Ag policy seen as bigger risk than farm debt

Policy, particularly that from south of the border, is the biggest risk Canadian farmers face right now, says an agricultural economist from the University of Guelph.

Alan Ker from the Institute for Advanced Study of Food and Agricultural Policy told the House of Commons agriculture committee’s study on farm debt that although debt is large, it isn’t a significant risk because assets are far larger.

“That said, the complexity of managing debt rises as risk increases, and I expect risk to increase in the future,” he said.

Risks include production, price, exchange rate and interest rates. Policy changes can dramatically affect producers’ income and their ability to meet debt obligations. It can also quickly change the value of assets.

Ker said policy risk will remain high in the short to medium term.

“Currently, policy risk is at the forefront, given rhetoric regarding a NAFTA renegotiation and component pricing and supply management,” Ker said, referring to U.S. President Donald Trump’s comments.

“Sometimes rhetoric turns into reality, as in the case of the softwood lumber countervailing duty. As an agriculture sector that depends heavily on trade or protection from trade, policy is perhaps the biggest risk facing Canadian producers right now.”

He said farmers can mitigate risk for some things, such as hedging to protect prices, but there isn’t much they can do to prepare for policies that may or may not open or close borders to certain products.

The best protection is to be financially stable and better able to handle what comes, particularly with such uncertainty in the United States right now.

“If I was a producer, the thing I would be most concerned about is with our borders and whether they’re going to be maintained or not.”

As Canada’s agriculture ministers and officials work on the next agricultural policy framework, Ker said the existing business risk management programs could be better at reducing price risk and protecting from policy shocks.

He said that could provide additional stabilization and reduce vulnerability when it comes to making debt payments.

“I almost think they could come in with more of a gross revenue insurance product like in the U.S. It might better serve producers.”

Ker also said that because money is an issue for all governments right now, they could institute co-insurance in some business risk management programs.

“Right now there is no co-insurance component and that’s just standard good practice in insurance markets,” he said.

Co-insurance ensures that producers take on-farm action to mitigate risk because they are responsible to absorb some of the loss. AgriStability is one program that does incorporate co-insurance.

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