Livestock Financial Protection Board 2014/15 Annual Report
Table of Contents
August 5, 2015
The Honourable Jeff Leal
On March 16, 2015 Robert Branders term as a long time serving chair of the Board expired. I was appointed and I look forward to the challenge of guiding the Board over the next years.
Pursuant to section 6(1) of the Farm Products Payment Act, I am pleased to submit a report describing the work of the Livestock Financial Protection Board for the year ending March 31, 2015, for tabling in the Legislature. This report has been prepared in compliance with the Agencies & Appointments Directive.
As a Board, we continue to focus on administering the Fund for Livestock Producers; adjudicating claims; granting or refusing the payment of all claims and recovering any money to which the Board is entitled. As Fund administrator, one of our goals is to ensure long-term sustainability of the Fund. Once again the Fund's investment strategy performed well and helped the Fund maintain both a healthy and stable funding ratio. In December 2014, industry stakeholders, because of record high cattle prices, wrote a letter to the ministry requesting that the check-off fee be increased from 5 cents per head to 10 cents per head. The Board supports this request and will be engaging an actuary to determine the appropriate check-off to keep the Fund actuarially sound.
In the 2014/15 fiscal the Board received 3 claims for compensation from livestock sellers as a result of the failure of one livestock dealer. The payout for these claims was $164,451.82. The Board was able to adjudicate the claim in a timely manner: it took 35 days to reach a decision; 25 days less than the stated goal to process the claim.
Chair, Livestock Financial Protection Board
The Ontario Beef Cattle Financial Protection Program (Program) was established in 1982 and provides compensation to sellers 1 in the event that a buyer (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 (LLPA) and the administration of the compensation fund established under the Farm Products Payment Act (FPPA).
The Ministry of Agriculture, Food and Rural Affairs is responsible for the licensing of dealers. The Livestock Financial Protection Board's (Board) primary role is to administer the fund for livestock producers (Fund). The Board is established under the authority of section 3 of O. Reg. 560/93 - Fund for Livestock Producers, made under the FPPA. It is also classified as a Board-Governed Provincial Agency (Trust) under the Agencies & Appointments Directive (AAD). Trust Agencies administer funds and/or other assets for beneficiaries named under statute.
The functions of the Board are outlined in section 4(1) of the FPPA as follows:
There are 197 licensed dealers and approximately 19,000 beef farmers (including milk producers who market veal calves, bulls, and culled dairy cattle for slaughter purposes) subject to the FPPA and the LLPA
(1) Sellers include both producers and licensed dealers. Dealers licensed under the Livestock and Livestock Products Act who sell livestock are designated as producers for the purposes of clause (d) of the definition of "producer" in section 1 of the Act, but the designation is only in respect of sales of livestock by the dealers to: (a) other dealers licensed under the Livestock and Livestock Products Act; or (b) other producers.
(2) The buyer could also be a producer, where the claimant is a licensed dealer.
The Fund for Livestock Producers
All money to which the Board is entitled is paid into the Fund. Contribution to the Fund is based on a fixed rate per head of livestock in a transaction. Under O. Reg. 321/11, a fee of five cents per head sold is payable to the Board, unless the sale is on consignment, in which case the five cent fee is owed by each of the consignee and consignor.
Fees are remitted by the buying dealer on behalf of the producer when the sale is made directly by a producer, by the selling dealer when the sale is by a dealer, and by the consignee on behalf of the consignor and on their own behalf, where the sale is on consignment. Fees are payable on or before the 15th day of the month following the month of sale unless less than 1,000 head are sold or purchased annually, in which case the fee is payable annually.
The Fund is used to:
A claim may be made if a seller hasn't been paid according to the timelines in the regulations, if the buyer has ceased operation, or if the buyer's assets have been placed in the hands of a receiver or trustee. O. Regulation 560/93 lays out discretionary grounds under which a claim may be denied. 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.
(3) 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 Program provides:
Protection for Producers:
If the Board decides that a claim from a producer made in respect of a dealer is valid, the Board pays 95 % of the portion of the claim that it recognizes as valid.
Protection for Licensed Dealers:
Where an approved claim relates to a licensed dealer selling to a producer or feeder cattle finance co-operative who defaults on payment, compensation is 85 % of the portion of the claim that the Board recognizes as valid, up to a maximum of $125,000. In these cases, there is no compensation for claims of less than $5,000. Where an approved claim relates to a licensed dealer selling to another licensed dealer, the Board pays 95% of the portion of the claim that it recognizes as valid..
Section 4(1) of O. Reg. 560/93 requires that the Board be composed of at least five members consisting of one member each from Beef Farmers of Ontario (BFO), Canadian Meat Council (CMC) and the operators of community sales under the Livestock Community Sales Act, together with such other members as the Minister considers advisable.
The regulation also requires the Minister to appoint a Chair and a Vice Chair from among its members. The Board operates at arm's length from the Government but is accountable to the Government in exercising its mandate. The members of the Board are appointed by the Minister. These individuals, in addition to administering the Fund, draw upon their expertise in the livestock industry in hearing and adjudicating cases before them. The Board may also call upon technical experts and professionals to provide assistance.
As at March 31, 2015, there were six Board members which included a Chair and Vice Chair. The CMC position has been vacant since 2008, and while the Board has been in contact with the CMC with regard to having a member appointed, to date the CMC has not submitted any candidates.
The table below shows the names of appointees for fiscal 2014/15 and the term of their appointments.
Five members of the Board constitute a quorum for transacting the Board's business. The Board is made up of industry representatives from a wide range of livestock industry sectors. This broad industry knowledge is important in understanding the clientele and the claim files..
Board Staff and Key Activities
In the 2012/13 fiscal year the Ministry undertook a competitive procurement process to secure a delivery agent to provide the:
Beef Cattle Financial Protection Program Inc. (BCFPPI) was ultimately the successful proponent. The tripartite contract entered into between the Ministry, the Board and BCFPPI is for a three year term. BCFPPI is a not-for profit corporation governed by a Board of Directors. The Board of BCFPPI has representatives from the Beef Farmers of Ontario, Ontario Livestock Dealers Association, and Ontario Livestock Auction Markets Association.
BCFPPI 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 Memorandum of Understanding (MOU) and the Agencies & Appointments Directive. The Board has delegated day to day management of the Fund to BCFPPI. This includes receiving and depositing check-off fees; preparing monthly, quarterly and annual financial statements, preparing documentation for annual audits and investment of the Fund. The Fund is invested according to guidelines set out in the MOU.
The Board continues its arrangement for the provision of secretariat support. A third party contract for the provision of adjudication support expired. The Board is reviewing options for the provision of adjudication support including procuring it as part of the RFP for a new delivery agent that expires in December. Adjudication support includes but is not limited to:
The Ministry of the Attorney General provides legal services to the Board. The lawyer assigned to the Board provides the Board with advice, opinions, and other legal assistance in judicial reviews, claim adjudication and recovering monies owed to the Board, and also contributes to the continuing education of Board members.
The Ministry of Agriculture, Food and Rural Affairs Regulatory Compliance Unit provided investigative support. There were 3 claims involving one dealer in the 2014/15 fiscal.
The Board activities are geared towards fulfilling its mandate. The Board has two types of meetings: regular meetings and adjudicatory meetings and hearings.
There were two Board meetings in the 2014/15 fiscal year and one Conference Call meeting. Claims were considered at all the meetings held. Additionally, one hearing was held and the business plan, annual report and audited financial statements were approved.
The Board is responsible for the overall governance of the Fund. The primary purpose of the Fund is to compensate sellers in the event of a default by a buyer. 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. As such, the Board's investment policy focuses on ensuring security, liquidity and maximization of investment income. In addition, there are restrictions in place so that only authorized investments are undertaken (the Fund can only be invested in instruments permitted by the MOU).
In order to ensure liquidity and manage interest rate risk, the Fund's investments mature at various points in time. Currently the Fund is invested in short, medium and long term fixed interest income type securities, including a long term first mortgage and short and medium term fixed term GIC's ranging between 12 to 24 month terms. This is within the Boards approved policy of 40% short and medium term and 60 % long term investments. The Board's responsibility as Fund administrator includes:
As part of its ongoing efforts to ensure the solvency of the Fund, the MOU requires the Board to undertake an actuarial review, at any time, in order to ensure the actuarial soundness of the Funds. The Board had an actuarial study completed in June 2010 by Ernst & Young. The conclusion of the review was that the Fund is in a strong financial position and that a Fund balance of approximately $4.5M would cover net claims with 99% confidence.
In December 2014, industry stakeholders, because of record high cattle prices, wrote a letter to the ministry requesting that the check-off fee be increased from 5 cents per head to 10 cents per head. The Board supports this request and will be engaging an actuary to determine the appropriate check-off to keep the Fund actuarially sound
Claims Investigation and Adjudication:
The process begins when the seller files a claim with the Board or indicates an intention to file a claim. Once a complaint is received an application form is sent to the seller. Once the claim application is received it is investigated by the Regulatory Compliance Unit in the Food Safety and Traceability Programs Branch. When the investigation is completed an investigative report is given 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 file from the investigators. Where a hearing is held, it may take longer to make a decision. After the claims adjudication process is completed, the Board sends a decision letter to the claimants and buyer.
Appendix 1 shows the history of claims to the Fund up to March 31, 2015.
Recovery of Money Owed:
The Board, through legal counsel and the Administrator, work to recover money owed to the Board. Since inception, the Board has paid out $10,160,810 and has recovered $3,546,324 for a 34.35% recovery rate. At the end of last fiscal year the Board's recovery rate was 34.91 %; a small decline of .56 % (See Appendix 2 for recovery history). As per the MOU, in 2010/11 a recovery policy was developed and is currently in force. The recovery policy states that the Board will make every reasonable attempt to recover monies that is owed to the Board. Its objectives are to utilize both Ministry and external legal staff in recovering as much outstanding debt as is reasonably achievable using a variety of tools and options. There is currently one active debt recovery file. It is not known at this time what yield, if any, that file will produce.
The Board administers the compensation Fund established under the FPPA. Should a licensed dealer or producer default, the Board adjudicates any claim(s) and determines the payment (if any) to be made from the Fund.
A total of 3 claims were received by the Board in 2014/15 fiscal. The detail of the claims adjudicated is as follows:
The Board took an average of 30 days from when the investigative reports were received to make a decision on the claims. This was twenty -five days less than the goal set in the business plan. The Board benefited from work done in 2009/10 to streamline the claims adjudication process. For the 2014/2015 year, the average number of days to adjudicate a claim was 30 days.
The balance of the fund at the beginning of the fiscal year was $7,347,625.86 and at the end of fiscal 2014/15 it was $7,367,550.20. These three claims had no significant impact on the fund.
Fund Performance and 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 qualified livestock sellers. Investment income is one important source of revenue for the Fund.
The investment strategy flows from the investment guidelines set out in the MOU, which includes some investments allowed under repealed provisions of the Trustee Act. 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.
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.
The Fund's asset mix is made up of:
Cash, short and medium term investments:
The Fund's short and medium term investments are: one GIC issued by a domestic financial institution that matures on February 2016 that earns 1.56% per annum and one medium term GIC issued by a domestic financial institution that matures on February 2017 that earns 1.41 % annually.
Cash, short and medium term investment holdings at year end were $3,320,904.24 (45.4 % of total investments, which is compliant with Board policy which allows for 40% short and medium term and 60% long term.
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 55.00% 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 4.06%. The year prior the portfolio's yield was 3.22%. This represents an increase of $55,000 per year during a low interest environment.
The Board's strategic investment mix was instrumental in minimizing the impact of the economic downturn on its investments. 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 the mortgage, is the Board's key strategy to reduce risk.
Intereste Income on Investments:
Interest income on these investments totaled $254,063 for 2014/15. In 2013/14 investment income was $245,792 and in 2012/13 it was $244,642. The small increase between 2014/15, 2013/14 and 2012/13 was due primarily to a small increase in total fund investment, caused by a decrease in claim payouts, and a small increase in short term rates.
The amount of money flowing into the Fund from check-off fees was $110,083, compared to $112,524 in 2013/14; a decrease of $2,441.
The Board is authorized to use the producer fund to:
Total Board administration expense (excluding claims payment) in 2014/15 was $179,771 (this was $3,879 under budget primarily due to fewer claims and less administrative support needed). The total includes the costs incurred in the determination of financial responsibility of livestock dealers and other Board administration support.
As at March 31, 2015, the Fund balance stood at $7,367,550. This is an increase of $ 19,924 from March 31, 2014. See Appendix 3: audited financial statements.
The table below shows the budget to actual and the variance for 2012/13 fiscal, 2013/14 fiscal and the 2014/15 fiscal.
(4) Under the financial protection program, all dealers must be licensed annually, with licensing dependent upon a positive assessment of financial responsibility by the program administration. Section 7(2) of the FPPA allows the Board to use the Fund to pay the whole or any part of the costs incurred in determining financial responsibility.
In its 2014-2017 Business Plan the Board identified key priorities for action. What follows is a brief summary of key accomplishments regarding each of these priorities in the 2014/15 fiscal year. The table below shows the targets achieved/not achieved and actions to be taken.
Goal: Protecting the long term viability 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
Apendix 2: History of Claims Recovered
Appendix 3: Audited financial statements
Fund for Livestock Producers
Management's Responsibility for Financial Reporting
The accompanying financial statements and the financial information in the annual report have been prepared by management. The financial statements have been prepared in accordance with Canadian public sector accounting standards. Management is responsible for the accuracy, integrity, and objectivity of the information contained in the financial statement s . Financial information contained elsewhere in the annual report is consistent with that contained in the financial statements.
In discharging its responsibility for the integrity and fairness of the financial statements, management maintains financial and management control systems and practices designed to provide reasonable assurance that transactions are authorized, assets are safeguarded, and proper records are maintained. The systems include formal policies and procedures and an organizational structure that provides for appropriate delegation of authority and segregation of responsibilities.
The Board of Directors is responsible for ensuring that management fulfills its responsibilities for financial reporting and internal control. The Board meets regularly to oversee the financial activities of the Agency and annually reviews the financial statements.
The financial statements have been examined independently by the Office of the Auditor General on behalf of the Legislature and the Board of Directors. The independent Auditor's Report outlines the scope of the Auditor's examination and opinion on the financial statements of the Fund.
On behalf of the board:
Origainl signed by Larry Witzel, Chair
Fund for Livestock Producers
Statements of Operations and Fund Balance For the Year Ended March 31, 2015
Fund for Livestock Producers
Statement of Cash Flows For the Year Ended March 31, 2015
Please contact the liason at 519-826-4044 if you require assistance with the financial statements.
For more information:
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