On paper whole-farm revenue insurance has a lot going for it: Rick White

The ideal farm safety net program is simple, predictable, non-distorting and effective. Could this be it?

Critics say AgriStability is so complex, its biggest beneficiaries are the nation’s accountants.

Most farmers pay a lot of money to accountants to help with their applications and even then they’re none the wiser about possible payments, says Rick White, chief executive officer of the Canadian Canola Growers Association (CCGA).

The CCGA has come up with an alternative risk management concept — whole-farm revenue insurance — it believes needs to be studied further.

“Farmers know insurance,” White said in an interview Jan. 20. “Farmers like production insurance, at least on the crop side. They’re used to it. They understand it. It seems to work well for them. You can argue about the coverage levels or premiums but you do know what you’re covered for. It’s predictable.”

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Whole-farm revenue insurance would insure farm revenue, which is based on how much a farmer produces and the price received when it’s sold.

“When you insure revenue you have price and quantity working together or against each other and that provides a natural hedge for the insurer as well,” White said. “So you can offer revenue insurance cheaper than you can offer price insurance and quantity (production) insurance separately.

It sounds like the Gross Revenue Insurance Program (GRIP), which ran in Manitoba from 1991 to 1995. GRIP was popular with farmers, but critics believed the guaranteed revenue for certain crops sometimes distorted planting decisions.

But the program White wants studied is different, he said, because prices would be based on futures markets and therefore would be “more in line with reality.” GRIP was based on historical prices.

GRIP also guaranteed revenue per acre rather than for the whole farm. The latter reduces the risk of payouts because a drop in revenue from one crop could be more than offset by higher revenue from another.

“I think conceptually there are a lot of good reasons to look at this and get a lot of expertise around a table to try and detail it out and see if you can make it into a workable plan,” White said. “The concept is fine. It’s all in the design work… to see how to operationalize it.”

Program insurance premiums and potential payouts would be known up front.

“It’s bankable and it’s predictable and those are features we’re looking for in a good safety net program,” White said.

“Right now the model we have, you hear more complaints than anything. We know we don’t have the ideal situation with the current AgriStability program.”

The moral hazard would be low and it wouldn’t distort farmer decision-making, he said.

“Farmers shouldn’t say, ‘it doesn’t work for me because I never got a nickel out of it,’” White said.

“The government programs should be there to help the farm manager properly manage risk. It’s not to be viewed by the farmer as an entitlement for government payments.

“Predictable subsidies just get capitalized into land prices and the farmer is not better off in the end anyway, until you die and sell out, maybe.”

About the author

Reporter

Allan Dawson

Allan Dawson is a reporter with the Manitoba Co-operator based near Miami, Man. Covering agriculture since 1980, Dawson has spent most of his career with the Co-operator except for several years with Farmers’ Independent Weekly and before that a Morden-Winkler area radio station.

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