Written By Julia Schatz, Murray Coleman, Ted Shoub, Kelly Ford, Venetia Whiting, Julia Pasieka
The COVID-19 pandemic has had an unprecedented impact on the Canadian economy. Across Canada, the protection of the food supply has been recognized as critical, and the Government of Canada is taking necessary steps to ensure that agribusinesses can continue to operate effectively and can keep supply lines open. Marie-Claude Bibeau, Minister of Agriculture and Agri-Food Canada, has recognized that the work of such businesses is "essential to our plan to manage COVID-19."
Five top issues that agribusinesses should consider when navigating challenges posed by the COVID-19 pandemic are:
- how to keep cash flowing;
- sourcing and protecting the agribusiness workforce;
- maintaining supply chains and keeping the doors open;
- regulatory compliance and risk management; and
- force majeure and other contract considerations.
1. How to Keep Cash Flowing
Specific Agribusiness Loan and Loan Relief Programs
There are several specific programs focused on addressing funding issues in the agricultural sector. The federal government has provided Farm Credit Canada (FCC) with an enhancement to its capital base that will allow for an additional $5 billion in lending capacity, leading the FCC to introduce new lending and loan deferral programs for agribusinesses, including:
- a deferral of principal and interest payments for six months or a deferral of principal payments for up to 12 months; and
- access to an additional 24-month credit line of up to $500,000 , at a rate of prime +1% and no fees.
Both current FCC customers and non-FCC customers who qualify are eligible to apply for these programs. Details of FCC's new programs can be found at the FCC website.
The federal government has also announced that all eligible farmers who have an outstanding Advance Payments Program (APP) loan due on or before April 30, 2020, will have an additional six months to repay their loans. The new deadlines for outstanding APP loans are:
- September 30, 2020: 2018 cash advances for grains, oilseeds, and pulses;
- September 30, 2020: 2018 cash advances for cattle and bison; and
- October 31, 2020: 2019 cash advances on flowers and potted plants.
General Business Funding and Financial Supports
A series of general business funding initiatives has been introduced by the federal and provincial governments, including the $65-billion federal Business Credit Availability Program and the Canada Emergency Wage Subsidy (CEWS). Further details on those initiatives are addressed in Additional Details on the Canada Emergency Wage Subsidy for Employers Impacted by COVID-19.
General Tax and Other Relief for Businesses
The Department of Finance and the Canada Revenue Agency have extended several federal tax filing, payment and remittance deadlines for businesses. Further details on these initiatives are available in Extended Federal Tax Filing, Payment and Remittance Deadlines Amid COVID-19 and Canada's COVID-19 Economic Response Plan.
Several other provincial measures have been implemented to assist agribusinesses through this time, including the deferral of all government loans (including those under the Farm Loan Board and Fisheries and Aquaculture Loan Board in Nova Scotia) and the delaying of utility payments for farm customers in Alberta.
2. Sourcing and Protecting the Agribusiness Workforce
Another major concern facing agribusinesses during this time is ensuring they have sufficient workers supporting their operations, while maintaining safe working environments.
Keeping Workplaces Open and Safe
In an effort to mitigate absenteeism, agribusinesses should consider guidance offered on safer working conditions to manage the spread of COVID-19.The Canadian Food Inspection Agency (CFIA) and Agriculture and Agri-Food Canada (AAFC) offer extensive lists of resources for the agribusiness industry. The CFIA recognizes that social distancing may not always be possible for some food, plant, and animal production/processing businesses. These businesses can consult the risk-informed decision-making guidelines for workplaces and businesses to learn how to protect employees and customers in the workplace. The CFIA has released additional guidance documentation aimed at the meat processing sector, however, the AAFC has recognized that the same guidance can be applied more broadly to other third-party establishments.
Recruiting More Workers
Due to entry complications for temporary foreign workers (discussed below) and increased absenteeism resulting from illness among domestic workers, many agribusinesses urgently require an influx of new workers to meet the demands created by the current circumstances. The Canadian Federation of Agriculture (CFA) is working with the federal government to help incentivize new domestic workers to join the agriculture sector—many of whom have been, or will be, displaced from their jobs due to COVID-19. Agri-Food Economic Systems has similarly urged the need for a trained pool of temporary workers and redundancies in operations "that can be called upon to serve the surge in retail purchasing, and used to fill in if increasing numbers of employees stay home and self-isolate".
Temporary Foreign Workers and Others Crossing into Canada
Recognizing the particular importance of temporary foreign workers (TFWs) to the food supply chain in Canada, the federal government adjusted entry restrictions for TFWs for those who have yet to arrive in Canada and also increased the maximum allowable employment duration (from one year to two years) for those already in Canada. The AAFC also provided guidance to the industry to ensure producers and processors can continue to operate effectively:
- all TFWs are required to self-isolate for 14 days after arrival into Canada;
- employers who provide accommodations must separately house TFWs who are required to self-isolate; and
- employers and associations continue to be responsible for the travel arrangements of their TFWs.
Additional industry guidance is available from the AAFC.
Truck drivers, plane crews and others who are transporting goods across the border have also been exempted from both travel bans and isolation requirements, as long as they are not showing symptoms.
3. Maintaining Supply Chains and Keeping the Doors Open
International Supply Chain Challenges
Canadian agribusinesses remain reliant on international supply chains. The Canadian Chamber of Commerce has reported that agricultural producers and processors are "facing hugely uncertain macro-level trading conditions within the global market" and that producers are concerned about supply chains and retail operations being able to ensure necessary inputs are available for the rapidly approaching seeding season.
Supply chain and distribution disruption have already been felt in certain sectors in the United States—suppliers that prepared wholesale goods for restaurants are having difficulty altering their products for the vastly different consumer market (i.e., grocery stores). Some Canadian and U.S. dairy farmers have been dumping milk, even though consumer demand in stores remains high.
Concerns over these types of disruptions have led several countries to stop exporting key staple foods to ensure their home market's supply is protected. Vietnam, the world's third-largest exporter of rice, has temporarily suspended exports, and there are concerns that Myanmar and India will follow suit. Kazakhstan, one of the world's biggest shippers of wheat flour, banned those exports along with other staple foods such as carrots, buckwheat, onions, sugar and potatoes. Serbia has stopped exporting sunflower oil and other goods, while Russia is preparing to ban grain exports into the summer. This stockpiling of domestic goods increases the risk of disrupting the international supply chain system.
Trade Support from the Federal Government
Export Development Canada's Business Credit Availability Program has been enhanced, including through bank guarantees for existing lines of credit. The federal government has made $20 billion available in support of this program. In order to facilitate financing, EDC will guarantee up to $5 million to eligible businesses, as long as their business activities fall within EDC's purview. The program is not meant to supplant pre-existing bank-customer relations—the goal, instead, is to enhance existing relationships and ensure the viability of existing businesses going forward through this uncertainty.
Businesses interested in accessing the Business Credit Availability Program should contact their financial institution. More details on the impacts of COVID-19 on trade are available in Trade Implications of COVID-19 from a Canadian Perspective.
Agribusinesses Recognized as Essential Services in Canada
In order to maintain critical supply chains within Canada, the majority of Canadian provinces and territories has adopted essential services lists, and all recognize the priority of agriculture and the food supply. For further details about these essential businesses and services lists and regarding the exemptions from mandatory business closure/minimization orders see this overview of mandatory closures across Canada and in Ontario, B.C., and Alberta.
While companies will need to review the list created for the jurisdiction where they are operating to determine whether their business is essential, Public Safety Canada has weighed in with some guidance: Guidance on Essential Services and Functions in Canada During the COVID-19 Pandemic. This guidance was developed to create "a set of functions deemed essential in the context of the COVID-19 pandemic to help provinces/territories, Indigenous communities, and municipalities protect their communities while maintaining the reliable operation of critical infrastructure services and functions to ensure the health, safety, and economic well-being of the population. These services and functions can also help the private sector self-identify as essential".
Food is again recognized as a critical infrastructure sector, and the following, amongst others, are described as essential:
- food manufacturer employees and their supplier employees—to include those employed in food processing (packers, meat processing, fish processing, cheese plants, milk plants, produce, etc.) facilities; livestock, poultry, fish and seafood, slaughter facilities; pet and animal feed processing facilities; human food facilities producing by-products for animal food; beverage production facilities; and the production of food packaging;
- agriculture and aquaculture workers and support service workers including those who field crops; those responsible for fuel ethanol facilities, storage facilities, and other agricultural inputs;
- employees and firms supporting food, feed, and beverage distribution, including warehouse workers, vendor-managed inventory controllers;
- workers supporting the sanitation of all food manufacturing processes and operations from wholesale to retail;
- workers in food testing labs;
- employees of companies engaged in the production of chemicals, medicines, vaccines, and other substances used by the food and agriculture industry, including pesticides, herbicides, fertilizers, minerals, enrichments, and other agricultural production aids; and
- employees engaged in the manufacture and maintenance of equipment and other infrastructure necessary to agricultural, aquaculture, and fishery production and distribution.
As these lists are evolving while responses to the pandemic shift, it is important to check back frequently. In addition, it is important to note that there can be significant penalties for failing to comply with these Orders which vary from jurisdiction to jurisdiction.
4. Regulatory Compliance and Risk Management
In response to the COVID-19 pandemic, the CFIA has activated its business continuity plan, which introduces a temporary suspension of low-risk activities to prioritize critically important services during this time. The prioritized services include food safety investigations and recalls, animal disease investigations, inspection services, export certification, import inspection services, emergency management, and laboratory diagnostics. For more details of the prioritized and suspended CFIA activities, see the CFIA website.
Despite the CFIA prioritizing critically important services, each agribusiness must continue to comply with all requirements pertaining to food, animal and plant health and continue to be responsible for the safety and quality of the food it produces, imports and exports.
5. Force Majeure and Other Contract Considerations
COVID-19 has also caused considerable disruptions to various contractual obligations. Of particular note is the applicability of force majeure clauses to the pandemic, which may permit a party to suspend, defer or to be released from an obligation to perform the contract. Further analysis of the applicability of the doctrine of force majeure is available in Force Majeure Clauses and Risk Management in the Face of COVID-19.
In particular, COVID-19 has been placing considerable stress on commercial tenancy relationships. While agribusiness may not face the same business closures as some other sectors, pressures regarding rent obligations, particularly as rent payments became due at the beginning of this month, continue to build. Some provinces have responded to this situation by proposing the deferral of lease payments. The governments of PEI and Nova Scotia have encouraged commercial landlords to defer rent payments from their tenants for three months (until June 30, 2020), and to amortize the rent over the remaining lease period. In return, the governments will guarantee deferred rent and indemnify qualified landlords for losses incurred as a result of granting the deferral. Forms of Rent Deferral Agreements can be found on the PEI and Nova Scotia government websites.
The Bennett Jones Agribusiness, Food and Beverage group is closely monitoring any changes and updates in relation to the agribusiness sector, and is here to respond to any questions you may have. In addition, please visit our COVID-19 Resource Centre for other COVID-19-related materials.