Business risk management programs available to farmers need to be reworked and improved, according to witnesses providing testimony to the House of Commons agriculture committee.
In particular, the AgriStability program requires immediate improvements to protect farm incomes against recurring economic losses caused by rising operating costs, lower net returns and unexpected market disruptions that affect the sale of key products, witnesses said.
In testimony last week, several witnesses who were asked about the effectiveness of the AgriStability program called for a return to pre-2013 coverage levels of 85 percent — up from 70 percent currently — and the removal of AgriStability reference margin limits.
Low participation levels in the program — particularly at a time when net margins on many farms are falling — is an indication that AgriStability is not working, the witnesses said.
“I strongly believe in the theory of AgriStability…,” said Andre Harpe, a producer from Valhalla Centre, Alta., who also serves as chair of the Grain Growers of Canada’s BRM program committee.
“But it is getting harder and harder to find value (in the program) as it is currently set up.”
“It seems the program is becoming less about (farm income) stability and more about disaster compensation at the 70 percent rate.”
Todd Lewis, president of the Agricultural Producer Association of Saskatchewan, said APAS members have been concerned about poor coverage levels since changes were implemented in 2013.
“Enrolment in AgriStability by Saskatchewan producers is well under 50 percent. Producers see little value in the current program.”
The House of Commons standing committee for agriculture and agri-food is hearing industry testimony for a study on the effectiveness of agriculture BRM programs.
The committee is expected to present a report to the House of Commons later this year, in advance of a federal-provincial agriculture ministers meeting scheduled for October.
Over the past two weeks, the Commons committee has heard testimony from farmers, grower groups and agricultural economists. More witnesses are scheduled to appear in late June and early July.
In his presentation, Lewis referred to APAS research that suggested some farms would have to see the price of canola decrease from a historical average of $11 per bushel down to $6.35 per bushel before a payment would be triggered through AgriStability.
“A price drop of that magnitude — 40 percent — would reduce farm income by over $2 billion in Saskatchewan alone and (would) drive many producers into bankruptcy,” Lewis said.
Erin Gowriluk, executive director with the Grain Growers of Canada, offered a similar assessment, emphasizing the need to rework the AgriStability program so producer payments are triggered when net margins fall below 85 percent of their historic averages.
In 2013, the Conservative government reduced AgriStability coverage levels to 70 percent of net margins, from 85 percent.
It has been estimated that resetting AgriStability coverage to the 85 percent level would cost government about $300 million annually.
To illustrate the impact of the 2013 changes, Gowriluk presented a hypothetical scenario of a grain and oilseed farm that recorded a $130,000 loss in 2019.
At the current 70 percent AgriStability coverage level, the hypothetical grower would trigger an AgriStability payment of about $31,000, reducing the farm’s loss to around $100,000.
But under the program’s pre-2013 coverage levels, the farm would have received an AgriStability payment of roughly $111,000, reducing the net loss to around $20,000.
Witnesses said the reduction in AgriStability coverage levels was considered more acceptable in 2013, when commodity prices and net farm incomes were more stable, farm input costs were lower and market disruptions affecting the sale of farm commodities were less common.
The economic environment in which Canadian farms are operating today has changed considerably, witnesses suggested. And AgriStability has not kept pace.
“A functional AgriStability program keeps farms afloat during difficult times. The current system does not and that needs to change,” Gowriluk said.
Others described AgriStability as a program that is too slow, too complex and too unpredictable.
Alan Ker, an agricultural economist from the University of Guelph, said low participation rates and producer dissatisfaction with AgriStability are likely to remain unless changes are implemented.
Ker also suggested that provincial crop insurance programs across the country have massive surpluses over the years that, if used, would offset annual farm losses many times over.
“These entities (provincial crop insurance programs) tend to behave more like private insurers and less like public (program) delivery agents,” Ker told members of the Commons committee.
“The current AgriInsurance rate setting methodology is biased in favour of provincial Crown corporations collecting excessive premiums, much like a private insurer.”
“(These) Crown corporations have $7.5 billion in reserves and unless there is a change in the rate setting methodology, I expect these reserves to grow.”
The Commons committee was scheduled to hear additional testimony for its BRM study this week.