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New risk-management research

Federal government invests nearly $1 million in the hope of developing better risk management programs for forage producers

Farmers could soon be turning to eyes in the sky to better manage the risk associated with hay and forage production.

The federal government recently announced it would invest $988,000 in collaborative research aimed at using satellite-based technology to estimate forage growth at the farm level. That information would then be developed into a forage production index that could be used to develop new risk management tools for producers.

“Satellite-derived approaches show promise for improving forage insurance, based on improved design that is cost-efficient, representative and reliable, however more research and development is needed,” said Lysa Porth of the Warren Centre for Actuarial Studies and Research at the University of Manitoba.

While crops like canola and wheat see anywhere from 70 to 85 per cent of potential acres insured by AgriInsurance, only 10 to 20 per cent of potential forage land is insured each year.

“And this has left the sector particularly vulnerable in times of substantial forage shortage due to adverse weather or disease, leaving producers unable to produce of purchase the forage they need to feed their livestock or to re-establish their forage,” Porth said. “Therefore, improving forage and pasture insurance, and improving participation rates among producers, has been identified as a priority.”

Tough to tell

The professor added traditional insurance programs don’t always work well for forage, particularly because forage is harvested multiple times throughout the growing season or eaten in situ by grazing livestock. Producers rarely calculate how much forage is consumed by livestock at any given time, she said.

“Due to these reasons, accurate insurance loss estimates for forage are difficult to achieve. making it difficult to design a relevant forage insurance program and determine actuarily fair and sustainable premium rates,” said the professor. “As a result, index-based insurance is thought to be an alternative framework for developing forage insurance.”

With an index-based insurance system, payments are linked to index-like information provided by satellites or weather stations. Such a system could have advantages like lower transaction costs and greater transparency, Porth said, but added developing a suitable index and implementing a new system is not without challenges.

“This difficulty is referred to as basis risk, in which the index differs from the actual loss experience on the farm,” she said. “This can refer to situation where a producer suffers a loss, yet the index doesn’t trigger an insurance payout, or alternatively, when the index determines an insurance payout, but the producer does not suffer a loss on the farm.”

Better insurance

The long-term objective of the research is to develop improved forage insurance in the Canadian context.

“The main focus is on the assessment and development of an innovative forage production index, based on the consideration of bio-physical parameters derived from satellites,” Porth said.

Terry Duguid, member of parliament for Winnipeg South, made the announcement on behalf of Agriculture and Agri-Food Minister, Lawrence MacAulay. He used the opportunity to emphasis the key role agriculture plays in Canada’s economy, noting the importance of stable and effective risk management programs.

“Feed is the lifeblood of any livestock operation,” Duguid said. “This project uses cutting-edge satellite technology to equip ranchers with the information they need to manage those risks.”

The project is led by the Saskatchewan Cattlemen’s Association, with researchers from the University of Manitoba, the University of Waterloo, Nanyang Technological University, Airbus Defence and Space and SCOR participating. Co-operation has also been provided by the Saskatchewan Crop Insurance Corporation and Alberta’s Agriculture Financial Services Corporation.

“This project provides a tremendous opportunity to bring together leaders in agricultural risk management and insurance, both with in Canada and internationally, across academia, the private sector and government,” said Porth.

Ryder Lee, CEO of the Saskatchewan Cattlemen’s Association, noted that the funding is coming from the federal government’s AgriRisk Initiatives program, a successor of the program that helped bring the Western Livestock Price Insurance program to fruition.

“Grass and hay insurance uptake rates in the Prairies are much lower than annual crops. Some of this is due to program design and how program work,” he said. “By exploring satellite options, perhaps we can move perennial crops closer to competitive balance with annual crops, at least when it comes to insurance programs offered.”

About the author

Reporter

Shannon VanRaes is a journalist and photojournalist at the Manitoba Co-operator. She also writes a weekly urban affairs column for Metro Winnipeg, and has previously reported for the Winnipeg Sun, Outwords Magazine and the Portage Daily Graphic.

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