Steps to de-risk agriculture have side-effects

In times of dropping farm incomes, the natural tendency for farmers and farm groups is to call for government assistance. What many fail to realize is that de-risking agriculture is not simple and it can have unintended side-effects.

Ask any group of grain farmers about the problems they face and the list will likely include weather issues, low commodity prices, high input costs, lack of government support and high land costs. Take a look at that list and see which concern doesn’t fit with the others.

High land costs, whether for purchase or for rent, are largely a factor of the strong profitability the grain industry has enjoyed for the past decade. Coupled with that are the government programs that remove a great deal of downside risk, the main one being crop insurance.

In most of Western Canada, land prices have escalated due to strong grain prices and low interest rates.

Now we could be heading into some tougher years, and already the calls are increasing for governments to do more.

In response to the canola-China crisis, the cash advance program has been enhanced particularly for canola producers. Interest-free money is nice, but if it convinces producers to store canola when they should be pricing it, these loans may be counterproductive.

Still, it’s a reasonable response to the issue and it’s what the industry asked for.

Crop Insurance payments could be huge this year, particularly in Saskatchewan. Crop insurance offers pretty good support, as long as the insured prices are reasonable. Prices are OK for this year, but if markets sag, insured prices may not look so attractive for 2020.

Remember the days of GRIP, the Gross Revenue Insurance Program? That was revenue insurance using historical commodity prices and your crop insurance yields. GRIP paid out a lot of money in the early years, but producers could cherry pick by seeding commodities with the best support. On top of that, there wasn’t much incentive to invest in inputs when growing a bigger crop was just going to reduce your GRIP payment.

Historical average grain prices kept dropping, reducing the level of GRIP support and governments grew weary of paying out huge sums. GRIP was eventually replaced with a series of farm specific income stabilization plans that culminated in the current AgriStability program.

AgriStability support was trimmed when governments realized the gigantic liability they had assumed. Today, a lot of the discussion about increased farm income support focuses on reversing history and again enriching the program.

The American government is throwing billions of dollars at its producers to compensate them for being pawns in the U.S. trade war with China. That will increase the pressure on the Canadian government to follow suit due to our own well-publicized problems with China.

As history has proven, there’s no simple and equitable way for governments to support farm incomes when market returns falter. Every system of support has drawbacks, hastily designed ad-hoc program are the worst and de-risking agriculture can have unintended consequences.

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