Agriculture Committee on Nov. 15th, 2011

[The Chair, Conservative, Larry Miller]

Well, it's good to have questions.

If it's okay with the committee—I didn't want to eat into anybody's time—I noticed that when Mr. Meredith asked about reference margins and viability tests, a couple of new members shook their heads to indicate that they didn't understand.

Greg, would you mind just explaining that a bit? I understand it, but there are some who don't.

[Greg Meredith]

Yes, I'd be happy to.

The Olympic average refers to how we construct a margin against which a current year performance is compared. You have a certain margin, revenue minus certain expenses, and we look at how you did for five years as a farmer. We take off the high end and the low end—just like an Olympic skating exercise, high and low goes out—and you take the three middle and compare what you're doing today against this average margin. If you drop below a certain percentage of your historical average, you get a payment. That's designed to even out your income to avoid these big cyclical drops and peaks in income.

The result of that Olympic average means that it takes longer for an individual farmer who's been in a low period to build their margin back up. So if we allow different years to be used to construct that reference margin, people would stay in the program longer, getting money longer, and get back into the program. After they have been low for a few years, they'd get back in quicker. That's the Olympic average.

The choice of the Olympic average or the last three years is really a rule that comes from the WTO and dictates whether you're going to be trade compliant or not. So there's a limited number of options that you have to select with the reference margin.

On the negative margin, when a producer goes into negatives—in other words, not only are they not making a profit, they're actually making a loss—we didn't used to cover very much of that loss. Now we cover about 60%, so we're making progress in terms of helping that individual out.

The viability test goes to how many years you can have negative margins in your calculation before you're out of the program. The program is designed to reduce support slowly over time if a farmer is persistently unprofitable. In situations like the hog sector, which we were referring to, there were several years of downtime, and then they were hit with swine flu and borders were closed. There was all kinds of pain on top of the cyclical downturn. They were saying that the idea that you have to have two profitable years means we're out of the program.

That's the so-called viability test. People wanted us to get rid of it so they could stay in the program and have more time to recover and get back to a profitable operation.

Does that help at all?

[The Chair, Conservative, Larry Miller]

I think so.

[Jean Rousseau, NDP, Compton—Stanstead, QC]

Yes, thank you very much, Mr. Chairman.

[The Chair, Conservative, Larry Miller]

You're welcome.

Mr. Allen, five minutes.

[Malcolm Allen, NDP, Welland, ON]

Thank you, Mr. Chair.

Thank you, Mr. Meredith. It's good to see you again.

There's a term they use in the business world called “lessons learned”, which implies we made some mistakes, and what did we learn from those, going forward? Sometimes it's good things. Sometimes you want to enhance those or continue them.

In relation to looking at what's still continuing, as we head forward with the new one that's proposed by the government, and notwithstanding the fact that the directive at least from Treasury Board is a 5% reduction and a 10% reduction and come up with two plans, from what the government says to us, at least in the House, where do you see wringing it out?

I mean, there are some obvious places where there's lots of money in programming. You just talked about a whole pile of money when you talked with Mr. Lobb over the issue of those types of programs, the business risk management, if you will.

Where are you looking--as far as you can discuss with us, obviously--and where do you see wringing out that 5% and 10%?

[Greg Meredith]

That's a tough one, Mr. Chair, because it would end up being advice to the minister, but--

[Brian Storseth, Conservative, Westlock—St. Paul, AB]

On a point of order, Mr. Chair, I don't know the page just off the top of my head, but I know we can't ask him that.

[The Chair, Conservative, Larry Miller]

Yes, I read that at the start.

Mr. Meredith, if you're not comfortable answering, that's fine.

[Malcolm Allen, NDP, Welland, ON]

No, that's fair; I'm not trying to put Mr. Meredith in a box here. I'm simply saying that we all understand there needs to be some wringing out.

Are you looking at all programs? I'm not looking for specific answers to say you're targeting this one or that one. Are you looking at them all?

[Greg Meredith]

I guess what I could say is that the process of engagement with producers is designed to make sure that the programs are remaining relevant in Growing Forward and that they figure out where they could be improved, such as in the business risk management side.

We are looking for efficiencies in how we deliver. If you can deliver better, faster, cheaper, that's good for everybody. I think it's healthy for organizations to step back from time to time and reconsult the client: Did we get it right? Did we learn the right lessons? If not, let's take a different tack.

I can tell you, because I know you've heard this at the committee already, that people want faster treatment of programming and they want less paperwork. Once they apply to a program, they want to know quickly if they're in or they're out, and they'd like it to be as inexpensive and as efficient as possible.

Just simple client service and listening to what's demanded in the marketplace would tell us that we have to streamline these things on a sort of continuous basis.

Those are the kinds of things that we would think are pretty healthy to look at.

[Malcolm Allen, NDP, Welland, ON]

So at this point, it's the “big brush”--if I can use that terminology--you're using to look at all of the bits and pieces of the previous program and the new one vis-à-vis how we go forward and implement it with the lessons learned from the previous ones.

Clearly, there are lessons you learn. The department obviously has learned lessons from the last one, whether it's directly in the department itself or from friends like Mr. Lobb, who bring legitimate concerns about programming and say, listen, this is what I hear. That becomes part of your lessons learned folder, if you will, where you go back and look at it and say, “Hmm, you know what? They may be right about that. Let's go take a look at these things.”

Based on that, let me get back to the Saint Andrews thing, because you referenced that in some of your remarks.

When the ministers came together, was there unanimity in the sense that everybody signed on? Are we sort of certain in terms of, “You know what? We all want to get in this boat together and row in the right direction.” I know Mr. Lobb asked about specific folks in a specific program, but this is the general framework. Is everybody in the boat?

[Greg Meredith]

I have to say that the environment around the FPT table is very collegial. That's the result of really working at keeping the relationships open and positive so that even when there are disagreements, it's respectful. Everybody tries to keep in mind at the end of the day that it's the producer and the processor who are going to benefit or be hurt by the way we conduct our business.

In the Saint Andrews case, the Ontario government made a conscious decision publicly to not sign on to the agreement. What you impute from that is very difficult to know. We still have an extremely good relationship with Ontario. I still expect them to be good partners in Saint Andrews. There might be some things we have to iron out.

What the minister of the day felt was blocking her from signing on was I think primarily.... I don't want to put myself in her mind, but I think, from the public statements that were made, it was the risk management program in Ontario that caused Minister Mitchell to perhaps not want to sign on at that particular time.

So there are instances, and there probably will be in the future, where we don't have complete unanimity, but in general the record is pretty strong.

[The Chair, Conservative, Larry Miller]

Your time has expired, Mr. Allen.

I now move to Mr. Zimmer for five minutes.

[Bob Zimmer, Conservative, Prince George—Peace River, BC]

Thanks for coming, Greg.

I have a few questions for you, but one is specifically to do with AgriInsurance. For those of us who are newer members on this committee, what are some of the improvements made in Growing Forward that were made specifically to AgriInsurance?

That's going to lead up to my second question, about where it's going, if you can answer that.

[Greg Meredith]

AgriInsurance is, I would have to say, the most popular program we have. It primarily covers crops. There are some mortality and production coverages for certain types of livestock, but for the most part it's crops.

It's a very transparent and bankable program. The federal government pays 36% of the premium, the province chips in 24%, and individual farmers chip in 40%. The provinces administer the program. Working with provinces in the last year, we have been trying to boost things like the unseeded acreage benefit, which helps when you're flooded out. We've had two instances of that out west, as you know; there are very significant payouts from AgriInsurance.

We've also been tasked by ministers to look at developing new insurance and risk management tools in price insurance, for example. We've seen a couple of models in Alberta for fed cattle and cow-calf, where they're trying to develop a price insurance scheme that would allow producers to lock in a certain price. If they can manage their cost of production, they know how profitable they are going to be. That's something we're looking at.

The minister is very interested in continuing to push on the development of either private sector or government-backed tools that can help farmers manage risk. The challenge for us is that a genuinely new tool in an area of insurance that's actuarially sound is a very expensive and complex undertaking. You have to approach it very incrementally and very methodically to get the risk measurement and premiums right, and make sure it's stable and viable over the long term. It's quite a challenge.

[Bob Zimmer, Conservative, Prince George—Peace River, BC]

Yes.

That leads to my next question. Have you been hearing anything, or is there a desire that you've seen provincially, or in the industry, to have a more insurance-based suite? You talked about that in closing. Can you explain a bit more about what you've been hearing?

[Greg Meredith]

A number of sectors are looking at price insurance. There is a real appetite for it. The horticulture sector is always looking at how we can improve insurance products for their sector because it's very diverse. It has a different crop cycle and different risks attached to it.

We are definitely seeing a lot of interest. The CPC, the Canadian Pork Council, is considering how they can help their industry do forward hedging, which is another risk management tool. Other ideas have been raised about price and production insurance in the livestock area. Particularly in the western provinces, there is quite an appetite for investigating alternative tools.

[Bob Zimmer, Conservative, Prince George—Peace River, BC]

Do I have any more time?

[The Chair, Conservative, Larry Miller]

You do, yes.

[Bob Zimmer, Conservative, Prince George—Peace River, BC]

In my riding especially, I've been hearing about beef and the problems with that in terms of insurability. You mentioned that in your comments, but can you expand on that for our benefit here in committee?

[Greg Meredith]

The situation that livestock producers in general find themselves in is that mortality insurance is a very specialized part of the business. You don't often see animals wiped out as you would see a crop wiped out. That creates the incentive to look at price insurance as a mechanism to allow the farmer to lock in some surety.

Of course, the challenge is that in a market where prices are going up, as we have now, there is less incentive to lock in today's prices. As you see the trend, you expect, you know...Chicago mercantiles telling you it's going to be higher in three months than it is today, you're not going to pay a premium to lock in today's price. You might pay a premium to lock in three months ahead, but if the trend is up, there's a tendency to lay back.

Alternatively, if there starts to be a trend down, there is a significant incentive to lock in. Then the challenge is to determine if we have a viable, actuarially sound fund or not. Alberta, I think, is taking some groundbreaking steps to test this out in real life for cow-calf and for fed cattle.

You have to take into account quite a complicated set of factors to see if you have something viable over a ten-year period, for example.

[Bob Zimmer, Conservative, Prince George—Peace River, BC]

Thank you.

[The Chair, Conservative, Larry Miller]

Thank you very much.

We'll now move to Mr. Payne for five minutes.

[LaVar Payne, Conservative, Medicine Hat, AB]

Thank you, Chair.

It was nice to meet you today, Greg, and welcome to the committee.

I have a couple of questions. One of the things I've been hearing about, at least from one of my cattle ranchers, is the flooding of pasture land. They have obviously had a couple of years running on this. I understand there isn't any coverage for that unless the province decides to come up with it.

Can you make any clarification on that for me?