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OECD report mirrors safety net changes

An international report on Canadian farm policy that has influenced government proposals to cut business risk management spending beginning next year argues that existing programs discourage farmers from helping themselves.

It has led defenders of the government proposals in Growing Forward 2 negotiations to characterize existing programs as “too rich” compared to other countries, crowding out private programs.

The report from the Paris-based Organization for Economic Cooperation and Development recommends, as Ottawa is proposing, that AgriStability payment triggers be lowered to kick in when incomes drop to 70 percent of historic margins rather than the current 85 percent.

A less lucrative program would be an incentive for farmers to make more effort to cover their own risks, it says.

It recommends that AgriInvest, more farmer financed and directed, be retained and expanded to cover some of the 15 percent drop in AgriStability triggers.

It suggests that governments put more effort into encouraging development of private sector risk management programs, including private insurance schemes and courses on farmer risk management.

And the OECD says the AgriRecovery disaster program should have a narrower focus that ensures its payments do not overlap with payments from other programs.

“BRM programs in Canada cover all layers of risk (and) in some cases programs overlap and target the same risk layer,” said the report. “The coverage of the set of programs is so comprehensive that it crowds out farmers’ proactive risk management strategies, even if they are designed to never provide full compensation for losses.”

When they got to recommendations, the authors of the OECD report said the “major policy challenge” is to develop policies that better target income risk.

“In most cases, this means that the government should do less rather than more and do it more simply.”

As details of government proposals for the next five-year farm policy framework have leaked out over the past two months, farm organization leaders have argued heatedly that while they are flawed, existing support programs are necessary and far from too rich.

A key Canadian adviser to the OECD report was University of Western Ontario economist David Sparling, long a critic of existing safety net programs.

The international organization sided with Sparling in arguing that existing programs are so comprehensive they do not “attempt to enhance the development of market instruments to manage risk.

They are focused on government policies that smooth the income from farming.”

And that, said the Paris-based organization representing 34 mainly developed countries, diminishes responsibility in the business risk-taking side of farming.

“The Canadian set of policies does not leave a clear layer of ‘normal’ risk out of the government responsibility and therefore it reduces the responsibility of farmers for their management of normal farming risk,” it said. “The main message to farmers is not the need of pro-active risk management strategy at the farm level.”

The report also made an innovative proposal to improve the timeliness of AgriStability payments, long one of farmers’ greatest complaints about the program that typically pays out more than a year after income declined.

Claims under the program could be tied to same-year income tax filings matched against historic margin information, offering faster compensation to offset income drops below the trigger.

“The payment would become a kind of tax credit so the farmers can better infer the amount of the payment and receive it immediately when taxes are paid,” suggested the report.

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