By Terrie Welwood
For the Four-Town Journal
It’s a given that the ag industry is at the mercy of changes in the global market. Even before the global outbreak of Covid-19, producers had already felt the affects of a number of global factors.
“What we’re seeing in the operating environment is also a function of where we are coming from,” J.P. Gervais, Chief Economist with Farm Credit Canada said in a webcast broadcast on March 31st.
“We’ve had a number of different events and challenges over the last couple of years in the ag and food industry, whether it’s weather challenges, coast to coast, rail transportation issues or the trade war between the United States and China or the deficit in proteins coming out of China because of African Swine fever, all of these brought us to where prior to the start of the (Covid-19) crisis. And now, we have to face a situation that is unprecedented, not only in terms of the human impact but also the economic impacts.”
FCC is monitoring the early affects which will continue for months, Gervais said.
“I always like to start out with a broad overview of where we are in the economy,” Gervais said, “We know that there is going to be a major economic slow down. The magnitude and length of it, is what we don’t know.”
The fluid basis, he said, makes forecasting of the immediate economic affect nearly impossible, simply because government announcements are sometimes coming by the hour.
“For the two quarters of 2020, we’re probably looking at a 25 percent drop in our Gross Domestic Product (GDP),” Gervais said, “On an annual basis, in Canada and the U.S., we’re looking at a decline that could top 4%, depending upon how long this confinement order lasts.”
“But there is a recovery and we’re talking about minimizing the down turn that me experience and making sure that we set up businesses and households to be able to ride through that recovery once we get beyond this confinement and resume normal operations.”
While, the pandemic will end, the global economic slowdown, Gervais feels, will be more significant than what we experienced in 2008 and 2009.
As always, the oil industry is tied to the ag industry, he said.
“At under $4 a barrel, oil prices have been really hit hard by supply and demand,” Gervais continued. That’s lower than the actual cost of transportation.
“We’ve seen a drop in our Canadian dollar, because of the price of oil and the overall market uncertainty. While there may be dips and rises, Gervais expects the dollar will continue to hover where it’s been for a while – around the .70 mark.
Even through this pandemic, Gervais says the law of supply and demand still applies, as the demand for food and agricultural product doesn’t drop.
“It really is the economic engine that keeps on ticking,” he said.
The key, he says is to have a realistic view of what has changed in your operating environment and not an emotional one.
To ensure producers, agribusinesses and food processors can remain focused on business-critical functions rather than worrying about how to access funds to keep operating through this challenging period, effective immediately, FCC has put in place:
· a deferral of principal and interest payments up to six months for existing loans; or
· a deferral of principal payments up to 12 months
The federal government has recently announced government that will boost FCC’s lending capacity by $5 billion to help farmers and food processors cope with the COVID-19 pandemic.
The federal government says the change will give flexibility to farmers who face cash flow problems and help processors that have lost sales.
Eligible farmers who have a loan due under the Advance Payments Program on or before April 30 will also get an additional six months to repay the loan, representing $173 million in deferred loans.
Farmers who have outstanding interest-free loans will be able to apply for an additional $100,000 interest-free portion in financing for 2020-21, as long as their total advances under the Advance Payments Program remain under a $1 million cap.
The Advance Payments Program is a financial loan guarantee program that provides producers access to credit through cash advances. More than 21,000 producers participated in the program in 2019 and received more than $3 billion, the federal government says.
If you’d like more information on these options, please contact your FCC local office or the Customer Service Centre at 1-888-332-3301 for further details.
