Agriculture Committee on June 12th, 2020

[Kody Blois, Liberal, Kings—Hants, NS]

I think it will be interesting to see where the Conservative point comes on, and in relation to their points on 5G and things like that as well, because we kind of see them talking both sides.

I want to go to Mr. Brock. I really enjoyed your comments about the policy. We've heard a lot about the 85% reference margin. I believe it to be important. I know that is something that would help farmers.

Why is it 85%? You talked about protecting profits versus back in 2013, perhaps versus the reference margin growing now. If we move it up to 85%, are we going to be just as susceptible to perhaps moving it back down in two or three years' time if the prices improve?

[Mark Brock]

The issue I see right now is that, because of this COVID situation and the lack of certainty.... In farm businesses, we're comfortable with what we know. What we know is 85%. I think that ideally, long-term, there would be a better program. I think that's where some energy should be focused, on trying to find a program that meets a national food policy, that supports farmers, government and consumers.

Right now, we know that program. We know we can make 85% work on it. I still think there should be some effort put forward to find something that is maybe more in line with a future direction of Canada and agri-food.

[Kody Blois, Liberal, Kings—Hants, NS]

I probably have just about another minute here, but I want to quickly talk about AgriInsurance. It's been mentioned that it's a program that largely works.

In your mind, is there some argument that we should be putting even more emphasis on those programs and perhaps taking a step away from the broader farm gate revenue and just going more commodity by commodity, AgriInsurance and really focusing on those programs?

[Mark Brock]

If that's directed towards me, I'll take a crack at it.

[Kody Blois, Liberal, Kings—Hants, NS]

Yes, sorry, Mr. Brock.

[Mark Brock]

I think we have to be aware that all sectors have different needs and different ways that risk can be managed. Livestock is different from agriculture, which is different from horticulture. I think some of the focus that we need at NPAC, when we're talking about changes to programs or designing new programs, is to make sure there is equality among the programs and that there are tools for all Canadian producers to use within that suite. I think the tool box is a little skinny on tools. It would benefit from having a bit more added to it so there are options for producers to look at ways to manage the risk.

[Kody Blois, Liberal, Kings—Hants, NS]

Okay. I appreciate that.

Chair, do I have any more time?

[The Chair, Liberal, Pat Finnigan]

That's pretty much it. Thank you, Mr. Blois.

Thank you, Mr. Brock and Mr. Haerle, for the interesting conversation and for your input.

That's all the time we have, unfortunately. We will suspend for five minutes.

Thank you very much.

[The Chair, Liberal, Pat Finnigan]

Thank you.

I will reconvene the meeting.

Joining us now is Benoit Legault, chief executive officer of the Producteurs de grains du Québec.

From the Agricultural Producers Association of Saskatchewan, we have Mr. Todd Lewis, president. Welcome, Mr. Lewis.

Also, as an individual, we have with us Alan Ker, the OAC research chair in agricultural risk and policy; professor at the department of food, agricultural and resource economics; and managing editor of the Canadian Journal of Agricultural Economics.

Welcome, all of you, to our second-hour panel. We will start with Monsieur Legault, with an opening statement for seven minutes.

Mr. Legault, the floor is yours.

[Benoit Legault, Chief Executive Officer, Producteurs de grains du Québec]

Thank you, Mr. Chair.

The Producteurs de grains du Québec wants to make clear its support for the Canadian agricultural partnership, which seeks to grow domestic and foreign markets, strengthen competitiveness and competitive advantages, anticipate and manage risks more effectively, support resilience and environmental sustainability, foster public trust, and grow the value-added agri-food sector. All those goals are very positive. When they were established, we pointed out that achieving them would hinge on businesses being able to adapt to change, properly innovate and compete. Achieving them today hinges on stability over time, and as such, business risk management programs must be effective and reliable.

It's important to bear in mind that grain production involves numerous risks, including trade disputes, geopolitical conflicts, and the return of protectionism and support policies in the European Union and the U.S. Our competitors receive considerable financial support. To the list of risks, we can add growing market volatility, unpredictable weather, global warming and extreme weather events—involving more than just rising temperatures—and, of course, local societal requirements. In Canada, we face a number of social requirements, which is not necessarily the case for our competitors. On top of those risks, we are now dealing with COVID-19, a crisis we did not see coming. No one could've imagined a public health crisis of this magnitude or its swift impact on agriculture and the food supply chain here and around the world.

We are realizing that the business risk management tools are even more vital today than they were before. We want the government to understand that those tools are also strategic investments in the Canadian economy. Yes, they benefit the agricultural economy, but they also benefit the Canadian economy. As we see it, we hit a wall in 2013, when the government made significant changes to those tools, scaling back support. It was done when prices were way up, so the impact wasn't felt immediately by farmers.

Now, we are seeing that the business risk management programs no longer match the needs and are putting the sector at an international disadvantage. We currently have access to less support than our main competitors do, and we've seen significant reductions in our support. Under AgriStability, the government provides significantly less in benefits, $4 million less per year, on average, since 2013. In the case of AgriInvest, the figure is $130 million a year. Meanwhile, in the U.S., the already generous programs provided for under the farm bill received a boost. Recently, our neighbour to the south introduced new programs, the market facilitation program and the coronavirus food assistance program, providing $16 billion in additional funding.

All of that confirms our fears when it comes to our programs and their ability to meet our needs. Program supports here have declined sharply since 2007. From 2007 to 2019, support for Canadian agriculture fell rather drastically—81%, in fact. In contrast, support for the sector in the U.S. rose by 98% during the same period. The COVID-19 pandemic simply reaffirms what we've observed: we have neither the capacity nor the tools to meet the challenges that the next few years have in store. For that matter, the programs haven't been adequate to meet the challenges of the past two years, which now include the COVID-19 crisis.

We are very worried considering that grain producers were already in a vulnerable position. According to the Centre d'études sur les coûts de production en agriculture, an independent agency in Quebec that studies agricultural costs, 40% of farms specializing in grain production have trouble paying operators because of current prices, which will most likely change in the next few months.

As a spokesperson for grain farmers, I am here today to underscore the need to enhance Canada's programs. Since the government has to start somewhere, the first step should be restoring AgriStability to 2009 levels, in other words, rasing reference margin coverage to 85%.

In the mid-2000s, the government took a hard look at what the programs should look like. Together with industry stakeholders and producers, the government correctly identified future risks and designed strong programs such as AgriStability, with a coverage level of 85%, and AgriInvest, with a matching contribution of 1.5% of allowable net sales. The government also made cuts to AgriInvest, scaling back the matching contribution to 1%—a drop of 30%.

Back then, the thinking was that the programs should be proactive, predictable, acceptable and flexible. The key word, though, is stability. In 2009, income stabilization was the underlying principle for the programs. That was lost in 2013. It became clear from the government's statements, discussions and line of thinking that it wanted to move away from income stabilization in favour of disaster protection, which is now the role of those programs. They are meant to help in the event of a disaster. They are no longer adequate to help farmers deal with new risks or current needs.

The Producteurs de grains du Québec wants the government to stop shilly-shalllying over the subtleties and technicalities of the current programs and seriously contemplate how to fix them. The first step is to restore AgriStability coverage to 85%.

[The Chair, Liberal, Pat Finnigan]

Thank you, Mr. Legault.

From the Agricultural Producers Association of Saskatchewan, we have Mr. Lewis for up to seven minutes.

Go ahead.

[Todd Lewis, President, Agricultural Producers Association of Saskatchewan]

Good afternoon.

I'm Todd Lewis. I operate a family farm at Gray, Saskatchewan, along with my father, brother and nephew. We grow lentils, durum wheat and canola. I'm also president of the Agricultural Producers Association of Saskatchewan. We are Saskatchewan's general farm organization, with over 16,000 members in farming and ranching, as well as 32 associate members in other agricultural organizations.

We are also part of the Canadian Federation of Agriculture, and our comments today reflect a common national view on business risk management.

Our members have been concerned about poor coverage levels in the business risk management programs since changes were implemented in 2013. AgriStability coverage has been a major issue. We are requesting, along with colleagues from across Canada, an increase in coverage levels as well as the elimination of the reference margin limit.

Enrolment in AgriStability by Saskatchewan producers is well under 50%. Producers see little value in the current program. The risk of paying the costs associated with enrolment is not worth the reward of being able to trigger a payment.

Statistics Canada 2018 farm income data released in May 2020 showed that Saskatchewan farm income dropped by 28%. Business risk management support payments dropped by 31%, their lowest level since 2009. A properly designed BRM program should provide a backstop for a revenue drop this large. Payments should have risen to support the revenue shortfall, but that is not what happened in 2018.

Going forward, in 2019 grain and oilseed producers were impacted by commodity price drops caused by trade disputes, drought, transportation delays and a late, wet harvest season.

In 2020, we've seen further disruptions in the supply chain due to COVID-19, which have caused serious revenue problems for livestock producers. This week's estimate shows that cattle producers are losing up to $452 per head on cows, and hog producers' current prices are well below the cost of production. It is clear that the current AgriStability program will not provide enough coverage in these sectors. Many other sectors of our industry are experiencing problems as well.

Besides the reduced AgriStability coverage level from 85% to 70%, another key problem is the reference margin limitation.

In 2019, APAS was concerned about the impact of trade disruption on canola prices. We did some research on a major reduction in canola pricing and the impact it would have within the AgriStability program. APAS found that even with a 35% drop from a historical average of $11 per bushel down to $7.19 per bushel, AgriStability would not kick in.

In fact, we rechecked our data this week, and it would not kick in until it dropped to $6.35 a bushel—

[The Chair, Liberal, Pat Finnigan]

Mr. Lewis, could I interrupt here?

[Todd Lewis]

Yes.

[The Chair, Liberal, Pat Finnigan]

Can you bring your microphone a little closer to your mouth?

[Todd Lewis]

Yes, sure.

[The Chair, Liberal, Pat Finnigan]

Okay. Thank you.

Try it again.

[Todd Lewis]

We rechecked our data this week, and it would not kick in until it dropped to $6.35 and the producer had lost over $200,000 in revenue. The payment at $6.35 a bushel would be $2,800, and the cheque would not arrive until long after the bankruptcy auction.

To put this in context, canola is our major cash crop, and a price drop of that magnitude, 40%, would reduce farm income by over $2 billion in Saskatchewan alone and would drive many producers into bankruptcy. Thankfully, that calculation only occurred on paper. Canola prices are currently down, but not by 40%.

In spite of the reduced pricing for canola today, producers are not expecting AgriStability payments this year. What we are seeing in 2020 is further serious real income drops and reductions, especially in the livestock sector, without a program to provide adequate coverage. Producers are facing a serious challenge in Saskatchewan and across Canada. I'm concerned about young producers who do not have enough equity built up to carry them through. They will have to exit the industry. Hog and cattle producers do not have adequate programs to mitigate their losses.

The current AgriStability program also penalizes mixed farmers because they are managing risk by diversifying their operations. A well-designed program would not drive producers towards monoculture, i.e., all grain or all livestock. Producers who rely on family labour are also penalized under the current program.

The last time the cattle industry faced a challenge of this size was the BSE crisis. We lost many producers in Saskatchewan then, and cattle production has declined.

Our recommendations to increase the AgriStability coverage levels and the reference margin limit are straightforward and would have a significant effect on producers across the country and go a long way to restoring confidence in the current programming. I would ask this committee to seriously support actions that would help agriculture producers by sharing the financial risks they take every year to produce our food.

I would also remind members that it's not only our livelihood that is at stake, but the livelihood of the one in eight Canadians whose employment depends on agriculture. Agriculture is a major driver in the Canadian economy. The industry is well positioned to be a major contributor to the Canadian economy as it recovers from COVID-19. With proper changes to business risk management programming, more Saskatchewan and Canadian producers will be in business to do what they have always done: supply safe, secure and affordable food, not only to Canadians but to our customers around the world.

Thank you for the opportunity to present to you today. I look forward to your questions.

[The Chair, Liberal, Pat Finnigan]

Thank you, Mr. Lewis.

Now we'll go to Mr. Alan Ker for up to seven minutes.

Go ahead, Mr. Ker.

[Alan Ker, Ontario Agricultural College Research Chair in Agricultural Risk and Policy, Professor, Department of Food, Agricultural and Resource Economics and Managing, As an Individual]

Hello. I welcome the opportunity to speak to the House of Commons Standing Committee on Agriculture with respect to business risk management programs.

I have a joint Ph.D. in economics and statistics. I've been a professor at the University of Guelph since 2009. Prior to Guelph, I was professor and chair at the University of Arizona from 1996 to 2009 and worked closely with the United States Department of Agriculture's risk management agency on various crop insurance issues.

Today I will highlight some of the points made in my written brief titled “Canadian BRM: A Study in Syntax and Mythical Changes”. That brief raised a number of questions in regard to BRM and producer efficiency, overall program funding, program equity, risk smoothing, alternative insurance schemes and actuarial soundness. Additionally, the recommendations from the most recent national BRM expert panel were reviewed. Finally, other areas discussed included cross-compliance, involvement of private insurers, provincial Crown corporations, subsidization and the use of artificial intelligence in BRM.

Very little has structurally changed in Canadian BRM programs over the past three decades. This is not an indictment of the program. A cursory look at agricultural trade numbers suggests that Canadian farmers are competitive internationally in almost all products. In 2017, Canada produced $110 billion in agriculture and agri-food products and exported $56 billion. It would be hard to argue that Canadian BRM programs have hindered the competitive position of Canadian farmers. Moreover, it is noteworthy that the average farm household has significantly greater income than the average non-farm household and four times greater assets.

BRM programs consist of AgriInvest, AgriInsurance, AgriStability and AgriRecovery. More recently, there has been a great deal of dissatisfaction with AgriStability as represented by significant declines in participation and also by what the speakers before me just said. This dissatisfaction is, in my opinion, solely because of the pronounced and significant decline in loss coverage since Growing Forward. I want to reiterate that, while the change in AgriStability program parameters from 85% to 70% may seem relatively minor, they are not. Decreasing the level of coverage from 85% to 70% may, in some cases, reduce loss coverage for some farmers upwards of 100%.

[The Chair, Liberal, Pat Finnigan]

Mr. Ker, can I just interrupt? Can you bring your mike just a little closer?

[Alan Ker]

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.

[The Chair, Liberal, Pat Finnigan]

Thank you, Mr. Ker.

We'll now proceed to our question round.

Mr. Lehoux, you have the floor for six minutes.

[Richard Lehoux, Conservative, Beauce, QC]

Thank you, Mr. Chair.

I'd like to thank the witnesses for joining us this afternoon.

My first question is for Mr. Legault.

Mr. Legault, you said that Canada's support for the agriculture sector had dropped by 81%, in contrast with the situation in the U.S. There, it's the complete opposite.

Do you think Canada's lack of support will have major repercussions on agriculture overall, considering what a vital sector it is?

[Benoit Legault]

Yes. The main reason we wanted to share that information was to show which way things are heading. Whether the number is 80% or 90%, up or down, the point was to draw your attention to the structural trend in Canada as compared with the U.S. Here, the trend is towards diminishing support, while there, support for farmers is rising.