Okay.
Let's think of ourselves as a crop farmer around April 30 when they're deciding whether or not to apply for AgriStability. This farmer has already likely purchased a large share of their inputs and they also may have forward contracted or hedged a significant amount of their production. Hopefully, they're also enrolled in crop insurance. The producer is shielded against price risk because they've already bought a lot of their input and they've already pre-sold or hedged a lot of their output. They're protected against production risk by crop insurance. If output prices are level or trending upwards from previous years, then there's going to be very little chance that this producer would receive an AgriStability payment.
In some of my work, which perhaps is somewhat similar to some of the work that the previous witnesses have alluded to, I found that in many circumstances it simply isn't optimal for producers to enrol in AgriStability even though the cost of participation is typically seen as quite low.
To be clear, this isn't necessarily a flaw in the program. If incomes are high and producers are hedged against risk through other instruments, then perhaps they don't need to enrol in margin insurance. On the other hand, if low enrolment persists as farm incomes decline, which is what we're seeing in the livestock sector and other sectors recently, then low enrolment would be indicative of program failure.
I'd like to speak now to restoring the 85% threshold. In principle, I'm certainly not opposed to restoring this threshold; however, I am concerned that calls to restore the 85% threshold might be based on a historical attachment or a belief that this change is politically achievable, rather than a thorough examination of all policy options. I'd like to explain that a little further.
MInister Bibeau has suggested that restoring the 85% threshold would cost around $300 million annually, and that seems about right to me, based on the AAFC budget. I think producers would certainly support an extra $300 million of spending going to agricultural programs; however, it isn't clear to me whether the majority of producers would prefer this money to be spent on AgriStability or some other program.
On the one hand, restoring the 85% threshold might increase confidence and participation in AgriStability. I'm sure it would. On the other hand, given the other issues that producers have with the design and the timing of AgriStability, they might prefer that this $300 million be spent in other ways. For example, the money could be used to increase AgriInvest limits, a program that enjoys more producer support and higher enrolment rates.
I have a few recommendations on the future of AgriStability, which I'd be happy to share during questioning, but I think my time permits me to share just one, which is to allow producers to insure their revenue instead of their margin. This would be a fairly significant change that probably would have to be put into place in a new policy framework.
As mentioned, AgriStability requires the detailed reporting of accrual expenses. Revenue insurance would not require that producers report their expenses and, therefore, would be a much simpler and a more straightforward program. For crop producers, their revenues are mostly derived from crop sales and receipts from crop insurance, and this information is already provided to provincial crop insurance agencies. Revenue insurance claims could therefore be adjudicated immediately after a harvest, in the same way that crop insurance claims are.
Of course, under revenue insurance, producers would not be covered against increases in input costs. However, given the issues of program complexities that some of the previous witnesses have spoken to, I think many producers would welcome a simpler program that is somewhat less comprehensive.
However, certain producers, perhaps those in the livestock sector who face greater input price risk, might prefer a margin insurance, so I would imagine that the government could create a program where producers would choose revenue insurance versus margin insurance.
I thank the committee for waiting, and I thank them for hearing my testimony. I'm happy to answer questions.