Livestock Financial Protection Board business plan for the fiscal years 2017–2020

Executive Summary

The Livestock Financial Protection Board ("Board") is pleased to present its Business Plan for Fiscal Years 2017 - 2020. As a Board, we continue to focus on administering the Fund for Livestock Producers ("Fund"); adjudicating claims; granting or refusing the payment of all claims and recovering any money to which the Board is entitled. The following are the main areas of focus for the Board in the upcoming 2017/18 to 2019/20 planning horizon:

• Protecting the long term viability of the Fund;
• Strengthening Board governance and accountability;
• Ensuring that there is an adjudication process in place that is simple, fair, and accessible, which minimizes delay; and
• Developing a new Investment Plan

As Fund administrator, our ultimate goal is to ensure the long-term sustainability of the Fund. We are pleased that our investment strategies have helped the Fund weather the last nine years of unprecedented low interest rates with very minimal impact on our investment income. There is continued uncertainty in the financial markets and we continue to be in a low interest rate environment. It is projected that rates will begin to increase in the last year of 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.

As Fund administrator, our ultimate goal is to ensure the long-term sustainability of the Fund. We are pleased that our investment strategies have helped the Fund weather the last nine years of unprecedented low interest rates with very minimal impact on our investment income. There is continued uncertainty in the financial markets and we continue to be in a low interest rate environment. It is projected that rates will begin to increase in the last year of 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.

Under the new Agencies and Appointments Directive (AAD), ministries are required to complete mandate reviews of all provincial agencies at least once every seven years. A joint agency mandate review of the Grain Financial Protection Board and the Livestock Financial Protection Board was completed in May 2015. Through a document review process, a series of interviews and jurisdictional scans, the agency mandate review found:

• the mandates of the Boards are still relevant to the Ontario government's current priorities;
• the Boards have programs and strategies in place to effectively achieve their mandates; and
• the Boards have appropriate accountability and risk management practices in place.

The final report recommends the status quo be maintained (i.e. maintain two separate Board-governed trust agencies that contract with fund management and secretariat support providers) as this approach is the most effective at meeting the mandates of the Boards. The report goes on to recommend that the ministry also give consideration to the future delivery of the services by a Delegated Administrative Authority (DAA) responsible for administering the funds, adjudicating claims and licensing dealers.

The Board's key achievements for the 2016/17

• Timely adjudication of claims. The Board continues to fulfill its mandate and contribute directly to its strategic outcome by rendering decisions in a timely manner. The Board received no claims.
• Actuarially sound Fund balance. The Fund balance was $7.349M; this was $1.249M above the actuarially sound minimum balance of $6.1M
• Rate of return 3.34%. Despite the continued turmoil in the financial market, the Fund had an annual investment return of 3.34% last fiscal year. Once again, this was due mainly to the strategic investment decisions made by the Board which partially shielded the Fund from the impacts of events in the financial market. The Board's strategy provides the Fund with a lower exposure to investments in risky assets such as equities and much higher investment in fixed income investments. This investment strategy has provided annual average investment returns of just above 3.60% since 2011/12.
• Actuarial review of the Fund. In the 2014/15 fiscal year, key stakeholder groups requested that the Minister of Agriculture, Food and Rural Affairs increase the fees payable to the Board from five to ten cents per head of livestock sold. The increase was requested to address concerns with regard to increased risk to the Fund from rising cattle prices and increasing administrative costs. In July 2015, the Board procured an actuary to review the Fund. The actuarial study was completed in September 2015. A key finding was that there would be a gradual depletion of the Fund over the next 5 years, unless the fees were increased. The actuary also found that a Fund balance of approximately $6.1M would cover net claims with 95% confidence if the largest livestock sale or exposure by any one player was limited to $5.0M. Based on the findings of the study, the Board wrote to the ministry supporting the fee increase. The fee increase was approved by the Minister and became effective February 1, 2016.
• Procurement of a Delivery Agent. The previous service delivery contract expired December 31, 2015. The Board worked with the ministry to competitively procure a delivery agent to provide the Board with administrative, fund management and adjudication support. The new contract became effective January 1, 2016.

Table 1 outlines total revenues and expenditures for the previous year as well as expectations for the planning horizons.

Total Revenues and Expenditures for 2016/17

The total revenue for 2016/17 was $442,283. This included $204,805 in fees and $237,479 in interest income. Total expenses were $196,732. Revenue and expenses were in line with projections. In the 2016/17, the Board budgeted $250,000 for claims but actual net expenditures on claims were $0.

Revenue and Expenditures and Expectations for the Planning Horizon:

Total revenue for this planning horizon (2017/18 to 2019/20) is expected to increase by an average of 1.0 % year. Total expenses over the same period will increase by 1.18% in the second year of the planning horizon due to the new contract with the delivery agent.

For the 2017/18 fiscal year, the Board has estimated revenues of $548,000 this includes approximately $228,000 in fees and $280,000 in interest income. The Board has estimated expenditures of $455,299. This sum includes payment of $235,299 to determine financial responsibility of livestock dealers, fund administration, governance support, secretariat services and adjudication support plus $220,000 in claims. In the 2017-19 years, the projection is for a small increase in revenues as well as a small increase in expenses resulting in a small decrease in net revenues. Full details are further described in the budget which is a part of this report.

Program Overview/Mandate

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, (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. It is also classified as a Board-Governed Provincial Agency (Trust) under the AAD. The Board operated 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. The AAD does not specify an expiry date for the MOU, however, upon a change to one of the parties the MOU must be affirmed by all parties within six months. The Ministry proposed new MOU was approved by the Board and signed by the Board Chair in December 2016.

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:

• to administer the Fund;
• to investigate all claims made under the FPPA and to determine the extent of their validity;
• to grant or refuse the payment of claims or any part thereof and determine the amounts and manner of payment; and
• to recover any monies to which it is entitled under the FPPA by suit in a court of competent jurisdiction or otherwise.

Vision and Mission Statement:

The Board's vision is to protect the financial interests of licensed dealers and producers who have sold livestock to licensed dealers, as defined in the Program. The Board's vision supports the following OMAFRA priorities: (1) supporting the growth of the agri-food sector; (2) ensuring sustainability of agriculture; and (3) providing business support to farmers.

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.

Accountability:

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, the MOU and applicable Treasury Board/Management Board of Cabinet directives, as well as Ministry of Finance directives. Specifically, the Board is held accountable through:

• An annual report tabled in the Provincial Legislature.
• An annual business plan with performance measures submitted annually to OMAFRA.
• Annual audits of the Board's financial statements by the Office of the Auditor General of Ontario.
• A Memorandum of Understanding with the Minister.

Board Structure

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 and Vice Chair. The Minister appoints a Chair and Vice Chair of the Board from among its members.

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. The Board will work with all of these parties identified to implement the Ontario government's gender diversity targets for provincial agencies.

See Appendix 1: List of Board Members & Terms

Overview of Current and Future Programs and Activities

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.

Fund administration:

The Board is responsible for the overall governance of the Fund. The Fund is used to:

• Provide compensation to qualified sellers in the event that certain buyers default on payment.
• Offset the cost of determining financial responsibility of dealers as part of the licensing component of the Program.
• Pay Board expenses (other than for the remuneration of those of its employees who are public servants employed under Part 111 of the Public Service of Ontario Act, 2006)(1).
• Pay for professional, technical or other assistance to or on behalf of the Board.

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. O. Reg. 321/11 - Fees Payable to Boards - was amended in December 2015. The amendment increased the fee payable to the Board from five to ten cents per head. The fee increase is effective February 1, 2016, and is payable to the Board as follows:

1. In the case of a direct sale by a producer to a licensed dealer, the fee is payable by the producer.
2. In the case of a private treaty sale, the fee is payable by the licensed dealer who sells the livestock.
3. In the case of a sale by consignment, the fee is payable by each of the consignor and the consignee, each paying a separate 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. The Board of BCFPPI has representatives from the BFO, Ontario Livestock Dealers Association and Ontario Livestock Auction Markets Association.

The Board's responsibility/activities as Fund administrator includes:

• participation in the selection of the delivery agent for day to day administration of the Fund;
• establishing or approving and reviewing all policies as required;
• reviewing, at least annually, the policies and procedures in place for carrying out its responsibilities as administrator of the Fund;
• on a periodic basis, as determined by the Board, obtain reasonable assurances from BCFPPI that the control systems in place are adhered to and that there is not any material non-compliance;
• obtain reasonable assurances that the Fund is administered and invested in material compliance with the Investement Policy;
• approving payments from the Fund;
• reviewing, adopting and monitoring the strategic planning process (this includes meeting with BCFPPI to identify and discuss environmental factors and risks that can impact the Fund, and approving goals and objectives for the Fund);
• reviewing and approving the annual audited financial statements of the Fund;
• reviewing and approving the Board's operating budget;
• on a periodic basis, obtaining and reviewing a report on the Fund investment performance;
• ensuring policies and processes are in place for the identification of risks and reviewing and approving risk management strategies; and
• ensuring that an actuarial review of the Fund is conducted as required.

Fund Investment Strategy:

The Board's main objective when managing investment capital is to remain 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 Policy. The Investment Policy specifies authorized investments and indicates which instruments can be utilized for investing.

Furthermore, the Investment Policy sets out short, medium and long term investment guidelines. Currently, 54.5% of the Fund is in long term investments and 45.5% is in short and medium term investments and a minimum amount in cash. 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.

A new investment policy will be developed by the Board. In accordance with the MOU between Minister and the Board, the revised investment policy will be submitted to OMAFRA within 140 days of the signing of the MOU.

The Fund's asset mix is made up of:

Cash, short and medium term investments:

• The Fund's short term investment is one Guaranteed Investment Certificate (GIC) issued by a domestic financial institution that matures on February 16, 2018 and that earns 1.60% per annum. One GIC matures February 21, 2018 and that earns 1.30 %.
• The Fund's medium term investment is a GIC in the amount of $1,300,000 issued by a domestic financial institution with maturity date of February 19, 2019 that earns 1.46% annually.

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 is 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 investment is 54.5% of the Fund's total investments.

Since 2004, when the Board made its initial investment in real estate, the portfolio has generated an average annual return of just under 3.75%. The year prior the portfolio's yield was 3.22%. This represents an increase of $52,000 per year during a low interest environment. Interest income in 2013/14 was $245,792, and in 2014/15 it was $254,063. Interest income on these investments totaled $241,410 for 2015/16. The increase between 2013/14 and 2014/15 was due to an increase in total Funds invested. The decrease between 2014/15 and 2015/16 was a result of lower interest rates.

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. In the event of the sale or any other conveyance of all or part of the secured lands, the principal and accrued interest on the mortgage shall, at the Board's option, be immediately due and payable. In the unlikely event that a default on the mortgage occurs, as a secured, priority lender, the Board has first right on the property to recover the outstanding principal and interest costs, and any other costs incurred during the process.

Over the last seven years, the ability to invest in a high security first mortgage at 5% produced returns in excess of $52,000 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:

1. The dealer's payment becomes due.
2. All or part of the dealer's assets are placed in the hands of a receiver or of a trustee for distribution under the Bankruptcy and Insolvency Act (Canada) or the Bulk Sales Act.
3. The dealer ceases to carry on business.

For claims made in respect of a default by a producer, the claim must be made within 30 days of the date of sale. The adjudication process begins when the seller files a claim with the Board. Once the claim is received it is forwarded to the MNR to complete the investigation process. When the investigation is complete, a report is made to the Board.

The Board conducts an in-depth analysis, which may involve OMAFRA Legal Services' advice, 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.

In December 2015, the Board entered into a formal arrangement with BCFPPI for the provision of adjudication support. Because the MOU requires that licensing and adjudication be separated, this support is delivered with an ethical firewall in place between BCFPPI staff that deliver adjudication support and licensing.

The Board determines the payment, if any, to be made from the Fund.

• If the Board decides that a claim from a producer made in respect of a dealer is valid, the Board pays 95 percent of the portion of the claim that it recognizes as valid.
• 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 per cent 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 percent of the portion of the claim that it recognizes as valid

The Board has discretion to refuse payment from the Fund based on grounds set out in sections 18 and 19 of O. Reg. 560/93 - Fund for Livestock Producers. 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 section 21 of 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.

(1) 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).

Strategic Directions

The following are the main areas of focus for the Board:

• Protecting the long term viability of the Fund;
• Strengthening Board governance and accountability; and
• Ensuring that there is an adjudication process in place that is simple, fair, and accessible, with minimal delays.

The table below identifies the key strategies that will be used to achieve these goals.

The table below identifies the key strategies that will be used to achieve these goals.

Environmental Scan

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.

External Drivers

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, medium 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, however the new MOU has expanded the options allowed for investments which will result in some increase in returns for 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: here are a number of factors currently in play that could potentially lead to increased meat 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 decreased somewhat with the exit of several small packers from the industry over the last several years. Despite this, excess capacity is still a negative factor. 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 in the upcoming 2017/18 to 2019/20 planning horizon.

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 have been discussions at the BCFPPI Board and from their perspective privatization is still the preferred potion. The ministry has been informed of BCFPPI position.

Although the final report of the mandate review recommended the status quo be maintained, it went on to further recommend that the ministry also give consideration to the future delivery of the services by a Delegated Administrative Authority (DAA) responsible for administering the funds, adjudicating claims and licensing dealers. This option is supported by the BCFPPI Board and they recommend that this be implemented no later than the end of the current contract with BCFPPI.

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 in the upcoming 2017/18 to 2019/20 planning horizon can be unreliable.

Livestock Values: Canadian cattle prices were at record highs due to lower cattle inventories; however they have dropped significantly in the last two quarters of 2016 and are expected to level off in the next several quarters. These lower values have reduced considerable risk to the fund, however these reduced values have had a negative impact on the feedlot sector generating significant losses, to the extent that some of this sector are also licensed dealers could have a negative impact on the fundl

Internal Drivers

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 duties of boards continue to evolve.

Resources Needed to Meet Goals and Objectives

A new three year contract with an option for two one year renewals was entered into with BCFPPI beginning January 1, 2016. The new contract requires some additional duties than the previous contract. One key change was that BCFPPI will provide the Board with adjudication support (this support was previously provided by a third party). Under the contract, BCFPPI is required to separate adjudication support from licensing "ethical firewall". The total yearly Board cost for the new contract is $195,840 plus a daily rate for adjudication work. Of this total, determining financial responsibility costs are $163,200 and $32,640 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 retained and 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.

Financials: Proposed Operating Expenditures, Projected Revenues & Funding Requirements

The following are the three sources of income into the Fund:

• Check-off fees
• Income from investments
• Monies recovered after payment of claims

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, with Cabinet approval, began remunerating members of the Board, as permitted under the FPPA.

The Fund is actuarially sound. An actuarial study was completed by Ernst & Young in September 2015. A best practice requires a study every five years. There was an additional impetus for a study because the industry requested a fee increase and the Ministry required an actuarial study before approving the request. Several conclusions were indicated in the report:

1. The Fund has a strong financial position given its claims experience and current Fund balance.
2. A Fund balance of approximately $6.1M would cover net claims with 95% confidence if the largest livestock sale or exposure by any one player was limited to $5.0M. As of March 31, 2017, the Fund had a balance of $7.349M.
3. With the assumptions listed in the report under the base scenario as described in the report, the Fund balance would still be positive, ending at $6.1M on 31 March 2020. Under this scenario, the new increase in fees effective February 1, 2016 would be sufficient.

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:

1. Seek the assistance of the Minister to obtain a loan. The authority for this is found under:
   • Section 5(3)(b) of the FPPA (allows the Lieutenant Governor in Council to authorize the Minister of Finance to make interest free loans from the Consolidated Revenue Fund to the Board in an amount that does not exceed $250,000.00 in the aggregate); and
   • Sections 15(2), (3) and (4) of the LLPA (collectively operate to allow the Board to borrow such sums as are necessary to make payments on claims, as well as to authorize the Lieutenant Governor in Council to guarantee the payment of loans, together with interest, to a maximum of $1,000,000).
2. The Actuarial study recommended that the Board should 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. The Board will investigate and discuss with the ministry in the 2016/17 fiscal.

Financial Budget

Fund for Livestock Producers Pro Forma Balance Sheet

As at March 31, 2017 / 2018 / 2019 / 2020

* Second Quarter

The table below shows the budget to actual and the variance for 2015/16 fiscal and to the end of the 2016-17 fiscal year.

Financial Assumptions:

• Interest Rate 2015/16-3.90 %
• Interest Rate 2016/17- 4.00 %
• Interest Rate 2017/18 - 4.00%
• Interest Rate 2018/19- 4.00 %
• Claims based on a 10 Yr. Average
• Fees increased by 5 cents

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 year, 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.

Risk Identification, Assessment and Management

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. In December 17, 2015, BCFPPI was the successful bidder in a competitive procurement and will continue to provide the Board with these services. Under the new contract, a BCFPPI employee will continue to:

• act as the Board's administrator, responsible for assisting the Board in preparing its annual report, business plan and other documentation required for compliance with the MOU and the AAD; and
• provide 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.

A key change under the new contract is that a BCFPPI employee will begin to provide the Board with adjudication support (this support was previously provided under a third party arrangement). Because the MOU specifies that the person providing the adjudication support cannot be involved in licensing, an ethical firewall has been created within BCFPPI to separate these functions. Adjudication support will include but is not limited to:

• Preparing and distributing claim investigation packages for the Board;
• Scheduling hearings and drafting decision letters as directed by the Board.

The Board also has an arrangement with a third party for the provision of secretariat services. This includes:

• Attending all meetings of the Board including Hearings;
• Recording of all minutes and distributing same;
• Overseeing the effective processing and scheduling of claims;

Information Technology (IT)/Electronic Services Delivery (ESD) Plan

The Board has no IT and ESD plan for the coming year.

Proposed Capital Expenditures

The Board has no capital expenditure planned.

Implementation Plan

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.

Performance Measures and Targets

Goal: Protecting the long term viability/sustainability of the Fund for Livestock Producers

*Target changed in 2015/16 to meet the new AAD requirements for business plans.

Goal: Strengthening Board governance and accountability

(1) Target changed in 2015/16 to meet the new AAD requirements for annual reports

(2) Target changed in 2015/16 to meet the new AAD requirements for business plans

Goal: Ensuring that there is an adjudication process in place that is simple, fair, and accessible, which minimizes delays

Communication Plan

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:

• Communication to parties to a claim against the Fund directed by Board-approved protocol.
• Broad-based communication to all stakeholders as an education piece.

Key messages for directed communication

• Clearly outlines the regulations that were followed in making a decision
• Identifies section or sections of the FPPA and O. Reg. 560/93 relied on in arriving at a decision
• States that a decision is normally not made without granting a hearing in the event that the Board sees potential grounds for refusal

Key messages for broad-based communication

• Importance of dealing with licensed dealers
• Importance of following the rules and regulations when selling livestock
• The risk of having a claim denied if rules are not followed

Vehicles to communicate key messages

• A brochure titled "Ontario Beef Cattle Financial Protection Program" outlining the program and function of the Board will be distributed yearly as an insert through Beef Magazine and Dairy Magazine.
• Semi-annually, Beef Magazine carries the list of licensed dealers and the outline of the program. This publication goes to every producer in Ontario.
• A list of all licensed dealers on the web site, updated daily or whenever any changes are made. This is a function of the licensing side of the program but also supports the Board's communication strategy.
• Direct communication by letter to specific stakeholders.

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.

Respectfully Submitted

Chair, Livestock Financial Protection Board

Appendix 1: Board Members and Terms