Knowledge Centre

While Canada’s Agriculture Day on February 22 reminds Canadians of the people who put food on their tables, last year’s natural disasters and precarious markets really highlighted the resilience and optimism of Canadian farmers amidst unexpected business, financial and emotional challenges. 

With their feet on the ground in Canada’s rural communities, Scotiabank’s Agricultural Banking team witnessed the hardships, and the remarkable strength of producers and processors, while helping them recover. The experience reinforced their focus on building long-term relationships, and helping clients develop business and risk plans to ‘future-proof’ against wild weather and operating unknowns. 

A year of floods, fire and dire drought

Although Canada’s agriculture community is no stranger to adversity, 2021 stands out for both the quantity, intensity and persistence of hazards that menaced farmers, particularly in Western Canada.

“This was a really difficult year for many clients,” says Dariann Kloot, a Senior Client Relationship Manager in Chilliwack, BC, an epicentre of the Fraser River floods.  “It was scary, since many of their livelihoods were at stake, their crops were gone, their feed was gone, everything was gone.”

Having grown up on a dairy and broiler chicken farm, where she still lives and helps out, and a roster of dairy, poultry, horticulture and nursery clients, Kloot can describe the past 12 months: “As we entered the second year of a pandemic, BC was hit by a record-breaking heat dome, during which some berry growers lost up to 30% of their harvest, dairy producers’ milk production dropped substantially, and poultry farmers lost tens of thousands of chickens within a week.” 

With the heat and wildfires threatening producers and decreasing their crop yields, they later braced for historic rainfall, which flooded Fraser River Valley farms, and cut off vital supply and transport routes. 

“It was a cycle of emotions,” recounts Kloot. “At first, my clients showed great resolve to tackle the issues at hand and help each other out. But when the water didn’t recede, and dikes breached, you could hear defeat in their voices. However, their optimism soon returned. They wanted to rebuild, since they are proud to provide Canadians with a stable food supply, and they plan to do so in the future.”

Extreme weather also trounced the prairies, notes Meaghan Marzyk, a Scotiabank Agricultural Specialist, who keeps busy on her family’s grains, legumes and cattle farm in Dauphin, Manitoba, when she’s not serving cash crop and cow crop clients across Manitoba and Saskatchewan. “After the May rains, we had no significant precipitation until late August, so crops literally stagnated, and cattle operators had pastures that looked like the desert, with no feed for their animals.”  

She adds that late summer rainfall allowed some farmers to harvest their much-delayed grain crops at prices driven up by scarce supply. However, they also endured spiking input costs, which hurt their cash flow. “It was pretty dire, but the sense of community was impressive, since people stepped up, farmers hauled grain to neighbours in need, and everyone leaned on each other.”

“It‘s the worst drought I’ve seen, and my clients say it hasn’t been this bad since the 1980s,” observes Kyle Hendriks, a Scotiabank Client Relationship Manager in Saskatoon, Saskatchewan, who works part-time on the family mixed grain operation, performs custom harvesting, and advises clients, ranging from large national accounts to mid-size cash croppers, cow, calf and dairy farms, and terminal operators. 

Hendriks details the drought’s financial impact on clients: “With lower production, some producers with set-price grain contracts couldn’t fill their obligations, or realize on improved market pricing. These clients were forced into an over-hedged position and incurred financial penalties from their buyers. At the same time, reduced production put serious downward pressure on their working capital. And, they often depend on crop inventory to secure their operating lines of credit to fund their next production cycle.” 

He adds that, with fertilizer prices rising by more than 200 per cent, and crop protection costs rising by more than 20 per cent, such elevated costs squeezed producers’ production margins and capital requirements. Crop input retailers and grain terminals also suffered, since they faced higher costs to procure their stock.

Reaching out to offer support

With farmers facing distinct challenges, Scotiabank’s response was driven by its people and its motto, “We get Ag,’” explains Janice Holzscherer, National Head of Agriculture. “Our people work in ag, or have a profound background in the field, so we understand the space well. When a flood or drought happens, we’re ready to reach out.”

Holzscherer’s teams quickly reported the problems clients were facing. “Our response was, ‘Tell your customers to deal with whatever they need to get their operation running again. Don’t worry about their finances – We understand that weather, rail or trade interruptions happen – We will be there for you, and we’ll do whatever to help out.”

The local teams did just that. For example, as torrential rains fell on BC, Kloot called clients to learn who was in danger and to offer help, including immediate supports, such as pre-approved relief packages, interest-only loans to boost working capital and principle payment deferrals on existing loans. 

She remembers talking with a client who told her that, “The water is rising, our heifers are still in the barn, and we’re not sure what to do!” She arranged loan payment deferrals and later, raised their credit limits to help them resume a major farm renovation project.

Amid Saskatchewan’s drought, Hendriks worked closely with producers to offer credit exceptions or re-structure their credit facilities, to strengthen their liquidity so they could get next year’s crop in the ground.  He came up with customized solutions, including higher leveraged transactions, extended amortizations and interest-only terms, depending on client circumstances. 

He recalls a grain client who had contracted a large portion of their planned crop production with forward contracts, and when production dropped by half, they couldn’t fill their contracts, and faced a six figure contract buyout cost. Although, the client had partially mitigated their downside risk with production insurance, Hendriks arranged an operating credit increase alongside a real estate-secured working capital injection, to bridge the cash gap. 

Hendriks remarks that customized solutions are critical, since each client’s situation is unique. He points out that some clients had their most profitable year ever, due to previously-arranged downside production risk mitigation programs. These clients received insurance payouts that have positioned them well for acquisitions or capital expenditure programs, so they can take advantage of the new year’s higher forecast commodity prices.

Regardless of the situation, Marzyk says that clients’ opinion of Scotiabank only improved during the year. “During the darkest days, they saw that we called or visited their farms to offer to help, whereas no other banks were reaching out in that way.” She explains how one client, who previously split their borrowing among various financial institutions, has since brought their full business to Scotiabank, after Marzyk called to extend their loan amortizations and provide new inputs credit.

Learnings in crisis builds future resiliency

The past harrowing months have definitely deepened Kloot’s determination to support her clients in their future goals: “I’ve really seen the value of being in frequent communication with my clients, both to understand their business in good times - and to assist when things come up - whether that’s payment relief before a problem gets too bad, or connecting them with others in the community who can help.” 

Marzyk agrees, particularly the importance of, “Taking our time with clients, and having good conversations to really understand their issues, thoroughly explain possible remedies, and help put those plans in place.”

“Through these pro-active conversations, we can come up with ‘out-of-the box’ solutions that will really work,” adds Hendriks. “And, since farm planning sometimes range from ‘numbers on napkins’ to sophisticated spread sheets, we can encourage our clients to develop their bigger picture plan and help them follow through in the seasons ahead.”

“That’s how we’ve built our reputation in this community,” sums up Holzscherer. “We call our clients in the ups and downs. Then, after the crisis, we take a long-term view of their business and suggest things to make them stronger, like insurance and risk mitigation strategies against production, commodity price and interest rate unknowns. We want to support our clients and ensure they have the support they need through the ups and downs. For instance, our unique Yield More Financing program is a flexible revolving credit line available at local farm supply dealers. Twenty years ago we saw the need in the community for this solution and have been providing crop input financing support ever since.” 

Reflecting on Scotiabank’s clients on Canada’s Agricultural Day, Holzscherer concludes, “They face a lot of uncertainty, from floods, to fire, to drought, but their optimism and next-generation mindset never stops. We understand that the highs and lows are ‘Just life in agriculture’, so we ask, ‘What can we put in place, to make you more resilient going forward?’”