Good afternoon, and thank you for inviting me here today. I am president of Keystone Agricultural Producers, a general farm organization from Manitoba that represents farm families and 22 commodity groups.
On behalf of Keystone Agricultural Producers, I am pleased to have the opportunity to present today on Growing Forward 2, business risk management.
Producers face many uncontrollable production and economic risks every year. These risks can result in large fluctuations in producer incomes, which threaten the stability of the agricultural sector. To achieve sustainable growth, we need programs that are long term, simple, equitable to all commodities, predictable, and delivered consistently across Canada.
Today I will comment on the four areas of the BRM file, specifically AgriStability, including the targeted advance payment program; AgriInvest; AgriInsurance; and AgriRecovery. Another program that we would like to provide comments on is the advanced payment program, APP, which allows producers to extract the best possible price from the marketplace by allowing them to time their sales.
First is AgriStability. While we are uncertain of the direction future programming may take, if we assume that AgriStability is going to be the base for the future, we need to look at ways to improve it. Flexibility and timeliness of payments are two key issues. Producers often wonder why they have to wait two years after they've suffered a loss before they receive payments. There will be farmers in Manitoba as well as across Canada who know their inventories before year end, and in some instances there will be little to none after a difficult season. Improvements to the methodology of the advance payment calculation could be made so that the administration does not end up issuing as many requests for repayment of targeted advance payments.
Another key ingredient in timeliness involves the economics branch and the determination of prices for certain commodities that fall outside the published price lists. Often these are lower-volume commodities that require some research, but the waiting time for price determination can be excessive and cause delays in future payments. An example of such a commodity would be forage seeds.
The second issue that plagues many farmers is the one of extended market troughs that have resulted in a steady and ongoing reduction of reference margins. Livestock producers in Manitoba know all about that due to the BSE situation and the rising value of the Canadian dollar.
Some amendments to the program that would assist in providing increased stability to producers include the following.
Removing the negative margin viability test could be beneficial to farm operations. Currently, a producer that has negative margins for two or more of the three years that end up in the reference margin calculation will not be eligible for coverage. We recognize that in many of these instances the farm has been viable in the past, and given the opportunity, the farm can become viable once more when market conditions improve.
Increasing the negative margin coverage level from 60% to 70% would provide improved assistance to producers in a predicament who have nowhere else to turn, as they may not have other programs available to them. Also, we should provide the highest possible reference margin by using the calculation either of the current Olympic average or the previous full five-year reference period. The benefit to producers would be that payments would be provided to some producers who did not trigger under the Olympic average and also would provide higher payments to producers already receiving assistance.
Another option for investigation and possible consideration is lagging the reference margin by one year and possibly moving up the final application deadline. As an example, for the 2012 program year the reference period would be 2006-2010, instead of the current 2007-2011. This may help producers make plans and arrange financing and potentially make timeliness of actual payments less of a problem. It may also improve processing speed if historical data is completed and corrected before the final application is submitted. A better reference margin estimate should also result in more appropriate advances.
If these amendments were implemented, AgriStability could become a more responsive program with the capacity to deal more effectively with changing market circumstances. The program may meet the accepted criteria of being predictable and bankable. From KAP's point of view, if in fact AgriStability or a similar margin-based program with additions to or improvements upon it is not the program of the future, then at this point we are open to investigating the insurance-based type of program with better coverage of production or revenue or both.
On AgriInvest, we know this program is easy to understand, cost effective to administer, and, next to AgriInsurance, is likely the most predictable and bankable program farmers have access to. This program is a good base to build upon in good financial years. If the goal of the program is to replace the top 15% of one's AgriStability margin, then in most cases it doesn't achieve that. In fact, on many farms it could take up to three years of contributions to make up for one drop of 15% in margin. A change that would improve this program could include raising the contribution rate from the current 1.5% of allowable net sales so the fund can build up more rapidly.
Both provincial and federal governments should maintain and work towards strengthening production insurance programs. It should be offered to producers at different levels of protection, based on the individual producer's yield history experience. The producer's share of premiums should be affordable. AgriInsurance crop pricing should move toward a market discovery mechanism, instead of being derived from government projections. Decisions made by government need to ensure that they provide increased protection to our producers in time of need.
Production insurance coverage should reflect the productive capacity of the land, average yields, current market conditions, and the cost of production. The current slate of insurance programming needs to be expanded to include coverage options for the livestock sectors, such as cattle and hogs.
On AgriRecovery, we recognize that dollars have flowed from time to time, but from the affected farmer's viewpoint, it seems to take an inordinate amount of time to determine what will be covered under this program and to what extent they will have coverage. We realize that it takes agreement by both federal and provincial governments to determine final program design and support levels. However, we would like to see both levels of government work with farm groups to develop a standard list of programs, such as the cover crop protection program, that can receive funding through AgriRecovery with predetermined criteria. This will ensure that in disaster situations farmers will know what will be covered and what dollars will flow in a timely fashion if standard programming is in place. We also strongly believe there is no reason to ever apply deductibles to payments when there is an acute need. Of course, we will still need consideration for other unforeseen adverse circumstances that may emerge in the future.
We understand the concern of the federal government that this program will become the new ad hoc program of the future. The intent is that it will only assist in situations where other existing programs fail to provide coverage. Although in some cases the funding didn't cover enough of the needs, Manitoba and Saskatchewan producers saw the benefits of AgriRecovery programs this past summer. Since the funding will be counted as revenue, it often defers future AgriStability payments.
The advanced payment program is an essential tool for farmers, and we support the continuation of interest-free loans for all commodities to allow producers to market the production in a timely manner. There has been discussion regarding increasing the limits and the interest-free portion, but at this time policy adoption on this has been left up to the commodity groups involved. From our perspective today, it is imperative that this program remain in place.
In conclusion, we think that if the current BRM suite is maintained, changes should be made to let it deal with declining reference margins, diversified farms, and other chronic program issues. We face production and economic risks, and it is crucial that programs are designed, developed, and reviewed in consultation with established farm organizations. These programs must be adequately funded by both levels of government, while keeping in mind the goal of fostering Canadian agricultural policy that focuses on maintaining the profitability and stability of primary producers.
Thanks.