AgriStability is also relatively complex. Although more simple alternatives exist, unless coverage and therefore budget allocations are increased, I suspect that producer dissatisfaction will remain high. If BRM budgets are fixed, a decrease in coverage or subsidies in AgriInsurance could fund increasing coverage in AgriStability.
There has been some discussion of public or private coverage for shallow losses not covered by current programs. Although AgriInvest is meant to assist farmers with these types of losses, governments could consider offering non-subsidized individual or area-level shallow-loss products but cover program administrative and operating costs. However, I would not expect farmer participation to be high, as many would continue to choose to self-insure against these shallow losses. Farmer demand for private alternatives would be even less, as the coverage would be the same as the public program but at a greater cost to farmers.
Provincial crown corporations deliver most of the BRM programs to producers. However, these entities tend to behave more like a private insurer and less like a public delivery agent. The current AgriInsurance rate-setting methodology is biased in favour of provincial Crown corporations collecting excessive premiums, much like a private insurer. The Crown corporations have $7.5 billion in reserves. Unless there is a change to the rating methodology, I expect these reserves to grow. This level of reserve could cover the maximum-ever loss multiple times over. Note that $3 billion of these funds belong to the farmers.
Furthermore, despite these excessive reserves, provincial Crown corporations still purchase private reinsurance. These Crowns represent the only public entities, across all other government agencies in the developed world, that purchase private reinsurance. For example, the Farm Credit Corporation does not purchase private reinsurance. Last year private reinsurance premiums paid by these provincial Crown corporations were in excess of $100 million, of which 40% was farmer paid and 36% was federally paid. Interestingly, there exists a relatively costless federal reinsurance option available that has been for the most part ignored.
Finally, COVID-19 and the BRM programs deserve discussion. COVID-19 can be considered a black swan event. Governments have the option to deal with these events in real time as they arise. This is almost always more efficient, as black swan events cannot be predicted as to their specific form, their timing or the most appropriate policy response. I would suggest treading carefully in making structural BRM policy changes at this time in response to COVID-19. The last few months have been a strong testament to the resiliency and adaptability of the current Canadian agricultural and food system. Nonetheless, the pandemic has provided an avenue for rent-seeking and alternative-agenda-enhancing efforts. To date I believe the government response has been appropriately measured.
I would like to finish my talk by bringing to your attention a special issue of the Canadian Journal of Agricultural Economics that deals with COVID-19 and the Canadian agricultural and food sectors. While I recognize that an academic journal is not generally suggested reading material for you, this particular issue was written for a popular and not academic audience by 18 of the best experts in their respective areas of research concentration. Moreover, although these articles were written approximately two months ago, they have been adeptly accurate so far. The considered issues include food security, farm labour, trade, the supply chain, BRM, cattle and hog markets, supply management, processors and so on.
Thank you for your time and attention.