In agriculture policymaking, what a difference a change in government makes.
When agriculture minister Chuck Strahl announced in May that the inventory valuation system used in the Canadian Agricultural Income Stabilization program would be changed to take account of price changes during the year, he sold the policy shift as a way to get $900 million to farmers this year.
Since the change will be retroactive to 2003, the new approach will generate money through the CAIS program for cattle producers, who saw the value of their herds collapse in 2003 because of BSE.
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federal government proposed several months ago to increase the compensation rate from 80 to 90 per cent and double the maximum payment from $3 million to $6 million
“These changes will better address the losses producers have experienced, and put significantly more money into the hands of more farmers this year,” Strahl said at the time.
But as recently as last year, the prevailing opinion within Agriculture Canada was that such a change would be bad policy.
Information sheets prepared in March 2005 by senior financial programs official Danny Foster for use by bureaucrats answering CAIS program questions made the case for keeping the old system of valuing inventory change by comparing year-end inventories to beginning year inventories and multiplying the change by the year-end price.
He said adding a price-change calculation would skew the CAIS program and possibly end up making payments on phantom losses or reducing payments on phantom gains. And that, Foster said, could make the CAIS rules a factor in farmer business decisions.
Ottawa-based researcher Ken Rubin obtained the departmental CAIS sheets using access-to-information rules.
The original inventory system “ensures consistent treatment of producers regardless of whether they sell or hold on to inventories,” Foster wrote.
“This is critical, based on the fact that farmers in financial difficulty may be forced to draw down their inventories to generate cash flow while others may hold inventory for tax reasons or expectations of increasing prices. This method does not influence their decisions to buy, sell or keep inventory.”
Foster also noted that while farm groups were clamouring for the inventory valuation change because BSE herd value losses were not picked up in CAIS calculations, the change also could work against farmers in some years.
It could reduce farmer eligibility for CAIS payments in years when prices are rising, even if the inventories are not sold and no cash is realized.
However, by 2006, with a new government looking for ways to change CAIS to get more money out to farmers quickly, the bureaucratic warnings of 2005 were set aside.
