Livestock Financial Protection Board Business Plan for the Fiscal Years 2015-2018
Table of Contents
As Fund administrator, our ultimate goal is to ensure long-term sustainability of the Fund. We are pleased that our investment strategies have helped the Fund weather the last five years with very minimal impact on our investment income. An actuarial study completed in July 2010 determined that the Fund is actuarially sound. Financial markets have improved and this upward trend will likely continue, however we continue to be in a low interest rate environment and it is projected that rates will remain low for the planning horizon. As the global economic situation continues to evolve, the Board will continue to assess the potential impact of different financial market scenarios and make adjustments to its investment strategy as required.
The Board's key achievements for the 2014/15 fiscal year were:
Table 1 outlines total revenues and expenditures for the previous year as well as expectations for the planning horizons.
Total Revenues and Expenditures for the Previous Year:
The total revenue for the 2014/15 fiscal year was $364,147. This included $110,083 in fees and $254,063 in interest income. Total expenses were $344,222. Revenue and expenses were in line with projections. In the 2014/15 fiscal year, the Board budgeted $250,000 for claims but actual net expenditures on claims were $164,452(1).
Revenue and Expenditures and Expectations for the Planning Horizon:
Total revenue for this planning horizon (2015/16 to 2017/18) is expected to average 1.0% annual growth. This reflects strengthening economic conditions and recovery of previous money owed to the Board. Total expenses over the same period will increase by 1.18% in the second year of the planning horizon due to the contract with the delivery agent.
For the 2015/16 fiscal year, the Board has estimated revenues of $440,000. This includes approximately $110,000 in fees and $280,000 in interest income. The Board has estimated expenditures of $436,250. This includes payment of $154,500 to determine financial responsibility of livestock dealers; $25,700 for Fund administration and governance support; and $6,000 for secretariat support and $250,000 in claims.
(1) This amount is included for budgeting purposes only and is based on the July 2010 actuarial study. Actual payments on claims may be higher or lower than the budgeted amount.
The Ontario Beef Cattle Financial Protection Program (Program) was established in 1982 to provide compensation to sellers in the event that a buyer (including packing plant operators, abattoir operators, auction market operators, country dealers and cooperatives) defaults on a payment.
The Program has two components: the annual licensing of dealers under the Livestock and Livestock Products Act, R.S.O. 1990, c. L.20 (LLPA) and the administration of the compensation fund established under the Farm Products Payments Act, R.S.O. 1990, c. F.10, as amended (FPPA). The Ministry of Agriculture, Food and Rural Affairs (OMAFRA) is responsible for the licensing of dealers while the Board is primarily responsible for the administration of the Fund.
The Board is a body corporate without share capital constituted under the authority of the FPPA and Ontario Regulation 560/93 - Fund for Livestock Producers, as amended (O. Reg. 560/93), made under the FPPA. It is also classified as a Board-Governed Provincial Agency (Trust) under the Agencies & Appointments Directive (AAD). The Board operates in accordance with the Memorandum of Understanding (MOU) between the Minister of Agriculture, Food and Rural Affairs (Minister) and the Board dated April 11, 2011. Upon a change to one of the parties the MOU must be affirmed by all parties within six months.
As a Trust Agency, the Board's primary function is to administer funds and/or other assets for beneficiaries named under statute. The Board's mandate is, as set out in section 4 of the FPPA:
Vision and Mission Statement:
The Board's vision is to protect the financial interests of producers and licensed dealers who have sold livestock to licensed dealers, as defined in the Program. The Board's vision supports the following OMAFRA priorities: (1) make Ontario a better place to do business, and (2) support a strong rural Ontario that strengthens the province. The Board contributes to these priorities by ensuring that the Fund is effectively managed and able to meet its financial obligations to livestock sellers. The Fund is an important component of a seller's overall business risk management strategy it helps livestock sellers to manage risks beyond their control i.e. default by a licensed dealer.
The Board's mission is to ensure the long term sustainability of the Fund by promoting sound investment practices and good governance for the benefit of Ontario's livestock sellers who sell to licensed dealers.
The Board's guiding principle is accountability in its management, administration and operation. As an agency of the government, the Board conducts itself according to the management principles of the government. These principles include ethical behavior; prudent, efficient and lawful use of public resources; fairness; high quality service to the public and openness and transparency to the extent allowed under law.
The Board operates at "arm's-length" from the Government but is accountable to the Government in exercising its mandate. The Agency is accountable to the Minister, through the Chair, for its internal governance; setting its goals, objectives and strategic direction within its mandate; and for carrying out the roles and responsibilities assigned to it by the FPPA, all other applicable legislation, this MOU and applicable Treasury Board/Management Board of Cabinet as well as Ministry of Finance directives. Specifically, the Board is held accountable through:
The FPPA and O. Reg. 560/93 require that the Board be composed of not fewer than five members appointed by the Minister. There are currently seven members on the Board, including the Chair. The Minister appoints a Chair and Vice Chair of the Board from among its members. The Board will be asking the Minister to appoint one of its members as Vice Chair.
O. Reg. 560/93 requires that membership on the Board includes one member representing each of the Beef Farmers of Ontario (BFO), the Canadian Meat Council (CMC), and the operators of community sales under the Livestock Community Sales Act, R.S.O. 1990, c. L.22. By convention, there has also been one member from the Ontario Livestock Dealers Association (OLDA), one member from the Ontario Independent Meat Processors (OIMP), one member from the dairy industry and one member from the veal industry. By convention, there has also been one additional member from the BFO.
See Appendix 1: List of Board Members & Terms
The following is an overview of the Board's principal activities (current and future) linked to its mandate and the Government priorities. The Board's mandate is set out in legislation and as such the Board cannot conduct any activity that is inconsistent with its mandate.
The Board is responsible for the overall governance of the Fund. The Fund is used to:
All money to which the Board is entitled is paid into the Fund. Contribution to the Fund is mandatory and is based on a fixed rate per head of livestock in a transaction. Under O. Reg. 321/11 - Fees Payable to Boards, as amended, made under the FPPA, sellers owe the Board a fee of 5 cents per head of livestock on a direct sale of livestock. When the sale is on consignment, both the consignor and consignee owe a 5 cents per head fee. A selling dealer remits the fee on their own behalf, and a buying licensed dealer is required to deduct the fee and forward it to the Board on behalf of a producer seller. A consignee is required to pay their own fee as well as to deduct and remit the consignor's fee. Fees are due on or before the fifteenth day of each month along with a statement of the livestock sold, unless the total yearly sales are less than 1,000 head, in which case the fee is to be submitted semi-annually.
The Board is the administrator of the Fund and is ultimately responsible for the management and administration of the Fund. In 1998, the Board delegated the day to day management of the Fund to Beef Cattle Financial Protection Program Inc. (BCFPPI) ? a not-for-profit corporation governed by its own Board of Directors. In order to be compliant with the Procurement Directive, in December 2012, the Board and OMAFRA jointly conducted an open competitive procurement process to find a delivery agent to assist with the delivery of the Program (licensing and Fund administration). BCFPPI was the successful bidder. Key aspects of this role continue to be receiving and depositing fees; preparing monthly, quarterly and annual financial statements; preparing documentation for annual audits; and investment of the Fund.
The Board's responsibility/activities as Fund administrator includes:
Fund Investment Strategy:
The Board's main objective when managing investment capital is to safeguard its ability to remain as a going concern so that it can continue to deliver financial protection to livestock sellers in Ontario. Investment income is one important source of revenue for the Fund. As such, the Board's investment policy focuses on ensuring security, liquidity and maximization of investment income. The investment strategy flows from the investment guidelines set out in the MOU.
The MOU has restrictions in place so that only authorized investments are undertaken (the Fund can only be invested in instruments as set out in the MOU, which includes certain now-repealed provisions of the Trustee Act, R.S.O. 1990, c. T.23). A decision has been made to not amend the MOU and to keep the repealed provision in place under the MOU as a risk mitigation strategy.
It is further guided by Board's policy which requires 60% in long term investments and 40% in short and medium term investments. When short or medium term investments mature, research is done on the variety of rates available from 30 day to 2 year term investments. If it appears that interest rates are generally rising then a shorter maturity date would be chosen to take advantage of potentially higher rates at maturity. If rates appear to be falling then a longer maturity would be selected.
The Fund's asset mix is made up of:
Cash, short and medium term investments:
The Board staggers the maturity date of the GICs to reduce the influence of interest changes and maximize GIC returns.
Long term investment:
The Fund's long term investment consist of real estate in the form of a $4 million first mortgage on development lands in the city of Kitchener bearing interest at 5% payable semiannually. The $4 million is approximately 58% of the Fund's total investment.
Since 2004, when the Board made its initial investment in real estate, the portfolio has generated an average annual return of 4.00%. The year prior the portfolio's yield was 3.22%. This represents an increase of $54,000 per year during a low interest environment. Interest income on these investments totaled $245,792 for 2013/14. In 2012/13 investment income was $244,642 and in 2011/12 it was $269,320. The small increase between 13/14 and 12/13 was due to an increase in total Fund investment.
The Board's strategic investment mix was instrumental in minimizing the impact of the economic downturn on its investment. The Board considers its investment in real estate to be a relatively safe investment that has generated great returns with little to no risk. Diversification among different assets, such as by holding the mortgage as well as short and medium term GICs, is the Board's key strategy to reduce risk.
Over the last seven years, the ability to invest in a high security first mortgage at 5% produced returns in excess of $55,000 more per year than any other options available on the market that the Board can invest in under its guidelines.
Claims Investigation and Adjudication:
The Board adjudicates claims made under the FPPA and determines the payment, if any, to be made from the Fund. A claim for compensation will be considered if it involves: a producer selling to a licensed dealer, a licensed dealer selling to a producer or a licensed dealer selling to another licensed dealer. A claim may be made if a seller hasn't been paid according to the timelines in the regulations. If an application for payment from the Fund is made in respect of a sale of livestock to a dealer, the application must be made to the Board not later than thirty (30) days after the day on which the earliest of the following events occurs:
For claims made in respect of a default by a producer, the claim must be made within 30 days of the date of sale.
In 2010, the Board entered into arrangements with a third party for the provision of adjudication support. Prior to 2010, this service was provided by BCFPPI.
The adjudication process begins when the seller files a claim with the Board. Once a claim is received, an application form is sent to the seller. Once the application is returned, it is investigated by the Regulatory Compliance Unit in OMAFRA's Animal Health and Welfare Branch. When the investigation is complete, a report is made to the Board.
The Board conducts an in-depth analysis, which may involve legal services, and either makes a final decision or offers an opportunity for the parties to make submissions or attend a hearing before making its final decision. If the Board offers an opportunity for a hearing, and a hearing is requested by one of the parties, a Notice of Hearing is mailed to the parties stating the time, date and location of the hearing. The Board works to adjudicate cases within 60 days of receiving the report from the investigators. Claims that involve a hearing require more time to resolve because additional meetings are required and, in some cases, the cases tend to be more complex.
The Board determines the payment, if any, to be made from the Fund.
The Board has discretion to refuse payment from the Fund based on grounds set out in O. Reg. 560/93. Examples of grounds for refusing payment include the claimant extending credit to the buyer; the Director under the LLPA not being notified promptly where payment was not received on time, and the claim not being submitted on time. The rules governing payment from the Fund are also set out in O. Reg. 560/93.
Recovery of Money Owed:
The regulation requires the Board to attempt to recover any money to which it is entitled. The Board, through legal counsel and the Administrator, works to recover money owed to the Board. In 2011, the Board approved and adopted a "Recovery Policy". The policy formalizes and documents current debt recovery practices. A debt recovery policy is a requirement under the MOU between the Minister and the Board. The objective of the policy is to ensure that money owed to the Board is collected as soon as possible using legal, efficient and effective debt recovery procedures. Recovery of debt owed to the Board is an important part of ensuring that the Fund remains viable.
(2) Legal and investigative support are currently provided and paid for by the ministry. The ministry also covers Board members' remuneration (per diem, meal and travel).
The table below identifies the key strategies that will be used to achieve these goals.
The environmental scan seeks to provide a complete picture of the full environment in which the Board is operating and the key issues that may need to be addressed through the upcoming planning and budgeting cycles. The challenges and risks faced by the Board have remained similar from year to year over the last couple of years.
The Board is cognizant of its broader responsibilities in ensuring that key risks are identified and that effective processes are in place and implemented to manage these risks. The following are the main issues that emerged from the environmental scan:
Investment Risks: Investment income is one important source of revenue. Investing has inherent risks. Although long term return expectations and trends are generally predictable, there can be considerable volatility in short and medium term results. Currently, the Fund is invested in short and long term fixed interest income type securities. Investment risk is a challenge that could adversely affect the achievements of one of the Board's goals, which is to ensure long term sustainability of the Fund. Appropriate mechanisms are therefore required for controlling investment risk. The Board's key mechanism for identifying and managing the investment risk is a written investment policy. Diversification among asset classes is a key strategy of this policy. Interest rates are at a historic low and are expected to remain low for most of the planning horizon. It is predicted that we may see a slow rise in rates in the last year of the current plan.
Packers Rationalization/Exit: There are a number of factors currently in play that could potentially lead to increased packer rationalization and exit from the market place. The primary factors affecting packers in Ontario is excess plant capacity. The volume of cattle available has dropped and plant capacity has stayed the same. If exit from the marketplace is due to insolvency, claims for payment from the Fund could potentially result. Because the Fund is actuarially sound, this will not likely impact the Board's ability to conduct business.
Policy/Legislative Change by the Ontario Government: The Minister has responsibility for the legislation governing the Program. The Board is subject to the risk of a policy change by the government. In 1997, OMAFRA put forward two options to industry on the future of the Program: (1) a government-run program with full cost recovery paid for by industry and (2) the devolution of the program to industry. The various sectors within the industry agreed that devolution was their choice. A business plan was developed and approved by all sectors and a not-for-profit corporation (BCFPPI) was established with a Board of Directors from all sectors. To date, however, devolution has not occurred. The impact on the Board would be dependent on the changes made to the FPPA and its regulation which govern the operations of the Board. There has been no recent discussion and any amendments would be outside of the Board's control.
Fund Balance and Unpredictability of Claims: The Fund dropping below the actuarially sound level or becoming depleted because of a large claim is another external driver identified by the Board. This risk could negatively impact the Board's ability to deliver financial protection to livestock sellers in Ontario.
An on-going challenge for the Board is the unpredictability of claims, i.e. the number of claims to the Board from year to year is difficult to predict and can fluctuate greatly. Because claims paid are variable, any estimate of future claims can be unreliable.
Higher Livestock Values: Canadian cattle prices have been at record highs due to lower cattle inventories. Cattle inventories continue to shrink in Canada and the U.S. and the market is functioning to encourage expansion which has also contributed to the higher price structure. The market dynamics can change within a short period of time and the financial risk has certainly increased. Higher dollar value for livestock could impact fund solvency, consequently the BFO, along with all other industry partners have requested the Minister to increase the fees paid by sellers from 5 cents per head to 10 cents per head. This request is outstanding at this time.
Institutional continuity and succession planning: Improvements have been brought to succession planning and creating continuity on the Board. Experienced members increase its ability to issue decisions in a timely, fair and legally supportable manner. Too few or inexperienced members could negatively impact the Board's ability to adjudicate claims fairly and efficiently. To minimize the loss of experienced Board members, the Board has asked that appointments be staggered. A Vice Chair is now in place which improves Board's function and continuity.
Governance and Accountability Requirements: There is an increasing focus on strategic planning as it relates to Board governance and accountability. Good governance is an integral component of effective fund management and board performance. Expectations concerning accountability and the fiduciary duty of boards continue to evolve.
A new three year contract was entered into with BCFPPI beginning January 1, 2013. The new contract required substantial changes from practices under the previous contract. One key change was that the Board became responsible for overhead costs which include office space and equipment associated with all Board activities, which were previously provided by the OMAFRA as an indirect support. The total yearly Board cost for the new contract is $178,150. Of this total, determining financial responsibility costs are $152,700 and $25,450 is for Fund and Board administration.
OMAFRA funds legal and investigative services. Investigative services are provided through the Cooperative Agreement between the MNR and OMAFRA. The Board also receives legal services provided by the Ministry of the Attorney General and, on occasion, uses outside legal assistance as directed by the Ministry of the Attorney General.
The affairs of the Board are subject to an annual audit by the Office of the Auditor General of Ontario.
The following are the three sources of income into the Fund:
The FPPA provides that the Board is responsible for all its expenses except for those of persons employed under Part III of the Public Service of Ontario Act, 2006, S.O. 2006, c. 35. In addition to claims and its secretarial support, the Board uses the Fund to offset costs associated with determining financial responsibility and administrative support.
Since 1982, investment income has been greater than total costs and claims, resulting in zero use of check-off fees. To date, all net claims and Board expenses have been paid from interest on the Fund.
The Board's operating expenses are based on the number of meetings and will vary from year to year. Because claims paid are variable, budgeted estimates on claims can be unreliable. Meetings are held at least annually or when there is a claim on the Fund. Other Board business can usually be handled by a conference call. As of April 2010, OMAFRA began paying the remuneration of the members of the Board, as required under the FPPA.
The Fund is actuarially sound. An actuarial study was completed by Ernst & Young in July 2010 as a result of industry proposed regulatory changes (the changes were approved by the Ontario government and implemented in July 2011). Several conclusions were indicated in the report:
The contingency plan, if there are claims that would exceed the Board's ability to pay, would be to work with the OMAFRA to determine the best strategy. Some possible options are:
Request that the Minister increase the existing check-off fee (which is now at 5 cents per head of cattle sold) to rebuild the Fund and repay the loan. An amendment to the FPPA was approved under the Open for Business Act, 2010. This amendment allows the Minister to set the check-off fee, instead of the Lieutenant Governor in Counsel having such authority. A request has been made to the Minister to increase the fees from 5 cents to 10 cents per head.
Arrange for a standby line of credit with a chartered bank to use in the event that there are claims that exceed the Board's ability to pay.
Fund for Livestock Producers Pro Forma Balance Sheet as at March 31, 2015 / 2016 / 2017
The tables below shows the budget to actual and the variance for 2012/13 fiscal and the 2013/14 fiscal.
An on-going challenge for the Board is the unpredictability of claims, i.e. the number of claims to the Board from year to year is difficult to predict and can fluctuate greatly. Because claims paid are variable, any estimate of future claims can be unreliable. Prior to the 2013/14 fiscal the Board did not include a budget for claims paid. This amount is an estimate for budgeting purposes only. Actual payments on claims may be higher or lower than the budgeted amount. The 2015/16 fiscal year includes a budgeted amount of $50,000 to engage an actuary to complete an actuarial review of the Funds.
The Government of Ontario uses a risk-based approach to manage provincial agencies. Consequently, provincial agencies are required to employ a risk framework when making operational decisions. Provincial agencies are responsible for ensuring that funds are spent effectively and efficiently, and are used for the intended purpose. Risk management helps the Board identify risks, assess exposures, and develop appropriate action plans to help ensure provincial agencies meet business objectives. A risk management plan was developed by the Board in 2010 and is updated as part of the Board's strategic planning process.
Agencies are expected to report on the status of the evaluation of their risks on a quarterly basis, except for high risks, which must be reported immediately. This reporting requirement requires the Board to review the risk management plan and identify quarterly whether or not there are changes.
Human Resource/ Staff Numbers
The Board has no staff. However, the Board has entered into third party agreements for the provision of administrative/secretariat, Fund management and adjudication support.
The Ministry of the Attorney General provides legal services to the Board. Legal services staff provides the Board with advice, opinions, and legal assistance in Judicial Reviews and in recovering of monies owed to the Board and contributes to the continuing education of board members.
OMAFRA's Regulatory Compliance Unit provides investigative services.
Initiatives Involving Third Parties
The MOU specifies that the Board is responsible for its own administrative/secretariat and adjudication support. This support was previously paid for by OMAFRA. The MOU also specifies that the person providing the adjudication support cannot be involved in licensing.
In 2012, BCFPPI was the successful bidder in a competitive procurement to assist with the delivery of the Program. One of the deliverables is to provide administrative and Fund management support. The Board of BCFPPI has representatives from the BFO, Ontario Livestock Dealers Association and Ontario Livestock Auction Markets Association. See Appendix 2: Description of Deliverables.
A BCFPPI employee currently acts as the Board's administrator and is responsible for assisting the Board in preparing its annual report, business plan and other documentation required for compliance with the MOU and the Agencies & Appointments Directive. Day to day management of the Fund includes receiving and depositing fees; preparing monthly, quarterly and annual financial statements; preparing documentation for annual audits; and, investment of the Fund. The Fund is invested according to the MOU.
In 2009/10, the Board entered into an arrangement with a third party for the provision of secretariat and adjudication support. This support included but was not limited to:
Information Technology (IT)/Electronic Services Delivery (ESD) Plan
The Board has no IT and ESD plan for the coming year.
The Board has no capital expenditure planned.
Performance measures and targets for each objective are developed below. As part of its continuous improvement process, the Board will develop the oversight responsibility required to ensure that objectives are achieved. The Board will also track progress against these measures and prepare an annual report. Day to day activities of the Board will continue to be implemented by BCFPPI.
Goal: Protecting the long term viability/sustainability of the Fund for Livestock Producers
Goal: Strengthening Board governance and accountability
Goal: Ensuring that there is an adjudication process in place that is simple, fair, and accessible, with minimal delays
(3) Target changed in 2015/16 to meet the new AAD requirements
for business plans
All external communication of the Board to the public, stakeholders and others shall be approved by the Board.
The Board's target audiences are producers and licensed dealers. The main interface the Board has with their target audience is when they come before the Board regarding a claim. The final outcome of that process will dictate the response by the Board and the stakeholder.
Board communication occurs at two levels:
Key messages for directed communication
Key messages for broad-based communication
Vehicles to communicate key messages
The Minister will consult with the Chair as appropriate when significant new directions for the Board are contemplated. The Deputy Minister will meet with Chair, as necessary, to discuss matters of mutual importance to the Board and OMAFRA. The Chair will keep the Minister advised, in a timely manner, of all planned events and issues that concern or can be reasonably expected to concern the Minister in the exercise of his/her responsibilities.
Chair, Livestock Financial Protection Board
The supplier shall be responsible for:
The specific duties includes:
Livestock Financial Protection Board (LFPB)
The supplier shall be responsible for:
For more information:
Toll Free: 1-877-424-1300