor in Council is required.
D.
Risk Management (clause 7)
Because the Corporation wishes to extend its financial
services, clause 7 of the Bill makes it possible for it to enter agreements
relating to its financial management in order to better manage the financial
risks, including the use of options or agreements on the subject of interest
rates and currency exchange transactions.
E.
Transitional Provisions and Consequential Amendments (clauses 8 to 22)
The transitional measures in clauses 8 and 9 continue
the Farm Credit Corporation under the name of Farm Credit Canada to enable:
-
the new body to continue to be responsible for the
contracts, agreements, liabilities, obligations, etc., of the existing
Corporation;
-
the property of the existing Corporation to continue
to belong to it under its new name; and
-
the new entity to continue any legal proceedings
that are currently under way in the courts.
As a result of the change in the Corporations name,
clauses 10 to 22 make consequential amendments to six acts, including
the Financial Administration Act and the Public Service Pension
Act as well as to a number of regulations in which Farm Credit
Corporation must now be replaced by Farm Credit Canada.
COMMENTS
The Farm Credit Corporation, which has approximately
45,000 clients, is the only national financial institution whose activities
are exclusively focused on the agricultural sector in Canada. This
sector, like many other sectors of the economy, is increasingly competitive
and requires substantial investment of capital at every stage of the agri-food
chain from farming operations to value-added industries including research.
Bill C-25 permits the Corporation which already
has a very pronounced presence in Canadas agricultural landscape
with its network of 100 offices to broaden the range of its financial
and management services in order to respond more effectively to the emerging
needs of the agricultural industry.
During the consultations concerning the initial drafts
of the Bill, many stakeholders in agriculture recognized the Corporations
specific expertise and the importance of the role it plays for farmers.
The Bill also indicates that the Corporation will remain focused primarily
on the financial and commercial needs of farming operations but it may
also serve clients that have eluded it to date, namely agri-businesses
owned by people who are not farmers.
Was the reason for this broadening of its client base
the need to supplement the existing financial services that are offered
by other financial institutions in a way that would not suit the situation
of these agri-businesses? Should the Corporation not instead quite
simply become another player in the market for financing agri-businesses?
Because the BDC is already actively involved in this area, it may legitimately
be asked whether the presence of two Crown corporations in the same market
is really necessary.
Moreover, the Bill gives the Corporation the power to
provide lease-financing services either directly or indirectly; this is
a market that the banks defend strongly and tenaciously. The banks
have already asserted that they do not wish to see the Corporation providing
this kind of service.
Finally, even though some studies seem to show that the
agricultural sector needs venture capital and this type of funding in
its current form does not really reflect the situation in the agricultural
sector, there is nothing that would clearly indicate that a Crown corporation
such as the Corporation has the role of a catalyst to play in order to
attract venture capital to farming. The other methods of financing
that the Corporation already provides and the expertise it has built up
during the 40 years of its existence seem to better reflect the real needs
of Canadian farmers at the present time.
*
Notice: For clarity of exposition, the legislative proposals set
out in the Bill described in this Legislative Summary are stated as if
they had already been adopted or were in force. It is important
to note, however, that bills may be amended during their consideration
by the House of Commons and Senate, and have no force or effect unless
and until they are passed by both Houses of Parliament, receive Royal
Assent, and come into force.
(1)
Corporation is used to refer to both the existing Corporation
and the Corporation that will be continued under the name of Farm
Credit Canada (see below).
(2)
Corporation, Press Release, 5 April 2001.
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