It turns out MASC has been paying out a lot more on winter wheat claims than it has been collecting in premiums
Growers weren’t happy about changes to the crop insurance program for winter wheat outlined at their recent annual meeting, but they had to acknowledge that some changes were justified.
In 2014, Manitoba farmers will still be eligible for a reseeding benefit based on 25 per cent of their coverage if their winter wheat fails before June 20, 2014 and if it was seeded into eligible stubble late this summer. However, a Stage 1 (from the time of seeding until June 20) indemnity based on 50 per cent of their coverage will no longer be offered.
Under the old rules a winter wheat grower whose crop failed before June 20 could get up to 75 cent of his or her coverage through the reseeding benefit and Stage 1 payout. In 2013 a farmer in Risk Area 12 (Red River Valley) with an “F” soil would receive $281 an acre and then could reseed another crop, which could also be insured.
Not only do such potentially high payouts create a “moral hazard” but they’ve also been costing the crop insurance program, which is supposed to break even over time, too much money, said Doug Wilcox, the Manitoba Agricultural Services Corporation’s (MASC’s) manager of agronomy and program development.
“Currently winter wheat is in a negative fund balance compared to our other programs where they’re in a positive fund balance,” he told Winter Cereals Manitoba’s annual meeting here March 13.
“Winter wheat has received a disproportionate amount of payouts over the years.”
Between 1986, when crop insurance was first offered on winter wheat, until 2011, farmers paid about $19 million in premiums but received $66 million in payouts, Wilcox said. It’s roughly $3 in payouts for every $1 of farmer premium, he said. For most other crops it’s a two-to-one ratio, which when federal and provincial premiums are included, is close to break-even.
When broken out winter wheat has a $16.7-million deficit versus a $341-million surplus for all Manitoba crops combined.
Between 2000 and 2009 almost 14 per cent of the payouts on winter wheat claims related to reseeding, compared to just 0.1 and 0.5 per cent for red spring wheat and canola, Wilcox noted. (Most winter wheat reseeding claims result from winterkill, he said.)
The good news for farmers is eliminating Stage 1 coverage will also cut winter wheat insurance premiums up to 40 per cent, Wilcox added.
While all winter wheat growers will enjoy the reduced premium, those who routinely didn’t seed into “eligible stubble,” benefit even more because they weren’t eligible for the Stage 1 coverage anyway.
MASC defines eligible stubble as “stubble from a crop harvested in the same year that the winter wheat is seeded, with that stubble having not been disturbed by cultivation.”
Those crops are as follows: tame hay, tall fescue seed, canola, rapeseed, barley, wheat, oats, mixed grain, triticale, flax, mustard, fall rye, canary seed, ryegrass seed, timothy seed, alfalfa seed, hemp, sunflowers, corn, borage, millet, coriander, sorghum, sudan grass, or buckwheat.
Manitoba Agriculture, Food and Rural Initiatives estimates it costs around $58 an acre to establish a crop of winter wheat, Wilcox said. The reseeding benefit on an “F” soil in Risk Area 12 (Red River Valley), on average, is almost $94 an acre — more than ample to cover the $58 it cost to seed the crop, Wilcox said.
The Stage 1 coverage, which still applies in 2013, is $187.54 an acre. When combined with the reseeding benefit ($93.77), the total potential payout for a winter wheat crop that fails before this June 20 is $281.31 an acre.
A few years ago when winter wheat was still a minor crop and wheat prices were lower, MASC might not have bothered to revise its coverage, Wilcox said.
“But now we’re talking about half a million acres, maybe 600,000, maybe 800,000,” he said. “That’s a big cost to the corporation, to producers and on top of that there is the potential moral hazard risk of potentially changing coverage at the end of March when you partially know the risk of winterkill loss.
“It would not be fiscally prudent of us as public stewards to just keep paying it willy-nilly when we know there’s an issue.”
Winter Cereals Manitoba was disappointed MASC didn’t first discuss the change with the association, Martin said later in an interview.
“But it (the current crop insurance coverage) does seem a bit rich,” he added.
Martin also said it appears MASC is too quick to write off winter wheat crops.
“Winter wheat is very resilient and can really bounce back,” he told Wilcox. “I believe some of this stuff should not have been written off.”
MASC is looking at revising its adjusting methods for winter wheat, which is currently much the same as for spring wheat, Wilcox said.
MacGregor farmer Curtis Sims suggested MASC explore eliminating Stage 1 coverage for other crops if it could cut crop insurance premiums substantially.
“I know our crop insurance bill is getting pretty big,” he said.
MASC is prepared to consider cost-cutting measures, Wilcox said, but added: “We want to make sure producers have adequate protection, but not excessive protection.”