All Canadian grain farmers have been hurt by the U.S.-China trade war. China has targeted Canadian canola and soybean exports, but trade action is affecting other commodities as well. Pulses have been impacted by the actions of India, durum by the actions of Italy and barley by the actions of Saudi Arabia.
No one anticipated this trade war. Canada’s business risk management programs were not designed to address it.
The federal government has stepped in to help other sectors, including dairy, deal with market losses caused by international trade agreements and the actions of foreign governments. Equivalent measures are required for Canadian grain farmers, who do not have access to employment insurance or other commonly available social safety nets when facing the economic fallout of unfair trade actions.
The prices set at U.S. commodity exchanges serve as key price benchmarks for world markets in which Canadian products must compete. Farmers in the U.S. receive a market facilitation payment (MFP) as compensation during this trade war. Payment rates and other details were announced in August. The acreage payments are generally in the range of $15 to $100 per acre for corn, soybean and wheat.
Questions have been raised about how a similar program could work for Canadian grain farmers. This proposal is modelled on the U.S. 2019 MFP and adjusted to ensure timely and proportional compensation to Canadian grain farmers for market loss based on the basket of crops grown in their region and their soil productivity.
Trade is a federal responsibility and the current trade wars are affecting commodities across Canada. The proposed program would be national in scope and 100 percent federally funded.
Payment rates for Canadian farmers are based on the 2019 U.S. MFP commodity rates for wheat, soybeans, corn, lentils, peas and other crops grown in Canada. The government of Canada would cover 85 percent of the 2019 U.S. MFP commodity payment rates in recognition that Canada did not initiate the trade war.
The losses for canola will be assumed equal to the losses in U.S. dollars per bushel on soybeans. Similarly, the losses for barley, a major feed grain in Canada, will be assumed equal to the losses in U.S. dollars per bushel for corn.
The U.S. MFP rates convert to payment rates in Canadian dollars of $2.32 per bushel on canola and soybeans, $2.71 per bu. on lentils, 52 cents per bu. on field peas and 47 cents per bu. on wheat. Production is calculated as the five-year average yield (bushels per acre) for eligible crops grown in each crop insurance “risk zone” in Canada.
The basket of crops determines the payment for a risk zone. For example, multiply the five-year average acres for each crop by the five-year average yield for each crop and then by the payment rate for each eligible crop. These are cumulated over the mix of crops in the risk area and divided by the total acres of those crops to determine the acreage payment.
Payments are further adjusted for soil class to account for productivity differences in each risk zone. For instance, in Saskatchewan if the payment is $40 per acre on an E soil, then the payment on a B soil would be more and on a G soil would be less.
Individual farm yields and individual management decisions do not affect program payments. Inputs and crop choice will continue to be made at the individual farm manager level without incorporating the program into decision-making. The program does not distort markets or influence cropping decisions.
Canadian dairy farmers are promised compensation over the next eight years for the anticipated hurt from trade negotiations and trade rule changes. Canadian steel and aluminum manufacturers also received government financing and direct support in response to U.S. tariffs on Canadian exports.
The Canadian grain industry is an export-oriented, trade-exposed sector. The principle of compensating for the demonstrated hurt from trade should equally apply to Canadian grain farmers who create jobs and economic growth across Canada.