Editorial: Risk management on the farm

What does the future hold for farm stabilization payments in Canada?

Bags Of Money On A Farm Field

Changes to AgriStability three years ago that were designed to limit the exposure of federal and provincial coffers appear to have been more successful than politicians and bureaucrats ever imagined.

The changes implemented for 2013 reduce the potential for a payment as well as the potential size of payment. It now appears the number of farmers who even bother to participate is dropping too.

Federal statistics show the number of participants in AgriStability dropped about 10 per cent between 2012 and 2013, the year when the program transitioned to Growing Forward 2. Enrolment statistics for 2014 weren’t available. Informal surveys of Manitoba farmers at the Keystone Agricultural Producers general council suggest the dropout rate could be in the order of 20 per cent.

Now that’s a successful farm program — if you are in the business of limiting the risk of a payout. Gosh, at that rate, there may soon be no need for a Growing Forward program at all.

But if you are in the business of stabilizing farm incomes — assuming that farm incomes require stabilizing — perhaps it’s not so good.

That’s a two-sided issue and one farm leaders must consider carefully as they develop their positions going into upcoming consultations on a Growing Forward 3.

Firstly, governments in Canada have historically been in the business of stabilizing farm incomes through established programs that transfer cash into farmers’ hands when the going gets tough. In the past, that has also included ad hoc transfers when unexpected price or production shocks occur.

The Agricultural Stabilization Act of 1958 was the first. It was fully funded by the federal government and paid farmers 90 per cent of a three-year moving average on grain and livestock commodities.

Then came Western Grains Stabilization Account (WGSA), which would win the prize for efficiency; an office of two managers and a couple of support staff pumped as much as $800 million into the western farm economy in any given year. There was also LIFT, FIPA, TPS, SCGP, GRIP, NISA, AIDA, CAIS — all of which became progressively more administratively complicated, labour intensive and difficult for producers to figure out — but all of which were pretty successful in transferring significant funds into farmers’ hands.

2012 was a turning point. The changes to Growing Forward 2 are a signal that both government capacity and its willingness to backstop farmers is more limited.

The data in the federal government’s 2015 Canadian Agricultural Outlook released last month would suggest that as a sector, the general assumption that farm incomes need stabilizing is up for discussion.

Here are some key points:

  • Growing strength in the cattle and hog industry, strong crop sales, and relatively stable input costs produced a record farm income in 2014 and will continue to sustain the agricultural economy in 2015.
  • Aggregate net cash income for 2014 is expected to reach $14 billion, 10 per cent above the 2013 record.
  • Farm-level average net operating income is forecast to be $78,139, also an all-time high.
  • Average net worth per farm is expected to set new records of $2 million in 2014 and $2.1 million in 2015.
  • For 2015, the preliminary forecast suggests that farm incomes will be down moderately, but remain historically high at $13 billion.
  • Average total income of farm families, which includes the family’s share of net operating income from the farm and other family income, is projected to reach $131,595 in 2014 and $134,931 in 2015.

That last point means farmers’ income is on par with airline pilots and engineers. It’s a little less than that of dentists and lawyers, but almost double the Canadian median family income of about $76,000.

In light of these statistics, it would seem that farmers are increasingly capable of insuring themselves against business risk, especially if they are diversified.

On one hand, it appears that being specialized and large makes it more likely a farm operator would qualify for AgriStability payments, but that raises another question: Is the ability to qualify for a payment the hallmark of a healthy farm operation?

Likewise, is the decision by farmers to insure themselves through prudent management of their own resources such a bad thing? It may reduce their appetite for debt, but that may also take some of the pressure off land prices and other costs.

There continues to be a role for government in supporting farmers. But perhaps the focus of this round of Growing Forward should be on making programs such as AgriRecovery — a program that should be there for farmers suffering catastrophic losses through an environmental disaster — more workable.

About the author

Vice-President of Content

Laura Rance

Laura Rance is vice-president of content for Glacier FarmMedia. She can be reached at [email protected]



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