Mr. Speaker:

Order, please. The hon. member may be right. I cannot judge, of course; the only thing I can judge is that this is not a point of order. Orders of the day.

Hon. H. A. Olson (Minister of Agriculture):

Mr. Speaker, when it was time for adjournment last night I was dealing with the considerations that entered into the adjustment of interest rates on farm improvement loans to a higher rate than the current rate being charged. I want to pursue that argument briefly in the few minutes left to me. There was another major purpose of the amendments contained in Bill C-5 with which I did not deal in my remarks yesterday and I should like to comment on that now.

The amount which the corporation may lend to an individual farmer in the form of a supervised loan and that is, under Part III of the act, with land and chattel security, is substantially greater than it can lend on a standard mortgage loan under Part II, with a land mortgage only. As hon. members are well aware, the difference is from $40,000 to $55,000 at the present time and, of course, this is going to be changed. At the present time, the farm mortgaged to the corporation must be an economic unit. Some farmers may have economic units with part of the land being subject to a mortgage to some other party on reasonably favourable terms and it should not be disturbed. The lands may also be leased on a relatively long term basis from a province, for example, where there are Crown lands, or other owner. Bill C-5 proposes to authorize the corporation to lend under Part III in these circumstances, on the remainder of the farm, which can be put up as security. As I said, this is an improvement which we would like to make as a result of the practice in the field. We think it is not necessary to restrict Part III lands to a loan on the total of what may be involved in an

economic unit or indeed on the total land area that the farmer may farm.

I should like, now, Mr. Speaker, to return to the comments I was making at the hour of adjournment last night with regard to interest rates. As hon. members know, the interest rates that have been charged by the Farm Credit Corporation are really quite modest in relation to the long-term mortgage rates available for the same length of time from any other source. Indeed, I think it is fair to say that when the Farm Credit Corporation rates hit their peak, that is 81 per cent and some of those for terms as long as 29 years, no one, no matter how good their credit rating, could borrow money for that long period of time from any commercial enterprise at anywhere near those rates, let alone money strictly for agricultural credit purposes. Although the loans are made on a long-term basis, generally from 20 to 29 years, the rates that are charged to farmers are based on the yield on intermediate term government bonds, that is on bonds maturing in five to ten years. This is substantially lower than the longer-term rate. If the rates were set on the basis of long-term bonds then, of course, they would be significantly higher than they are at the present time.

Ordinarily, on long-term mortgages, the borrower cannot repay or prepay the loan during the first five years; he is locked into an agreement on most of these long-term mortgages for at least the first five years. Farmers who borrow under the Farm Credit Act may repay or prepay without notice and without bonus at any time.

As I said earlier, we have looked at the possibility of arrangements whereby mortgages would be or could be reviewed every five years, with the rate moving up or down in accordance with the interest rate at the time of review. This arrangement might seem desirable in that it would prevent borrowers from being locked-in with a relatively higher rate throughout the lifetime of their loan. It has a disadvantage, however, in that it would add an element of uncertainty to farmers' future costs, and if increasing interest rates happened to coincide with a period when farmers' incomes were relatively low, an increase in the interest rate would add to their financial difficulties. This accentuates the danger of endeavouring to change the basis upon which interest rates are charged, based on a particular situation at any point in time. It is important, therefore, Mr. Speaker, that if at any time in the future a change is made on the basis of changing interest rates on loans to farmers, it must be made on the basis of long-term prospects and be such that it will continue to be equitable during periods of fluctuation in interest rates and in farm income.

Interest charges are clearly visible costs to farmers and it is a natural desire that they want these to be as low as possible, or at least relatively low. However, I think we have a responsibility to look beyond these highly visible costs of interest payments, to the long-term effect of reduced or subsidized rates. I say that because the availability of long-term credit to farmers at rates which are low and not subject to market influences will, and experience has shown this, be reflected very quickly in the price which farmers are called upon, and in some cases are willing, to pay for capital investment. This is particularly true of land. I have satisfied myself by looking at the

May 3, 1972

figures that when we had interest rates which were subsidized, and that is of course what happened for many years when there was a statutory limit of 5 per cent, that the borrower, the actual farmer who was going to operate that land, really did not benefit as much as the seller because there was an inflation in the price of land when that was happening. Thus the advantage of low interest rates on loans from the Farm Credit Corporation would be quickly dissipated through rising costs of capital expansion and the borrower would be saddled with the continuing high capital cost which would have to be serviced through future farm income. In other words, any attempt to adjust or control interest rates through mechanisms which do not reflect the realities of the market for credit or for farm land, in my view would adversely affect the costs of capital investments for all farmers.

This has to be taken into account, because I think all members of the House agree that the terms and conditions of credit, and the mechanisms by which that credit is utilized in the farming sector, must be such as to be of advantage to the ongoing farm operator. He is the one who has assumed the obligation of servicing the debt from the income of his farm, in many cases for as long as 29 years. Certainly, it would not be in his interest if we were to take action that would result in undue inflation of land prices, for the advantage accrues not to the buyer but to the seller.

Mr. Horner:

The government is giving the seller quite a bonus under this scheme.

Mr. Olson:

I see the hon. member for Crowfoot (Mr. Horner) is trying to enter into a controversy with me. Last night I said that many farmers are anxiously waiting for this bill to pass quickly. I also said that I will not be party to any discussion that will delay for even one hour passage of the bill and the beneficial results this bill will bring to farmers in Canada.

Mr. Dinsdale:

That's pretty weak, Bud.

Mr. Olson:

The hon. member can judge how weak it is when I tell him that members of his party have gone around the country saying the bill is a good one. They also say, and they are wrong in this, that the government has merely brought the bill forward but does not intend to press ahead with it.

Mr. Horner:

The minister said that last night. He is merely repeating himself.

Mr. Olson:

I see two or three members on the other side who were not here last night and may not have read the excellent speech that was made. Probably, they do not know what I said.

Mr. Horner:

We know, Bud. Come over here and we will pat you on the back.

Mr. Olson:

I know the farmers of this country support the bill. We are obligated to make its benefits available to them as quickly as possible.

Farm Credit Act

In conclusion, and in summary, may I say that the amendments to the act as proposed in this bill will, first, improve the position of farmers across Canada through the removal from the act of certain restraints on the Farm Credit Corporation, these being statutory limitations, with respect to loan limits and age limits. This, I suggest, will permit loans to be made on a more useful basis in the light of modern farm practice and organization. Second, the amendments will provide authority for the Farm Credit Corporation to carry out other governmental activities and programs. The presence of the corporation in the farming communities across Canada, and there are highly respected government officers in those communities, would mean that it is a highly suitable organization to carry out a program such as the small farm development program, either alone or in co-operation with provincial authorities in such provinces as have entered into agreement for the joint administration of such a program.

Mr. Horner:

And which provinces are those?

Mr. Olson:

The bill has not been passed yet. We are referring to the time when it has been passed.

Mr. Horner:

And when will that be?

Mr. Olson:

Mr. Speaker, farmers in all parts of Canada know that the agricultural economy is improving rapidly.

Mr. Horner:

Really?

Mr. Olson:

There is ground for optimism. Farmers feel that they can expand their operations, confident that difficulties of the sort experienced in the last two or three years will not recur. Let me point, for example, to the dairy industry, to the grain industry, to the beef industry, and to the hog raising industry. Indeed, conditions in every major commodity producing part of the agricultural industry have improved substantially in the last year or year and a half. In the light of this atmosphere, in the light of this optimism and confidence in the agricultural community, we must make changes in the act to enable the Farm Credit Corporation, which has performed a useful, indeed, essential service for agriculture, to meet the more modern requirements of the 1970's and fulfil its responsibilities as well as it fulfilled them in the past.

Mr. Speaker:

The hon. member for Mackenzie.