Thank you, Mr. Chairman.
My name is Neil Hamilton. I'm the CEO of the Manitoba Agricultural Services Corporation, which is an amalgamation of the former Manitoba Crop Insurance Corporation and the Manitoba Agricultural Credit Corporation. We're in the agricultural insurance and lending business. I'm going to focus my comments today on livestock insurance, given the makeup of the panel, and I'll make a couple of general policy comments at the end.
Production insurance—and in this province we've offered production insurance since 1960—has traditionally been an output program, so we've really focused on grain, oilseeds, and special crops, as you've heard from the previous group that was in front of you. We have dealt with forage and pasture in terms of livestock, and that isn't a recent thing, we've had a forage program since the early 1970s, but there is a fundamental difference. Most of the crops we deal with are output-based: the farmer is selling them, so if they have a loss, they get replacement of that value, and it's done.
For livestock, in terms of forage and pasture, it's an input, so it has to be replaced. As a result, producers have adopted different ways of dealing with that situation, so there is less demand for crop insurance for those types of products. Just to put that into perspective, in terms of forage and improved pasture, in Canada about 25% of the land is insured, and in Manitoba it is 26%, just slightly higher.
However, in terms of other crops that are available under the program, the Canadian average is 69% and the Manitoba average is 85%. So for us as an entity, we're covering 85% of crops, grains, oilseeds, and special crops, but only 25% or 26% of pasture and forage. I'm not sure the problem is necessarily in the way it's approached, but forage and pasture is a very different commodity.
Many alternatives have been tried by different crop insurance agencies to deal with this problem, and you'll hear people talk about weather derivatives, satellite imagery, proxy crops, and all these types of approaches to get at how we measure loss in forage and pasture. The cold, hard reality is that they've all had very limited success, based on the numbers that I have quoted, and everybody is ranging in that 25%, 30% range, far below what we'd like to be.
Under the APF, livestock was brought in to production insurance, and the intention was to start to have livestock covered. In my view, that was probably an equity issue, trying to bring more equity to the table for livestock producers. Because the reality is, in the programs we offer, grain producers get price insurance and output insurance, production insurance, and cattle producers and hog producers largely get price insurance through CAIS. So there's a perceived inequity in terms of the subsidy that's received.
I think we have to ask ourselves a cold, hard question, and that is how much production risk is there in livestock. It may not be that fundamental, and if it isn't—and maybe that's why production insurance doesn't work that well—maybe we're trying to approach a perceived inequity and subsidy through possibly the wrong tool.
One of the issues in trying to insure livestock output—and I'm talking about pounds of production of livestock, not forage and pasture, but actually the output of livestock—is in our view that a lot of the perils that cause reduction in livestock output are largely management-related, whereas in crops they're natural perils such as weather. You can't make that perfect distinction, because obviously weather has an impact also on cattle production rates and so on.
What are livestock producers looking for, from our perspective? We feel that they're looking for income loss due to disease; that's fundamentally what they're looking for. We also feel that they're looking for production loss insurance, pounds-of-production guarantee. That's another thing they're looking for. Mortality insurance is the way production insurance seems to be heading at the current time; whereas some producers may be interested in it, I don't think that's what people want.
Production insurance can accommodate a pounds-of-production guarantee approach. However, we, being insurers, would have to get over trying to identify a loss with a particular peril, because that would be very difficult in the case of livestock.
I'd just like to make a couple of brief policy comments before I end here.
We have a view, and I think it's held by at least some other provinces, that under APF what we should be doing is adopting an insurance-first policy. Where it makes sense and where programs can be delivered effectively, they should be the first line of defence, and then CAIS programs or contributory savings accounts or disaster should be a fallback, a backstop to that.
Now, that may well sound like a self-serving comment because we're in that business, but the two fundamental things that insurance products give you are predictability and reduction in financial variability over time. With insurance products, we can establish reserves, we can smooth losses over as much as 25 years. In certain cases we can even buy reinsurance from the global market. So there are some fundamental reasons that an insurance-based approach would be more effective.
Having said that, insurance does not work in all applications. So I'm not going to sit here and say we can design a program for any product. We can't. As I pointed out earlier, we're struggling in forage and pasture, as are all other jurisdictions.
Mr. Chairman, with that, I'll conclude.