Canada’s farm support programs are flawed and should be reconsidered, say University of Western Ontario researchers.
A report from the Richard Ivey School of Business argues that existing business risk management (BRM) programs contribute to a widening investment gap between large farms and smaller operations because they put far more money into pockets of large farmers.
Income stabilization programs favour larger producers because their cash flow, sales and revenues are larger and take a bigger hit from volatility.
As a result, they are eligible to receive more money when income is volatile.
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In 2009, the average value of government payments to farms with sales of more than $2.5 million was $197,821, compared to less than $20,000 for farms with sales of $250,000 to $500,000.
Average support for farms with sales of $1 to $2.5 million received almost $70,000 in government support payments.
Much of the money was used to invest in machinery and land, which increase growth, profitability and productivity of the largest operations.
“Apart from net income, government payments were a major source of investment financing for large farms and particularly million dollar farms,” said the report. “Payments as a percentage of sales decreased over the decade for all farms but the farms selling over $1 million.”
The report, Investment and Growth on Canadian Farms 2001-2009, also argued that the structure of BRM programs discourages farm environmental investments, particularly on small farms.
In Ontario, the maximum support a farmer can receive for environmental program investment is $30,000, “while payments under the AgriStability program can go as high as $3 million at a pretty low cost to the farm.”
It also argued that existing income stabilization programs have not served cattle and pork industries well.
“Programs that support struggling sectors like beef and hog in their efforts to modernize and remain competitive seem to be needed.”
Post-doctoral associate Nicoleta Uzea, an author of the report with agri-food innovation chair David Sparling, said the report is not arguing in favour of large or small operations.
“We find that existing programs shift income and government help to the largest farms,” she said.
“We are not promoting the large farms or the small farms. I think both sets have a role to play in the farm economy.”
She said larger farms are more productive, but smaller farms contribute to local economies, local communities and the growing market for local food.
“The indications are that existing programs need to be reworked or perhaps new programs should be created that are more effective,” said Uzea.
The report said larger farmers were more likely to invest in their operations and increase their investment year to year. Smaller farmers more typically invested in environmental protection programs or house construction.
“As a result, large farmers will likely enjoy increased productivity and competitiveness, which will mean more incentives and resources to invest in the farm,” it said.
“In contrast, the productivity and competitiveness of small farms will likely continue to erode.”
The report suggested federal and provincial governments consider investment tax credits for farmers. However, care would have to be taken to make sure it was not simply another disproportionate tax dollar advantage for the largest farms.
“The policy objectives for this kind of program must be clear,” said Sparling and Uzea.
“If it is to increase competitiveness of all Canadian farms, then it will be critically important that the program is designed so that small farms can take advantage of it. This could help break the downward spiral of profitability and investment on small farmers.”
