Agriculture Committee on Dec. 6th, 2011

[Joe Brennan]

I guess I referred to the option of going to a seven-year average because we do have that much data now. Since 2003, the former CAIS program, the predecessor to AgriStability, worked very similarly. With the advantage of that much background data, a longer timeframe may give you a bit more of an even flow, because you're right that that's the big kicker in a volatile sector. If you get two bad years out of five, it really impacts your coverage. If you get three bad years out of five, then you're pretty well smoked because the...[Inaudible--Editor]...out there too. That's a real dilemma, and I don't know what all the options are, other than to artificially reinstate some margin there by a factor, which again would add stability back to an industry.

If you did have a sector that was suffering from a prolonged period of problems, you would have the advantage of history there, in that you could say that it was an unusual 10% to 15% trend down because of the situation, the droughts or the floods or whatever the case may be. So then let's bump everybody's reference margin in that sector or region back to a more normal level to give them more normal coverage, again understanding that it's likely to cost the system more money, yes. That's the way it works, we know that. It is a real dilemma when your coverage goes, because then you essentially have no program.

[Alex Atamanenko, NDP, British Columbia Southern Interior, BC]

Thank you.

[The Chair, Conservative, Larry Miller]

Mr. Allen, five minutes.

[Mike Allen, Conservative, Tobique—Mactaquac, NB]

Thank you very much, Mr. Chair. It's good to see our witnesses here today.

Thank you very much. Mr. Brennan, it's always good to see you. Long time no see.

I want to talk a little about the ACRA, the AgriInsurance piece of this. Listening to Mr. Orb, I almost felt as if I were in New Brunswick again. A significant hailstorm went through in July. If everything had stayed reasonable after that, a section of the area of New Brunswick would have been hit hard. We might have come out of it okay. However, a number of folks in that area weren't under the crop insurance.

To your point, 65% of the potato acreage is covered, and a significant number of grain acres aren't covered either. Here you brought up one point to say that the premium level may be secondary to the coverage level. Could you talk about a few other ideas that might encourage a higher take-up on the crop insurance? If we're going to start to see these isolated storms, that has to be our first line of protection for the producer.

[Joe Brennan]

When you look at a program like AgriInsurance, any insurance program has to be actuarially sound. It has to be self-sustaining over time.

Again, I realize that probably not all the options are within my scope. But if the problem is too low a coverage and too high a premium, then one of the choices is to increase coverage arbitrarily, which in turn is going to mean premiums will have to be increased. There are not a lot of ways to get around either one of those things.

I have a real issue, because in our sector--and I admit that it's of narrower scope, a narrower focus than the other people addressed, because I'm pretty well talking about one commodity here--I'm talking about an industry for which over half the production is processing that is sold mostly via pre-season contracts, so the price isn't going to vary. Most variation on those farms is because of production. The situation they face is very different from that of a person even in our own sector who would be growing for table stock on an open market, where the price as well as production fluctuate, and then he would get hammered just as the grain or beef producers would. It would be the same situation.

That's why I said that if crop insurance were more broadly based, it would be more protected, because there would be a larger pool with which to average and, therefore, I would think, there should be fewer fluctuations on the production side. That would be one help. Encouraging that as costs go up and coverage goes down is an impossible job. So we either have to arbitrarily hold coverage up or put premiums at such a rate that people still think there is value there.

My point was that even a low premium for low coverage is not the answer, because costs are increasing and, as somebody mentioned here, it is not a cost-of-production insurance. The per unit rate is based on market prices over a period of years and oftentimes it's not as reflective. That average market price does not go up as directly as our costs have been going up in recent years, so we already have a lag in value there. So even 80% crop insurance does not cover our cost of production. It covers a big chunk of it, and if you have AgriStability and AgriInvest to help top it up, that's a workable angle.

[Mike Allen, Conservative, Tobique—Mactaquac, NB]

Do you think there's a case to be made for linking some of the programs and their investments to some of the beneficial and best management practices that we have? I ask because a lot of the folks have done a lot of terracing and a lot of things like that in land management, even though we experienced a lot of erosion this year.

Maybe you could speak a little bit about that, and about the state of the rotation crops, because it's apparently very capital-intensive for potatoes. What is the state of the rotation crops for potatoes?

[Joe Brennan]

It has improved in the last couple of years because of the improved commodity prices for the crops. That's one of the dilemmas we've had in the east over the last few years, when our major rotation crops were small grains. At $100 a tonne it's a necessary evil. You had to rotate for the healthier ground, but it certainly wasn't a cash generator for the enterprise. Therefore, a lot of the rotation became very tight, like a phase of one year in two, or two and a half at the most. That doesn't help the value or the quality and productivity of the potato crop.

In the last three years we've seen more alternative crops coming in--more grain, corn, soybeans, and canola. I hope the cycle of beneficial prices for those commodities will continue so that our growers will tend to ease back on potato acreage, which has happened the last three years, quite frankly. We've dropped probably 5,000 to 6,000 acres of potato production since 2009, and that's a good thing for several reasons. I think that a longer rotation will help mitigate some of the risk of potato yield as well.

As for linking crop insurance coverage directly with some of those practices--which is your direct question--there is reason for that. It's not going to be a popular one, I'll guarantee that. But again, one thing we can't do is to lose the effectiveness of these programs. If it is going to guide some better management practices along the way, then I'd have a hard job to argue against that, quite frankly. I do think we have to be more prudent with our public dollars, which are not the answer to everybody's problem. As farmers, we don't accept those sorts of things readily when we are forced into doing things that we would otherwise not want to. We also have learned to accept reality quite well over the years in a lot of things.

Again, it would be a process that would have to be entered into very thoroughly and studied well, but there could be value in it.

[The Chair, Conservative, Larry Miller]

Okay, thank you.

Mr. Valeriote, for five minutes.

[Frank Valeriote, Liberal, Guelph, ON]

Thank you all for appearing before us.

This isn't the first time we've looked at business risk management. We looked at it a couple of years ago in our study of the competitiveness of the agriculture industry. And yet we still have a letter coming--of December 5--from the Auditor General confirming what you said in regard to BRM, that “Farmers can wait up to two years for a payment and the amount of the payment is hard to predict.” So while I'm not particularly optimistic that what is recommended here is going to resonate, necessarily, with the government, I'm still hopeful that with Growing Forward 2, it's an opportunity to embrace these ideas and make some changes.

Having said that, I suppose this question is premised on our belief that climate change is actually happening, something on which, I believe, Mr. Orb, you said something extremely interesting. You said that we have to define disasters. When you said that it just really struck me.

Some time ago, Nicholas Stern, then Chancellor of the Exchequer in Great Britain, and a former World Bank chief economist, said that it's going to cost $7 trillion to deal with it, and $11 trillion if we don't deal with climate change.

Given our collective failure to deal with the issue or to embrace adaptation to the change, I'm wondering if you actually see a greater need for these business risk management programs, particularly AgriInsurance and the AgriRecovery, as we move into the future and face more of these predicaments. How would you see the definition of disasters perhaps broadening, if that's the case?

[Ray Orb]

Yes, that's a very good question. I think it's a very timely question as well. I've actually been in Ottawa three times in the last three weeks, and the first meeting I went to was with Agriculture and Agri-Food Canada, and the catchphrase apparently now in Ottawa is “climate variability”. We don't want to call it climate change any more.

[A voice]

Well, it's a start.

[Ray Orb]

It's a start, but it's to recognize, I think, that our climate is a lot more extreme that it has been for quite some time. I've noticed as a farmer that in the 30 years I've farmed, it hasn't been as extreme as it's been over the last five years.

There are a lot of things, and I think, obviously, our presentation is leaning more towards insurance programs. Last year during the flooding, many residential buildings and homes and cottages were flooded, and some of the private companies were saying, well, maybe it's time we started talking about flood insurance, because you can't get flood insurance.

Maybe we have to start looking for different models of crop insurance. If you're a young farmer anywhere in Canada, if you have any size of farm, if you're starting out the first year, you'd be wiped out because you don't have any crop insurance coverage. You'd have the area average, which is way below, not even close to, the cost of production. With AgriStability, it's the same. I assume if you had a disaster, they or the government would assign you an area, a margin you'd start with, but we've been asking our provinces to allow us to use maybe our father's margins, if we've been farming together with him for five or six years, and start using his crop insurance yields. But they don't like breaking that apart; they like to deal with you in one. We see that as problematic because it is important for young farmers and beginning farmers.

They've done some good modelling with crop insurance. I'm sure they've done it all across the country, but I think it's time they look at it as a national program, where they can say to the provinces, look, this is what we'll offer you. If you have four or five consecutive years of being flooded out, well, we're going to start reducing that amount that you lose every year. So you can still stay in the game and maybe you could hopefully get back on your feet.

[Frank Valeriote, Liberal, Guelph, ON]

Do you agree, then, that we should broadening our definition of disasters and that we should be looking at this specifically, given climate change?

[Ray Orb]

There are a whole lot of things that come into that. BSE was a disaster. But the program wasn't designed to handle it, because the margins dropped off and so you had no coverage.

[Frank Valeriote, Liberal, Guelph, ON]

I have one tiny question for whoever wishes to answer this.

The committee has been told, on occasion, that the government should reduce support for business risk management programs and redirect the funds to research, innovation, and increasing market access. Now, at one level, I can understand that, because people don't want to receive their incomes by cheque in the mail. At the same time, we know there's a need—and perhaps I'm disclosing my preferences here.

Do you support that proposal to put less emphasis on BRM programs and more on research, innovation, and increasing market access in Growing Forward 2?

I'd welcome any or all of you answering that.

[Ray Orb]

It's a tough question, but it's a question our organization is aware of. We're hearing that our governments, all governments, would like to balance their budgets. Let's face it, if we had our choice, we'd like to keep a good insurance program—something farmers could participate in, understand what they're covered for, and afford to pay the premiums on. We still have to keep some kind of core business risk.

AgriInvest is very important. We need to keep and enhance that program, because it's very predictable. You can have a disaster on your farm. For example, if a grain farmer needs a combine motor, it's about $30,000. You'd have to come up with that money, and a lot of farmers don't have it in the middle of the harvest. You can't rely on AgriStability to help you there.

I think we're tending to go away from AgriStability because of the way the program is designed. If it's maintained, we don't think it's going to be a good program. So we're saying that we should look at some modifications. Maybe it'll end up keeping the government's costs lower.

Innovation and research are very important. Canada has to keep its doors open to any company that wants to set up here. I think we have fairly user friendly regulations that make it attractive for companies to come here and invest. I think they've proven that, and so we'd like to maintain that. We need to keep a good relationship with the universities. The University of Saskatchewan has had great success in plant breeding. We want to keep those doors open and make sure that companies can come and invest. We think the two go hand in hand.

[The Chair, Conservative, Larry Miller]

Thank you.

Mr. Lemieux.

[Pierre Lemieux, Conservative, Glengarry—Prescott—Russell, ON]

Thank you, Chair.

Let me preface my comments by saying that I know from the studies that we've done that there are lots of irritants with respect to the programs in place for farmers, lots of things that could be made better. I want you to know, though, that as of September 2011, the four main programs of AgriInvest, AgriStability, AgriInsurance, and AgriRecovery have paid out over $7 billion to farmers. So there is money moving to the farm gate.

I want to change the context of the discussion. It's easy to say, “Well, you know what? We should change this or that so that it pays out more.” Actually, the discussion I'm interested in having moves away from the assumption that the best solution is to change everything so that more moves out. I'm not convinced that the provincial governments can afford that, particularly given the economic realities we find ourselves in.

Mr. Orb, in your presentation you talked about insurance programs. I know with AgriStability there are complaints about the margins, about when the payments are made, about having to wait one and a half to two years. It's not bankable. Yet we have an AgriInsurance program, and you made some comments about how to improve that program.

If we were to invest more in insurance programs, would we really need AgriStability? I'm interested in those kinds of options, what I call benefit options. Which would be of more benefit to farmers, a more robust insurance program, or AgriStability with a few changes?

Or take AgriInvest, which is definitely a bankable program. That's a savings program. It allows farmers to take money from their accounts, matched by government, to deal with whatever situations they face. Is it better to have a more robust AgriInvest? I noticed that someone mentioned raising the amount to 2.5% from 1.5%. That's a good suggestion, but where are we going to find it? Should we take that from AgriStability and say AgriStability is really not working well?

Mr. Orb, do you have a benefit analysis?

[Ray Orb]

We call it reshuffling. AgriInvest is basically the top 15% of your margin. AgriStability handles the other 85%.

[Pierre Lemieux, Conservative, Glengarry—Prescott—Russell, ON]

That could change.

[Ray Orb]

That's right, it could.

[Pierre Lemieux, Conservative, Glengarry—Prescott—Russell, ON]

You're saying that AgriStability doesn't work for farmers and that you're not happy with it. I'm asking you if that should change. Should we do away with AgriStability and have a more robust AgriInvest and a more robust crop insurance? Should we cover AgriStability off with these other two programs, which seem to be working great?

[Ray Orb]

It is hard to predict how it would actually come out, whether it would cost the government more or less. I know that AgriStability is a huge irritant. You quoted some of the numbers. We know there've been payments going out. We have difficulty tracking those payments, finding out what provinces are receiving. We know what our province budgets for every year, but we don't know until a year later, because of the way it's funded.

We had a good program before. We had an investment program called NISA. There was a lot of money sitting there but the farmers didn't access it. One problem was that you couldn't trigger it, because you pretty nearly needed a disaster.

[Pierre Lemieux, Conservative, Glengarry—Prescott—Russell, ON]

AgriInvest replaces NISA.

[Ray Orb]

Yes.