APP interest-free limit increased to $250,000

Summary#

The final rule titled Regulations Amending the Agricultural Marketing Programs Regulations raises the interest-free portion of loans under the Advance Payments Program to $250,000 for the 2022 and 2023 program years. The change was registered on June 21, 2022 and published in the Canada Gazette on July 6, 2022.

What it does#

• Temporarily increases the interest-free loan limit under the Advance Payments Program (APP) from $100,000 to $250,000 for program year 2022 and program year 2023.
• Keeps the overall maximum APP advance at $1 million per producer.
• Defines program years so that program year 2022 ends on March 31, 2024 and program year 2023 ends on March 31, 2025.
• The change is not retroactive for the period between the start of the 2022 program year (typically April 1, 2022) and the date the amendment came into force; during that gap the government only covered interest up to $100,000. Once in force, the government covers the added interest-free portion for both outstanding and new advances.

Who's affected#

• Agricultural producers who use the Advance Payments Program — especially those who take advances above $100,000 and up to $250,000.
• The roughly 30 industry groups that act as APP administrators and issue advances through banks and credit unions.
• Lenders (banks, credit unions) that provide the underlying credit for APP advances.
• The federal government (through Agriculture and Agri-Food Canada) which will pay interest on the larger interest-free portion and guarantee advances.
• Smaller or liquidity-constrained farms are likely to notice the change more than large, well-capitalized farms.
• It is unclear from the item whether any specific commodity groups are excluded; most major agricultural commodities are generally eligible under the APP.

Why it matters#

• Producers can get cheaper short-term cash. The larger interest-free portion helps pay for costly inputs like seed, fuel and fertilizer in the spring and summer without borrowing at higher private rates.
• The change was made because input costs rose sharply (for example, fertilizer prices were estimated to rise about 45%, feed 13%, and fuel 26% in the scenario AAFC used), putting pressure on farm liquidity.
• The federal cost is estimated at $30.2 million for fiscal year 2022–2023 and $34.7 million for 2023–2024. The government expects about 11,000 participants to receive roughly $22.8 million in extra interest savings in 2022 and $27.4 million in 2023.
• For many farms, especially small and medium-sized operations, this makes it easier to plant and sell crops on a timing that suits markets, which also supports Canada’s ability to supply food to domestic and global markets.