In the midst of friction between Ottawa and farm groups over the proposed agricultural policy framework, Agriculture Canada projections of record program payments to farmers this year are raising questions about whether the promised $1.8 billion annually under the APF will be able to meet future needs.
The department projects that in 2003, a record $3.8 billion will be paid out in program payments, including well over $1 billion in crop insurance.
During the past three years, program payments have not been below $3.4 billion. The average between 1997 and 2001 was $2.21 billion.
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“My view is that this program will be under-funded from the start,” University of Saskatchewan agricultural economist Ken Rosaasen said in an interview. “I think farmers are in for a shock when this program starts and they see the funding limits.”
According to the government agenda, program coverage will start in 2004 to cover 2003 losses.
Although farm lobbyists have been concentrating their criticism on program design, they also agree that funding levels are a concern.
“There is no doubt funding levels will fall when the APF kicks in,” said Cam Dahl, executive director of Grain Growers of Canada. “I know the government says this is all there is and this is the end of ad hoc payments. Seeing the difference between projected need and projected spending, does that mean we will see a lot of tractors and combines parked on Parliament Hill again?”
Marvin Shauf, second vice-president of the Canadian Federation of Agriculture, said he prefers to keep the debate focused on getting the proper program design.
“But clearly the funding issues are also relevant,” he said. “If the design is appropriate and producers are satisfied with it, then I think we’ll see more focus on money.”
However, Shauf cautioned that it is inappropriate to compare this year’s expected $3.8 billion payout with the $1.8 billion promised under the APF – $1.1 billion from Ottawa and $700 million from the provinces.
A large part of the program spending on the Prairies this year will be crop insurance to reflect last year’s drought and as an insurance program, payouts are not confined to a budget but respond to needs.
Ottawa and the provinces will have fixed crop insurance contributions under the APF but as has happened in recent years, the funds can go into deficit in high payout years. A federal reinsurance scheme and higher producer premiums are used to eventually get the fund back into the black.
The government also has suggested an increase in crop insurance allocations under the APF.
“We have been advised that concurrent with the introduction of the proposed new NISA (Net Income Stabilization Account) program, the crop insurance program will be receiving an increase in funding from current levels of approximately $250 million to $400 million annually,” said an APF analysis prepared by the George Morris Centre and IBM consultants.
“Our understanding is that much of this is due to increased claims in the Prairies and Ontario over the past two years, as well as to slightly higher grain prices.”
However, even when crop insurance spending is taken out, program spending in recent years has exceeded $1.8 billion. The government said that in years of financial need greater than the APF allocation, unspent funds can be brought forward from previous years and money can be “borrowed” from future years. Still, Rosaasen said there is a potential for funding problems.
“They are promising more with this program at the same funding levels that already are inadequate,” he said. “This is a problem.”
