Livestock Financial Protection Board business plan for the fiscal years 2023–2026

Executive summary

The Livestock Financial Protection Board (“Board”) is pleased to present its business plan for fiscal years 2023-2026.  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 Board’s key commitments for 2023-2026

The following are the main areas of focus for the Board in the 2023 to 2026 planning horizon:

• Timely adjudication of claims. The Board’s goal is to continue to fulfill its mandate and contribute directly to its strategic outcome to investigate and adjudicate claims in a fair and equitable manner and to grant, refuse and recover claim payments under the under the Farm Products Payments Act (FPPA) as appropriate;
• Actuarially sound Fund balance. The Board will continue to administer the Fund in a sound manner to ensure the long-term sustainability of the Fund. In 2021-22 the Fund balance was $8.94M.
• Continue to strengthen Board governance and accountability;
• Work collaboratively with the ministry to make recommendations for vacant board member positions; and
• Continue to support the ministry’s review of the Financial Protection Programs (FPP) review (Beef Cattle Financial Protection Program and the Grain Financial Protection Program) to ensure it is aligned with current agricultural risk management landscape and sector trends.

Our goal is to ensure the long-term sustainability of the Fund. We are pleased that our investment strategies have helped the Fund, considering the unprecedented low interest rates from March 2020 to March 2022. While interest rates are rising in the short term, there is an inverted investment curve at present indicating lower rates for longer terms (i.e.: 3-5 year terms). The Board will continue to assess the potential impact of different financial market scenarios and make adjustments to its investment strategy as required.

Ontario’s 2019 budget committed the government to a review of the FPP to ensure that beef cattle (and grain) producers have access to stable risk management tools that provide the confidence to invest and grow their businesses. The ministry is currently leading this program review of the FPP and has engaged the Board and industry stakeholders in these discussions. Input and feedback from the consultations continues to be an important part of the review process. These discussions began in 2019 and the ministry completed consultations in 2021 regarding proposed legislative changes based on feedback received from the Board and stakeholders. OMAFRA is finalizing next steps and will keep the Board and stakeholders informed on the status.

These discussions began in 2019 and were put on-hold for most of 2020 due to COVID-19. They resumed in the early 2021 and the ministry is working on a comprehensive package of legislative changes based on feedback received from the Board and stakeholders. OMAFRA’s Farm Finance Branch (FFB) is the lead and is keeping the Board and stakeholders informed on the status. The Board continues to support the ministry’s review of the FPP by participating in consultations which are used to inform the development of potential changes and how these potential changes may impact to the Fund. 

As with all boards, succession planning and continuity of membership is a very important part of mitigating risks and ensuring the Board is able to meet its mandate.

The Board continues to work collaboratively with the ministry on appointing members to the Board. The existing Vice-Chair was appointed as Chair to the Board and an existing member was appointed as Vice Chair to the Board upon being recommended by the Board to the Minister for appointment for a 3-year term. This will ensure continuity within the Board in the event of member turnover as it is important to have members on the Board with the history and background to meet our mandate. One new member was also appointed for a 3-year term effective February 3, 2023.

Revenue and expenditures for 2023-2026

The financial audit of the 2021-22 fiscal year was completed in December 2022 with an unqualified opinion. The Fund is meeting the minimum target balance as outlined in the 2016 actuarial report. Total revenue for 2021-22 was $$469,953 (excluding claim recovery) and total expenses were $204,608 (excluding claims paid).

Revenue

The following are the two sources of revenue into the Fund:

• The first is in the form of check-off fees that are owed on a per head of livestock sold basis. Contributions to the Fund are mandatory and is based on a fixed rate per head of livestock in a transaction. Currently this is 10 cents per head which is payable to the Board and deposited into a Fund that the Board manages.
• The second source of revenue is from investment interest earned on the balance of the Fund. Investment income is currently the greater source of revenue and an important source of revenue for the Fund.

Investment returns

In fiscal 2023, the Bank of Canada has successively increased its policy rate commencing March 2022 from 0.25% to the present rate of 4.5% effective January 25, 2023. This has resulted in a rapid increase in interest rates throughout the fiscal year, increasing interest income on cash balances as well as increased returns on investments made during fiscal 2023. While interest rates are rising in the short term, there is an inverted investment curve at present indicating lower rates for longer terms (i.e. 3 to 5 years). This anticipated decline results in a slight decrease to expected returns for fiscal 2026. As interest rates have begun to strengthen, and through the laddering of investments to reduce the influence of interest changes to maximize returns, overall returns for the next three years are expected to increase over current year returns.

The Board also has an investment policy that outlines general investment goals and objectives of the Board and describes the strategies for investment of the Fund.

Monies recovered after payment of claims

The Farm Products Payments Act (FPPA) enables the Board to attempt to recover any money to which the Board is entitled through a court action or otherwise. The Board, through legal counsel and the Director under the Livestock and Livestock Products Payments Act (LLPA), work to recover money owed to the Fund. The Board makes every reasonable attempt to recover monies that is owed to the Fund. Its objectives are to recover as much outstanding debt as is reasonably achievable using a variety of tools and options.

Total revenue for this planning horizon is expected to remain relatively the same as in previous years.

Expenses

Minister Regulation

Effective January 1, 2020, as part of the new Minister’s regulation (O. Reg 467/19) made under the FPPA, the Board and industry has been required to pay for all expenses relating to the administration of both the FPPA (expenses related to fund management and claims adjudication) and the LLPA (expenses relating to licencing and enforcement). As well under that regulation, effective April 1, 2020, the Board also began to pay investigative and some legal costs under the FPPA. This change resulted in an increase in Board expenses as of January 1^st (2019-20 fiscal year and onward) in the budget. Prior to the regulation being made effective, the Board paid the costs related to: administering the financial protection Fund; adjudication and payment of claims; and recoveries; and paid a portion of the costs of determining the financial responsibility of dealers (part of licensing). The Board is not required to pay expenses related to judicial reviews of its decisions or expenses related to any subsequent appeals under the FPPA. The Board is also not required to pay expenses related to appeals, judicial reviews, prosecutions and legal fees with respect to the LLPA. Although the Board is required to pay all administrative program expenses with respect to the LLPA, they have no authority for licencing and enforcement under this Act.

Transition of Program activities from OMAFRA to Agricorp

Since January 2019, Agricorp has been delivering certain aspect of the Beef Cattle Financial Protection Program (Program). There were certain aspects that needed to be transitioned from OMAFRA’s Animal Health and Welfare Branch (AHWB) to Agricorp. As part of the Program delivery, Agricorp and OMAFRA had a phased approach to transition the Program services that were provided by OMAFRA’s AHWB to Agricorp (i.e.: administrative tasks for licensing: development, distribution and capture of renewals; key communications channels: web site and list of licensed dealers; compliance/enforcement; inspections; and Program oversight including the Minister appointing an Agricorp employee to the Director under the LLPA). Both parties collaborated on processes during these phases. The transition work was paused in 2020 as Agricorp and OMAFRA staff focused their efforts on supporting the government’s and Agricorp’s COVID-19 response but resumed in 2021-22. Implementation of the Program transition occurred in 2021-22 and 2022-23 fiscal years and is now complete. Effective April 1, 2022, Agricorp’s Senior Director, Program Delivery was appointed by the Minister as the Director under the LLPA with authority for licensing. Prior to this, OMAFRA’s Director in AHWB was appointed the Director under the LLPA. Costs incurred by AHWB from 2019 to 2021 for their administrative activities for licensing, inspection and Program oversight were not included in the Program administration expenses since these were being covered by OMAFRA. Now that these activities have transitioned to Agricorp, theses services will be expensed to the Program/ Board (previously being covered by OMAFRA). The one-time costs to transition the remaining Program activities to Agricorp was billed to the Board, which is reflected in expenses for 2021-22 and 2022-23 fiscal years.

Actuarial review

In 2021-22 fiscal, the Board conducted an actuarial review. It is a good governance practice to complete a review approximately every five years. This initiative involved a third-party independent vendor to determine how potential claim payments and/or expenditures may impact the Fund. Given the changes in the cost-share model that occurred in 2020 and the increased program delivery costs coming out of the Fund, 2021-22 fiscal was a good time for an actuarial review to examine any impact to the Fund. The last review occurred in 2015-16 fiscal. The Board reviews and monitors the soundness of the Fund on an annual basis and reviewed the results from this actuarial review in March 2022. The results indicated that the Fund is highly dependent upon revenue (check-off fees and investment income). The target surplus position is decreasing over time which indicates that the funding is insufficient and recommends the check-off fee be increased in the near future to ensure this Fund remains solvent. The Board discussed these recommendations with stakeholders on December 8, 2022 and are seeking letters of support from stakeholders to move forward and respectfully recommend to the Minister a change in the check-off fees. The Minister has the authority to set the check-off fee under the LLPA. The Board will continue to monitor the Fund against the target levels to ensure they are growing or maintained at an appropriate level.

The cost for the actuarial review was included as an expense in the budget for 2021-22 fiscal year. It is assumed that the next actuarial review would be planned for the 2026-27 fiscal year.

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

Mandate

The Board’s legislative mandate is set out in subsection 4 (1) of the FPPA as:

It is the function of a board and it has power,

1. To administer its fund;
2. To investigate all claims made to it under this Act and to determine the extent of their validity;
3. To grant or refuse the payment of claims or any part thereof and determine the amounts and manner of payment;
4. To recover any money to which it is entitled under this Act by suit in a court of competent jurisdiction or otherwise; and
5. To carry out the functions, and exercise the powers, prescribed by regulation.

The Board’s vision is to protect the financial interests of licensed dealers and producers who have sold livestock to licensed dealers. The Board’s vision supports OMAFRA priorities of a thriving agri-food sector and rural communities seizing economic opportunities.

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 as it helps livestock sellers to manage risks beyond their control (i.e. default by a licensed dealer). 

The mission of the Board is to ensure the long-term sustainability of the Fund by promoting sound investment practices and good governance for the benefit of 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.

Governance

The Livestock Financial Protection Board is classified as a Board-Governed Provincial Agency (Trust) under the Agencies & Appointments Directive (AAD).

The Board operates at arm’s-length from the Government but is accountable to the Minister of Agriculture, Food and Rural Affairs (the Minister) in exercising its mandate.  The Agency is accountable to the Minister, through the Chair, for its internal governance; and for setting its goals, objectives and strategic direction. The Board operates under the authority of the FPPA, in accordance with the Memorandum of Understanding (MOU) between the Minister and the Chair, and under the regulations made under that Act:

• Ontario Regulations 560/93 – Fund for Livestock Producers;
• Ontario Regulation 321/11 – Fees Payable to Boards; and
• Ontario Regulation 467/19 – Boards’ Payment of Expenses.

Memorandum of Understanding (MOU)

A MOU reflects the relationship between the Board and OMAFRA and establishes the accountability framework between the Minister and the Chair. The MOU outlines the responsibilities between the Minister, the Chair, the Deputy Minister and the Board members as well the administrative, financial, and auditing arrangements with OMAFRA.

Effective August 30, 2022, the Board Chair and Minister affirmed the continued use of the existing MOU (that was effective June 5, 2017). The MOU is effective until it is revoked or the parties sign a new MOU. 

Board structure

The Board is comprised of members as appointed by the Minister for terms of up to three years. Members are eligible for reappointment. The Minister also has the authority to appoint a member of the Board as Chair and another as Vice-Chair.

Amendments to O. Reg. 560/93 - Fund for Livestock Producers became effective January 1, 2020. These removed quorum requirements from the regulation and ensured the Board composition better reflects the needs of the sector. As well, the requirement that the Canadian Meat Council (CMC) be represented by a member was removed. The regulation outlines that the Board shall be composed of at least five (5) members consisting of one member representing each of the Beef Farmers of Ontario (BFO) and the operators of community sales under the Livestock Community Sales Act; and such other members as the Minister considers advisable. By convention, there has also been one member from the Ontario Livestock Dealers Association (OLDA), one member from the Meat & Poultry Ontario (formerly the Ontario Independent Meat Processors), one member from the Veal Farmers of Ontario (VFO), one member from the Dairy Farmers of Ontario (DFO) and an additional member from the BFO.

The Board typically meets quarterly, or as required by business demands (e.g.: to review and adjudicate claims). Currently the Board has seven members, including the Chair and Vice Chair.

Mandate letter from Minister

As part of the AAD, the Minister issues an agency mandate letter to the Chairs of all board-governed agencies on an annual basis to inform their business plan. The Board Chair received the mandate letter from the Minister which outlines high-level expectations for 2023-24 fiscal year (see Appendix 3). The Board has aligned its priorities and strategic approach to support the Minister’s mandate as follows:

• Ensure long-term sustainability and effective oversight, risk management and expenditure management of the Fund.
• Ensure the maintenance of an effective system of internal controls and compliance with applicable requirements to promote transparency and accountability (i.e.: oversight of controls to ensure efficiency and sustainability).
• Continue to measure the performance of the Fund for Livestock Producers against established targets and have an established investment policy that is reviewed annually to ensure long-term sustainability of the Fund, and communicate/ report the Fund performance with stakeholders.
• Continue to investigate and adjudicate claims in a fair and equitable manner.
• Continue to engage with the Ministry’s review of the Financial Protection Programs and the implementation of actions recommended through the review.
• Use the Board’s expertise to support government priorities to modernize program delivery and food sector innovation.

These will be measured and addressed as follows:

• Ensure the processing of claims is completed fairly and with minimal delays.
• Annually review the performance of the Fund against established targets and communicate the Board’s annual audited financials and annual report to stakeholders following Minister’s approval of the annual report.
• Effective oversight, risk management and expenditure management of the Fund (e.g. use tactics such as an actuarial review; annual agency attestation).
• Work with OMAFRA to support the review of the Financial Protection Programs and to identify opportunities to ensure that livestock producers and dealers have access to stable risk management tools.
• Meet all AAD provisions and requirements (i.e. agency attestation).

Overview of current and future programs and activities

The following describes the Program, the Fund and the role of the Board within the Program:

Ontario Beef Cattle Financial Protection Program

The 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:

1. The annual licensing of dealers under the LLPA, and
2. The administration of the compensation Fund established under the FPPA.

Since January 1, 2019, most aspects of the Program had been delivered by Agricorp. Previously, Beef Inc. was under contract with the Ministry to assist in administering the licensing support services component of the Program and also under contract with the Board to provide governance and secretariat and fund management services for the Board. There were certain aspects that needed to be transitioned from OMAFRA’s AHWB to Agricorp. Implementation of the Program transition occurred in 2021-22 and 2022-23 fiscal years and is now complete. Effective April 1, 2022, Agricorp’s Senior Director, Program Delivery was appointed by the Minister as the Director under the LLPA with authority for licensing. Prior to this, OMAFRA’s Director in AHWB was appointed the Director under the LLPA.

Fund administration

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

• Provide compensation to qualified sellers in the event that certain buyers default on their payment obligation (i.e. pay approved claims, under O. Reg. 560/93);
• Pay all expenses relating to the administration costs of the licensing of dealers under the LLPA effective January 1, 2020 (except expenses related to appeals to the Agriculture, Food and Rural Affairs Appeal Tribunal; judicial reviews or expenses related to any subsequent appeals under the LLPA; and expenses incurred by the ministry to administer the LLPA);
• Pay for investigation and legal fees associated with the adjudication of claims;
• Pay for professional, technical or other assistance to or on behalf of the Board (e.g. actuarial review).

The Fund is not used for Board remuneration (i.e.: board member per diems, travel and meal expenditures) as this is provided by the Ministry as board members are employees who are public servants employed under Part III of the Public Service of Ontario Act, 2006.

All money to which the Board is entitled is paid into the Fund. Contribution to the Fund are 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 was effective February 1, 2016, and is payable to the Board as follows:

• In the case of a direct sale by a producer to a licensed dealer, the fee is payable by the producer.
• In the case of a private treaty sale, the fee is payable by the licensed dealer who sells the livestock.
• In the case of a sale by consignment, the consignor and the consignee each pay 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 annually.

The Board is the administrator of the Fund and is ultimately responsible for its management and administration. The Board’s main activities are to manage the Fund effectively and prepare for claims when they occur.

The Board does not administer any other program and no new programs are being considered for the 2023-2026 timeframe.  

Fund investment strategy

Investment income is one important source of revenue for the Fund.  As such, the Fund is structured and managed to provide a maximum rate of investment return while assuming a low risk tolerance. The Board continues to ensure that the Fund is invested in financial instruments that are consistent with the Trustee Act provisions referenced in the MOU and the Board’s investment policy. 

The Board’s asset mix currently includes investments that guarantee face value at redemption; generally this includes Guaranteed Investment Certificates (GIC) issued by financial institutions or similar financial instruments. Considering the unprecedented low interest rates from March 2020 to March 2022, reinvestments were made at lower rates than previous holdings. In fiscal 2023, there has been a rapid increase in interest rates throughout the fiscal year, allowing the Board to capitalize on higher interest rates increasing interest income. While interest rates are rising in the short term, there is an inverted investment curve at present indicating lower rates for longer terms (i.e.: 3 to 5 year terms). This anticipated decline results in a slight decrease to expected returns for fiscal 2026.

The Fund has issued a $4 million first mortgage on development land in the Regional Municipality of Waterloo with Activa Holdings Inc. This investment was set to mature December 10, 2022 and the parties agreed to extend the mortgage agreement at a rate of 6% for up to a 4 year term and maturing December 10, 2026 (previously 5%). 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.

The Board will continue to assess the potential impact of different financial market scenarios and make adjustments to its investment strategy as required.

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 potential compensation will be considered by the Board if it involves a producer selling to a dealer, a licensed dealer selling to a producer or a licensed dealer selling to another licensed dealer. 

A claim application can be made if a seller has not been paid according to the timelines in the regulations.

The claim adjudication process begins when the seller files a claim application with the Board. Once the claim application is received the Board may choose to seek investigation services from OMAFRA’s Regulatory Compliance Unit (RCU) to complete an investigation into the claim. When the investigation is complete, a report is made and presented 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.

The Board determines the payment, if any, to be made from the Fund. The rules governing the amount of payment from the Fund are set out in sections 20 and 21 of O. Reg. 560/93. 

• 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 to dealers and producers based on grounds set out in sections 18 and 19 respectively 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.

In March 2022 (2021-22 fiscal) there was one claim application the Board sent for investigation. The claim was approved on March 30, 2022 and $107,617.33 was paid. There were no claims sent for investigation in 2022-23.

Strategic direction

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

Resources needed to meet objectives of mandate and strategic directions

The Board does not have staff. All resources are provided through a service agreement or as agreed to in the MOU between the Board and the Minister. 

Resources, services, and support provided to the Board

Since January 2019, the Board entered into a service agreement with Agricorp to provide governance, secretariat and financial services to the Board, in addition to adjudication support, including drafting correspondence as directed. Agricorp provides the day-to-day administrative functions of the Fund; however, the Board is ultimately responsible for the oversight and management of the Fund. Key aspects of Agricorp’s role are to receive and deposit fees; prepare monthly, quarterly and annual financial statements; prepare documentation for annual audits; and prepare annual reports and annual business plans for Board approval, as well as investment of the Fund as outlined in the Board’s Investment policy. 

A service agreement for these services was signed in 2019-20 fiscal year for a three-year term and was extended in 2022-23 for an additional one year term. It is set to expire March 31, 2023. OMAFRA, Agricorp and the Board are collaborating and discussing a revised delivery agreement and there is opportunity to include the governance secretariat services that are provided to the Board into the program agreement making it efficient to have all services and activities all in one agreement.

Staff that provide support to the Board have no role in the licensing and inspection components of the program. These functions are separate to avoid any perception of a possible conflict of interest in adjudicating the claims that arise from a dealer’s default in payment, while protecting the integrity of the Program.

Additional support services to the Board

The Board has additional support available for legal counsel and the investigation of claims.

• Investigative services are provided by the Regulatory Compliance Unit (RCU) within OMAFRA’s Food Safety Systems Development Branch; and
• Legal services are are provided by OMAFRA through the Ministry of the Attorney General through the Legal Services Branch.

Effective April 1, 2020 as part of the new Minister’s regulation (O. Reg. 467/19) under the FPPA, most of these costs will be paid for by the Board (previously they were covered by the Ministry).

At this time the Board is not considering other service providers for these services and will engage the ministry if a change is contemplated so that consideration can be given to the broader implications for the Program and the ministry from a risk management perspective.

Environmental scan

The environmental scan seeks to provide a picture of the environment in which the Board is operating and the key factors that could impact the Board and/or the health of the Fund through the upcoming planning and cycles. The challenges and risks faced by the Board have remained similar over the past few 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 and interest risks:  Investment income is an important source of revenue for the Board to cover projected expenses and claims. 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. 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 to ensure that the Fund is invested in high quality investments that are consistent with the Trustee Act provisions referenced in the MOU and the Board’s investment policy. 

Livestock values: Canadian cattle prices were at record highs. These high commodity prices for cattle may impact the Fund if claims are approved to be paid out at these high commodity prices as it is a larger payout.

Packer rationalization/exit: There are a number of factors that could potentially lead to increased meat packer rationalization and exit from the marketplace. 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 planning horizon.

Policy/legislative change by the Ontario government: The Minister has responsibility for the legislation governing the Program. The Board established under the FPPA is subject to the risk of a legislation change by the government.

As part of the April 2019 provincial budget announcement there was commitment from the government to a review of the financial protection programs to ensure that beef cattle (and grain) producers have access to stable risk management tools that provide the confidence to invest in and grow their businesses. The ministry is currently leading this program review and will engage the Board and grain industry/ stakeholders in these discussions. These discussions began in 2019 and the ministry completed consultations in 2021 regarding proposed legislative changes based on feedback received from the Board and stakeholders. OMAFRA is finalizing next steps and will keep the Board and stakeholders informed on the status.

Fund balance and unpredictability of claims: The Fund dropping below the actuarially sound level or becoming depleted because of an unusually large claim(s) is another external driver identified by the Board. This risk could negatively impact the Board’s ability to deliver financial protection to livestock sellers. 

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 2023-2026 planning horizon can be unreliable.

The results from the actuarial review conducted in 2021-22 fiscal year indicated that the surplus position is decreasing where the check-off fee remains at 10 cents per head. It was recommended that in order to maintain a stable Fund surplus position an increase in check-off fees would be required. The Board presented and discussed the actuarial review results to stakeholders in December 2022 and recommended an increase in the check-off fee. Stakeholders are discussing this recommendation and will respond to the Board and/or Minister by February 2023. A change to the check-off fee would require Minister approval. The Board will continue to monitor the Fund against the target levels to ensure they are growing or maintained at an appropriate level.

Internal drivers

Board knowledge management and succession planning: Succession planning and creating continuity on the Board are given consideration when the expiry date of members’ terms are approaching to help minimize the loss of experience and knowledge during transition periods. To minimize the loss of experience and knowledge, the Board has asked that appointments be staggered.

Governance and accountability requirements: There is an increasing focus and scrutiny of both private and public sector organizations which has resulted in increasing demands for accountability 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, if any, continue to evolve. 

Financial budget

The estimated revenues and expenses for the next three years are provided in Table 1 (below). The Board is subject to an annual audit by the Office of the Auditor General of Ontario.

Projected Board revenue

Check-off fees

Contribution to the Fund are mandatory and is based on a fixed rate per head of livestock in a transaction. Currently the 10 cents per head check-off fee is payable to the Board and deposited into the Fund that the Board manages.

The 2021-22 actuarial review recommends the check-off fee increase in the near future. The Board discussed this recommendation with stakeholders on December 8, 2022 and are seeking letters of support from stakeholders to move forward and respectfully recommend to the Minister a change in the check-off fee. For out-year planning purposes, the Board is not assuming an increase in the check-off fees at this time as the Board will recommend an increase to the Minister who has the authority to set these check-off fees under the LLPA.

Investment interest

In fiscal 2023, the Bank of Canada has successively increased its policy rate commencing March 2022. This has resulted in a rapid increase in interest rates throughout the fiscal year (compared to record lows from March 2020 to March 2022), increasing interest income on cash balances as well as increased returns on investments made during fiscal 2023. While interest rates are rising in the short term, there is an inverted investment curve at present indicating lower rates for longer terms (i.e. 3 to 5 years). This anticipated decline results in a slight decrease to expected returns for fiscal 2026.

Projected Board expenses

Professional, technical or other assistance to the Board (i.e.: actuarial review):

In 2021-22 fiscal, the Board conducted an actuarial review. This cost is included in the expenses. It’s a good governance practice to complete a review approximately every five years (the last review occurred in 2015-16 fiscal). The next actuarial review is planned for the 2026-27 fiscal year.

Governance, Secretariat and Financial Support Services

In addition to paying approved claims, under O. Reg. 467/19 the Board is also authorized to use the Fund to pay for all expenses to administer the FPPA, including governance, secretariat and financial support services. The Board currently has a contract with Agricorp for these administrative services to the Board. The Board’s budget is set for potential contingency that may occur (e.g. claims, new directives, investment changes, policy updates).

Determining Financial Responsibility/ Licensing and Enforcement

Effective January 1, 2020 the Board is responsible to pay for all expenses relating to the administration costs of the licensing of dealers under the LLPA (except expenses related to appeals to the Agriculture, Food and Rural Affairs Appeal Tribunal; judicial reviews or expenses related to any subsequent appeals under the LLPA; and expenses incurred by the ministry to administer the LLPA). The budget for 2023-26 reflects this.

Board Legal Services and Investigation

Effective April 1, 2020, the Board pays the costs for most legal services associated with the administration of the FPPA and investigative costs. The Board is not required to pay expenses related to judicial reviews of its decision. Legal services also reviews any board agreements, governance documents and provides any other legal advice as requested. This is an expense reflected in the Board’s financials for 2020-21 onward. The Board budgets for legal and investigative services with the assumption that there are claims to adjudicate that would require legal and investigative services. The budget is set to allow for this potential contingency that may occur.

Claim Payments

All claim payments are paid from the Fund. The total cost depends on the number and complexity of the claims received by the Board and the amount of payments on approved claims. While claims have been infrequent the last couple of years, the Board still sets this assumption for budget purposes that claims are paid from the Fund annually based on their mandate to ensure the Fund is actuarial sound to pay claims.  From 2020 to 2023 for budgeting purposes an average of the last 10 year history paid from the Fund was the assumption used for the budget. The 2021-22 actuarial review determined a claim severity of $377,000 which is higher than the previous claim payment expense used for budgeting purposes. This is a result of the increased commodity prices and that potential claim payments to be paid out would be larger than the average from 10 years ago. For 2024 to 2026 fiscal years out -year projections, the Board is using the assumption that claims paid out of the fund if $377,000 per fiscal.

Proposed capital expenditures

The Board does not have any capital expenditures planned for 2023-2026.

Table 1: Financial table - expenditure and revenue

The table below shows the budget, actual revenue and expenditures for 2021-22 and 2022-23 fiscal year as well out-year planning budgets from 2023-2026.

Financial Assumptions/ notes:

^[1]  Budget amount for check-off fees is based on a 10-year average of fees received.

² For budget purposes, the following rate return on investment were/ are projected:

• 2021-22 and 2022-23: 1.5%; and
• 2023-24 to 2025-26: 5%.

³ Actuarial review was completed in 2021-22 (previously occurred in 2015-16 fiscal). The review is completed approx. every 5 years and the next review will be planned for approx. the 2026-27 fiscal year.

⁴ Effective April 1, 2020 the Board is responsible to pay for most legal services and for investigative services.

⁵ The determining financial responsibility/ licencing & enforcement actual expenses for 2021-22 and 2022-23 includes the one-time implementation cost to transition costs the remaining Program activities from OMAFRA to Agricorp.

⁶ These numbers represent the actuals from the first three quarters of 2022-23 and a forecast for quarter four.

Initiatives involving third parties

Approximately every 5 years, the Board conducts an actuarial review, an initiative that involves a third-party vendor, to determine how potential claim payments and other factors may impact the Fund. An actuarial review was conducted in 2021-22 fiscal (previously review completed in 2015-16 fiscal). The next review will be approximately the 2026-27 fiscal year. As an agency of the government, the Board adheres to the OPS Procurement Directive when making any purchases for goods or services from a third-party vendor.

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

The Board currently has no IT and ESD plan for the coming year through to 2026. All Information Technology support is provided by Agricorp through the maintenance of ready access and secure storage of documents developed and received on behalf of the Board. The mandate of the Board does not require Electronic Service Delivery.

Performance measures and targets

The following indicators define the outcomes the Board is committed to achieving. These indicators are the basis for measuring and evaluating impact.

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.

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 business objectives are met. 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 there are changes needed.

Communication plan

Annually, the Board will inform the stakeholders of the status of the Fund by providing them with a copy of the Board’s audited financial statements and annual report when available. 

Schedule C of the MOU between the Board and the ministry outlines the communication plan that the Board will follow.  

The Board’s target audiences are the stakeholders, producers and licensed dealers.  The main interface the Board has with their target audience occurs when they come before the Board regarding a claim.  The outcome of that process will dictate the response by the Board and the stakeholder. 

Board communications occur at two levels:

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

Key messages for directed communications

• 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 or providing an opportunity for further submissions 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

• In the event of a claim, the Board will advise each claimant and the buyer via letter on the outcome of their claim.
• The Minister will consult with the Chair, as appropriate, when significant new directions for the Board are contemplated. The Deputy Minister will meet with the Chair, as necessary, to discuss matters of mutual importance to the Board and OMAFRA.
• Program information and a list of all licensed cattle dealers are available on the Ministry website which is updated daily. This is a function of the licensing side of the Program but also supports the Board’s communication strategy.

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.

Actuarial review report from 2021-22

In November 2022, the Board provided stakeholders with a copy of the full actuarial review report as prepared by an independent third-party vendor. The Board also invited stakeholders to meet with the Board on December 8, 2022 for a half-day engagement session where a summary of the actuarial review results and recommendations were presented and discussed.

The Board is engaging stakeholders and OMAFRA on the recommendations for further discussion.

Appendix 1: Board Appointees (as of March 1, 2023)

Appendix 2: History of claims (as of March 1, 2023)

(Some of the numbers below may be rounded to the nearest dollar and does not include 2022-23 fiscal).

Appendix 3: Ministers mandate letter for 2023-24 fiscal

Paul Sharpe
Chair, Livestock Financial Protection Board
7653 Guelph Nichol Townline
Guelph, ON N1H 6J2

Dear Mr. Sharpe,

I am pleased to share our government’s 2023-24 priorities for the Livestock Financial Protection Board (LFPB). As Chair, you play a vital role in helping the LFPB achieve its mandate. It is important that your agency’s goals, objectives, and strategic direction continue to align with our government’s priorities and direction. As part of the government of Ontario, agencies are expected to act in the best interests of the people of Ontario and ensure that they provide value for money to taxpayers. Agencies are also required to adhere to government policies and directives.

Per the requirements of the Agencies and Appointments Directive, this letter sets out my expectations for the LFPB for 2023-24. These priorities include:

Competitiveness, sustainability and expenditure managemen

• Identifying efficiencies and savings through innovative practices, and/or improved program sustainability.
• Operating within the agency’s financial allocations.

Transparency and accountability

• Abiding by applicable government directives and policies and ensuring transparency and accountability in reporting.
• Adhering to accounting standards and practices, and responding to audit findings, where applicable.
• Identifying appropriate skills, knowledge and experience needed to effectively support the board’s role in agency governance and accountability. 

Risk management

• Developing and implementing an effective process for the identification, assessment, and mitigation of agency risks, including any future emergency risks. 

Diversity and inclusion

• Developing and encouraging diversity and inclusion initiatives by promoting an equitable, inclusive, accessible, anti-racist and diverse work environment.
• Adopting an inclusive process to stakeholder engagement to ensure all voices are heard to inform policies and decision-making.

Data collection

• Improving how the agency collects and uses data in decision-making, information sharing and reporting, to inform outcome-based reporting and improve service delivery.

Digital delivery and customer service

• Exploring and implementing digitization for online service delivery to ensure customer service standards are met.
• Using a variety of approaches or tools to ensure service delivery in all situations, including pursuing delivery methods that have evolved since Covid-19.

I am also sharing several priorities specific to the LFPB:

1. Ensuring that a strategic focus on the financial soundness of the Fund for Livestock Producers is prioritized including using the results of the recently completed actuarial report to guide your sustainability strategies, and providing ongoing oversight of AgriCorp as it pertains to its role in managing assets LFPB is accountable for.
2. Ensuring the maintenance of an effective system of internal controls and compliance with applicable requirements to promote transparency and accountability. This includes effective oversight of expense management and controls to ensure efficiency and sustainability.
3. Measuring and communicating to stakeholders the performance of the Fund for Livestock Producers against established targets and have an established investment policy that is reviewed annually to ensure the long-term sustainability of the Fund.
4. Continuing to investigate and adjudicate all claims in a fair, equitable and timely manner with a focus on reducing burden and improving the customer service experience. I expect the Board to make decisions on claims based on prudent and consistent adherence to established operational procedures, as well as effective customer service in supporting Ontario farmers with the processing of claims and ensuring that the adjudication process is fair and has minimal delays.
5. Continuing to engage with the ministry, as needed, to support the implementation of recommendations made through the review of the Financial Protection Programs to update/modernize Board governance/powers and procedures, among other things.

Supporting government priorities to modernize program delivery and drive agrifood sector innovation and resilience by using these lenses to inform the board’s operational decisions and supporting ministry policy-development, as required, by leveraging the industry knowledge/expertise of its members.

I look forward to hearing how these priorities will be reflected in the agency’s upcoming business plan and in ongoing agency operations.

Thank you and your fellow board members for your continued commitment to the LFPB. Your work and ongoing support is invaluable to me and the people of Ontario.

Should you have any questions, please feel free to contact my office or David Hagarty, Assistant Deputy Minister, Policy Division.

Sincerely,

Lisa M. Thompson
Minister of Agriculture, Food and Rural Affairs

cc: David Hagarty, Assistant Deputy Minister, Policy Division