Alberta crop insurance payouts could reach a record $750 million this
year, a situation that will deplete the province’s crop insurance fund
and result in higher producer premiums down the road.
Figures obtained last month from the federal government estimated that
total payouts in Alberta would reach $700 million this year, but crop
insurance officials from Alberta said recent rain could push total
payouts even higher.
Merle Jacobson, senior manager of crop insurance at the Alberta
Financial Services Corp., or AFSC, said corporation officials are still
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assessing the harvest and will have a more accurate idea of the
corporation’s indemnities by next week.
“We’re still trying to determine the impact of last week’s rain,”
Jacobson said. “It has the potential (to exceed $700 million) but so
much of it depends on the harvest and whether some areas of the
province are in better shape than others.”
The AFSC, which administers crop insurance programs in Alberta, entered
the 2002 crop year with a crop insurance surplus of approximately $276
million.
Producer premiums, government premiums and private reinsurance will add
another $315 million to that total, pushing the fund balance to about
$600 million.
If payouts exceed $600 million, the difference will be drawn out of
existing provincial and federal reinsurance accounts. But if payouts
exceed $750 million, the reinsurance accounts could also be depleted.
“If for some reason our losses are more than that ($750 million), then
those two crop reinsurance funds run into a deficit and basically it
becomes a deficit financing (situation) for them from the two levels of
government,” Jacobson said.
Tom Crozier, senior manager with the AFSC, said despite this year’s
record indemnities, producers aren’t likely to see a major increase in
base coverage premiums for at least another year.
“We’re going to have higher premiums, but we have a one-year lag in our
rating structure,” Crozier said.
“For 2003, we expect an average increase of about two percent in our
base rates … and probably an additional 10 percent in 2004. And those
are just estimates because there are a whole lot of factors (to
consider).”
Crozier said all existing insurance programs will likely be available
again next year.
“I can tell you coverage will not be adversely affected, at least not
in any great measure.”
Alberta farmers insured a record 21 million acres of cropland, forage
and pastureland this year, up from 11 million acres in 2001.
Most of that increase was the result of a lack-of-moisture program that
covered native pasture for as much as $10 per acre.
Total crop insurance liabilities also ballooned to a record $1.6
billion this year, up from about $1.25 billion in 2001.
Unlike Manitoba and Saskatchewan, Alberta continues to offer farmers a
variable price option that adjusts coverage levels upward to compensate
for increases in commodity prices during the growing season.
About 30 percent of Alberta producers chose the variable pricing option
this year, increasing crop insurance liabilities by about $73 million,
Jacobson said. The impact would have been much larger had wheat prices
started their upward climb a few weeks earlier, he added.
The insured value for a bushel of 13 percent protein, red spring wheat
was $4.79. The price was unchanged as of July 31, the cutoff date for
the variable pricing option forecasting.
As of last week, it was worth nearly $8.40 a bu. at port.
“When they looked at price forecasts on July 31, looking at what
information was available at that time, there were really no strong
market signs,” Jacobson said.
“Most of the increase (in wheat prices) came after the middle of August
when the U.S. and Australia also announced they had production
shortages.”
