Agriculture Committee on June 17th, 2020

[The Chair, Liberal, Pat Finnigan]

Good afternoon, everyone. Welcome to the 18th meeting of the Standing Committee on Agriculture and Agri-Food.

We will spend the first hour of the meeting on our business risk management program study, and we'll spend the second hour in camera considering the draft letter prepared by the committee's analysts.

I would like to outline a few rules to follow. Most of you have heard them before, but I think it's important to repeat them.

Interpretation in this video conference will work very much like in a regular committee meeting. You have the choice at the bottom of your screen of floor, English or French. When you intervene, please make sure that your language channel is set to the language that you intend to speak, not to the floor channel. This is very important. It will reduce the number of times we need to stop because the interpretation is inaudible for our participants. It will also maximize the amount of time we spend exchanging with each other.

I believe that all of our witnesses understand that. If you could just give me a good nod that you know how it works.... Thank you.

Also, before speaking, please wait until I recognize you by name. When you're ready to speak, you can click on the microphone icon to activate your mike. That's at the bottom left-hand side of your screen.

Make sure that your microphone is off when you are not talking.

We are now ready to begin.

I want to welcome today's witnesses.

We are hearing from Léopold Bourgeois, from the Agricultural Alliance of New Brunswick. He is the president of the New Brunswick Agricultural Insurance Commission.

We also have Peter Slade appearing as an individual.

He is an assistant professor and the Canadian Canola Growers chair in agricultural policy at the University of Saskatchewan.

We also have Ms. Erin Gowriluk, executive director of Grain Growers of Canada, and Andre Harpe, director.

With that, we will start with opening statements of up to seven minutes each.

Mr. Bourgeois, you have seven minutes to make your presentation.

[Léopold Bourgeois, President, New Brunswick Agricultural Insurance Commission, Agricultural Alliance of New Brunswick]

Thank you, Mr. Chair.

The comments I will make today are general and concern eastern Canada.

I would first like to say that, although we currently live in a somewhat poor province, New Brunswick, we are Canadians first. As farmers, we compete on the same markets—either domestic or international—as producers from other provinces.

All producers in New Brunswick are currently dissatisfied with the farm income programs. That has actually been the case for two or three years. I will talk about it more and in further detail. The coverage provided by the AgriInsurance program has decreased because of a few bad years, and primes have gone up. So the program's contribution has dropped a lot.

In New Brunswick, 80% of potato producers, for example, were participating in the program. However, in 2019, only 48% of producers participated in it. The same goes for other insurable commodities such as strawberries, apples, wild blueberries, and so on.

The participation rate has decreased owing to the conditions we have been facing over the past few years. For a few years, we have been trying everything. Even now, we are trying to improve our plans.

The federal framework we operate within is very restrictive. If New Brunswick gave us more funding, we could do more. But New Brunswick does not have the budget needed at this time.

About a year ago, Nova Scotia invested $4 million to prevent potato producers' primes from going up after two very difficult years—there was the freezing weather in 2018 and Hurricane Dorian in 2019.

Producers in New Brunswick are not satisfied with the AgriStability program, as the margin has to drop below 70%. What is more, no one is satisfied with the AgriInvestment program, as 1% is too low.

The AgriRecovery program has been worse in New Brunswick. As the province has been unable to pay its 40% share, producers have ended up losing everything. In addition, they have received no assistance in this area, especially potato producers. Bordering provinces have received assistance to the tune of 100%. Our producers are not very happy, especially since some of them have had to pay an accountant between $3,000 and $4,000 to prepare the requests. They have received no money through the program.

In 2019, members of the New Brunswick Agricultural Insurance Commission, which I preside over, even thought about not offering the crop insurance program in New Brunswick because they did not think that program was good enough for our producers. The program was ultimately made available, but there was some reticence.

This year, a few changes have been made, but we still don't know what the participation rate is. In a month or two, we will have a better idea of the number of people who think that the changes are good ones.

We are open to anything, or nearly anything. We are wondering what would need to be done and whether a single program would not be preferable to four that the producers do not like. The management of all those programs is expensive. It does not benefit producers.

We feel that an open mind must be kept and new possibilities must be examined. We also talked about a number of solutions, such as improvements made to the AgriInvestment program and support for new farmers and those who have run out of money. The AgriStability program could also be provided with more flexibility.

On its own, AgriInsurance does not protect from years of low price commodities, and it is insufficient. We have even discussed the possibility of connecting everything to our tax refunds.

In any case, we want a simpler program that may offer less choice, but that would be easier to understand for producers, as that would in turn enable them to predict what it will bring them and would be easier to manage.

Those are only a few ideas, but we feel that change is needed and would be preferable to the status quo.

Thank you.

[The Chair, Liberal, Pat Finnigan]

Thank you for your testimony, Mr. Bourgeois. We will put some questions to you later.

Now we'll go to Mr. Peter Slade, Canadian Canola Growers chair.

Go ahead for up to seven minutes, please.

For some reason we're not hearing any sound. Try again, Mr. Slade.

Does anybody hear anything?

We'll get a technician to work with you, Mr. Slade.

We'll go to the Grain Growers of Canada, Mr. Harpe or Ms. Gowriluk, for up to seven minutes.

Go ahead.

[Andre Harpe, Director, Grain Growers of Canada]

Thank you very much, Mr. Chair, for this opportunity to appear today.

My name is Andre Harpe. I am the chair of the Grain Growers' business risk management program. I farm in the Peace region of northern Alberta. Our farm has been in the family for just about a hundred years now, so we've been around for quite a while.

Personally, I have been enrolled in the AgriStability program for many years and have seen its evolution first-hand. Perhaps most important, though, I have felt the impact of the 2013 changes on me and on my neighbours. Since funding to the program was reduced, I have not once triggered a payment from this program. This is not because I haven't had bad years. In fact, the last few have been quite difficult.

Last year, we saw what we call the “harvest from hell”, as well as complications from rail blockades, trade disruptions and market access loss. Given that in my region there is no processing capacity and almost all the canola I grow is sent straight to international markets, price decreases and market access challenges have been particularly impactful.

This year, I just barely got my seeding done in time because I was busy finishing up my last year's harvest. Now it looks like we're going to have more rain that we don't need in the next couple of weeks, which means that we will be looking at possibly drying grain again, which, as you know, adds a significant cost. We are hoping and praying for a good summer and harvest this year, but hoping doesn't always work. That's why we need programs in place to stabilize income during challenging times.

I believe strongly in the theory of the AgriStability program. It should do exactly that and offer us some stability amidst all the unknowns involved with farming, but it is getting harder and harder to find value in it as it is currently set up.

Given the way the coverage amounts are calculated, we are always looking back towards historical averages, which have been decreasing over the last few years. As it gets lower, my coverage also gets lower, meaning that triggering that 70% rate now means that it is a full-blown disaster. It seems that the program is becoming less about stability and more about disaster compensation at the 70% rate, especially following lower averages in the past few years, and this is exactly why the program needs to change.

When I ask my neighbours why they are not enrolled, they tell me two things. First, the program at a 70% trigger is simply too low. Stability support to that level would be insignificant even if they did receive it. The online calculator that has been promoted still requires a lot of data just to use, and often a few calls to the accountant. Second, the program is just too complicated and unpredictable. It is well known amongst farmers that this program is only understood by accountants, so we have to pay to enter the program and then pay our accountants to help us navigate through it. Usually at the end of that, we find out that we're actually not eligible for a payment. It's not exactly appealing to the average farmer.

Finally, our operations aren't as black and white as accountants and government officials want them to be. If I were to claim that I initially had 10,000 bushels in a bin full of canola but later find out I only have 8,000 bushels because I've lost 2,000 to heating or something and I'm unable to sell it, the administrators seem to struggle to understand how that is possible.

This program needs to be simplified and to be more timely, more predictable and more responsive. If the government actually wants increased enrolment, we have to do changes.

Thank you for your time today. I'll let Erin take over from here.

[Erin Gowriluk, Executive Director, Grain Growers of Canada]

Thank you, Andre.

Thank you, committee members.

I will quote a very recent research paper from Kerri Holland at the University of Calgary's Simpson Centre for Agriculture and Food Innovation. In her report entitled “Canada's Food Security During the COVID-19 Pandemic”, she states:

As the foundation of the food supply chain, Canadian farmers are key to its stability. As many farms were experiencing severe economic hardship prior to the pandemic, the challenges of market uncertainty and increased production costs put these operations at greater financial risk. Policy action will be key to ensure the short and long-term viability of our primary industry and maintain the capacity to meet domestic and export market demands.

We could not agree more. This is why immediate action to reform Canada's business risk management programs is so critical and why we, along with many other industry associations that have appeared before the committee, are calling for immediate changes to AgriStability. Losses must be covered starting at 85%, and the reference margin limits should be removed.

Our friends at the Canadian Canola Growers Association have worked with Meyers Norris Penny to create a model farm in Saskatchewan, which is based on actual prices and yield averages, to analyze the impact of triggering AgriStability under the current scenario and under the model that we are proposing. I will quickly summarize the findings to help you better understand why the difference between 70% and 85% is so important.

Under the model, this farm lost just under $130,000 in 2019. Under the current system, AgriStability would be triggered and there would be a payment of $31,000, meaning a loss of nearly $100,000 for this farm. Under the changes that we are proposing, there would be a payment of $111,000, meaning a loss of only $20,000. This is on top of over $76,000 in 2018 under the existing 70% coverage.

I'm highlighting this to show you why that 15% difference in coverage means that income is actually stabilized. It still results in a loss of $20,000 in 2019, which of course isn't ideal, but it's manageable. Losses of $100,000 year over year are simply not sustainable.

A functional AgriStability program keeps farms afloat during difficult times, whereas the current system does not. That needs to change.

In closing, I know that members of the committee want to support Canadian agriculture. They can do this by making these simple changes to the AgriStability program, which will not only support our entire industry and value chain but also strengthen the Canadian economy. The federal government needs to take a leadership role in this area, not just to work with the provinces but also to take decisive action to achieve immediate results. If governments do not want to be responsible for letting any Canadian farms fail, especially when many sectors have aligned to tell governments exactly what our industry needs right now in terms of support, this is the best opportunity that we have.

We are counting on your support to achieve these necessary policy changes for this growing season.

Thank you.

[The Chair, Liberal, Pat Finnigan]

Thank you, Ms. Gowriluk.

Mr. Slade, can you try it again, to see if we have sound?

No, we're not hearing anything.

[Peter Slade, Assistant Professor and Canadian Canola Growers Chair in Agricultural Policy, University of Saskatchewan, As an Individual]

Can you hear me now?

[The Chair, Liberal, Pat Finnigan]

We can.

[Peter Slade]

I guess I'll try it without the headset, then, if I'm coming through clearly enough.

[The Chair, Liberal, Pat Finnigan]

Is that okay with the interpreters?

[A voice]

This is Émilie, the interpreter. The issue is that there's a lot of echo when you don't wear the headset. The sound is muffled and seems distant. That's why we usually really prefer that you wear a headset.

[Peter Slade]

I feel as if it's the same. I've just unplugged it in here.

Honestly, I'm not sure what's changed. It's the same set-up as it was during the test. I have no idea why it was working during the test but not now. I'm open to any suggestions.

[The Chair, Liberal, Pat Finnigan]

Perhaps I could suspend.

We'll give them a few minutes to see if they can solve the problem. We'll suspend for now.

[The Chair, Liberal, Pat Finnigan]

We'll resume the meeting. I'll call the meeting back to order.

Mr. Slade, you can make your statement.

[Peter Slade]

Thank you for the opportunity to speak before the committee. I hope it was worth the wait.

In my remarks, I'd like to focus on AgriStability, which, as the previous witnesses have alluded to, is perhaps the most contentious of the programs in the Canadian agricultural partnership.

As an economist, in theory I find that there is much to like about AgriStability, particularly the fact that it ensures against losses due to changes in input prices, output prices and production. However, in practice, AgriStability has proven to be complex, unpredictable and slow.

A major reason for these issues is that the program relies on a detailed accounting of farms' revenues and expenses, which can only happen at the end of the year. I do note that producers can apply for an interim payment, but few actually do.

Currently, AgriStability offers a payment to farmers when their net margin, calculated as their revenues less their operating expenses, falls below 70% of their historical average. Of course, between 2008 and 2013, the program was more generous, offering farmers a payment when their margins fell below 85% of their average. As we've heard from previous witnesses, many producer groups have argued to reinstate this 85% threshold.

In my remaining time, I would like to speak to three issues. First, I would like to speak a bit about why participation in AgriStability has been declining. Second, I'd like to speak to whether this 85% threshold should be reinstated. Third, I'd like to offer one recommendation for changing AgriStability to allow it to cover revenue as opposed to margins.

While I haven't seen enrolment numbers for recent years, between 2008 and 2017, we saw participation in AgriStability decline precipitously. No doubt one reason for this decline is the fact the threshold was reduced to 70% from 85%. Other reasons include the aforementioned issues of program complexities, timeliness and predictability.

Another potential reason for declining participation rates is relatively strong farm incomes and the ability of producers to otherwise hedge their risks. I'm going to put us in the position of a crop farmer who's deciding whether to enrol in AgriStability around the April 30 application deadline—

[The Chair, Liberal, Pat Finnigan]

Mr. Slade, I'm sorry to interrupt. Can you bring your mike it a little closer? Give it a try.

[Peter Slade]

Okay.

Let's think of ourselves as a crop farmer around April 30 when they're deciding whether or not to apply for AgriStability. This farmer has already likely purchased a large share of their inputs and they also may have forward contracted or hedged a significant amount of their production. Hopefully, they're also enrolled in crop insurance. The producer is shielded against price risk because they've already bought a lot of their input and they've already pre-sold or hedged a lot of their output. They're protected against production risk by crop insurance. If output prices are level or trending upwards from previous years, then there's going to be very little chance that this producer would receive an AgriStability payment.

In some of my work, which perhaps is somewhat similar to some of the work that the previous witnesses have alluded to, I found that in many circumstances it simply isn't optimal for producers to enrol in AgriStability even though the cost of participation is typically seen as quite low.

To be clear, this isn't necessarily a flaw in the program. If incomes are high and producers are hedged against risk through other instruments, then perhaps they don't need to enrol in margin insurance. On the other hand, if low enrolment persists as farm incomes decline, which is what we're seeing in the livestock sector and other sectors recently, then low enrolment would be indicative of program failure.

I'd like to speak now to restoring the 85% threshold. In principle, I'm certainly not opposed to restoring this threshold; however, I am concerned that calls to restore the 85% threshold might be based on a historical attachment or a belief that this change is politically achievable, rather than a thorough examination of all policy options. I'd like to explain that a little further.

MInister Bibeau has suggested that restoring the 85% threshold would cost around $300 million annually, and that seems about right to me, based on the AAFC budget. I think producers would certainly support an extra $300 million of spending going to agricultural programs; however, it isn't clear to me whether the majority of producers would prefer this money to be spent on AgriStability or some other program.

On the one hand, restoring the 85% threshold might increase confidence and participation in AgriStability. I'm sure it would. On the other hand, given the other issues that producers have with the design and the timing of AgriStability, they might prefer that this $300 million be spent in other ways. For example, the money could be used to increase AgriInvest limits, a program that enjoys more producer support and higher enrolment rates.

I have a few recommendations on the future of AgriStability, which I'd be happy to share during questioning, but I think my time permits me to share just one, which is to allow producers to insure their revenue instead of their margin. This would be a fairly significant change that probably would have to be put into place in a new policy framework.

As mentioned, AgriStability requires the detailed reporting of accrual expenses. Revenue insurance would not require that producers report their expenses and, therefore, would be a much simpler and a more straightforward program. For crop producers, their revenues are mostly derived from crop sales and receipts from crop insurance, and this information is already provided to provincial crop insurance agencies. Revenue insurance claims could therefore be adjudicated immediately after a harvest, in the same way that crop insurance claims are.

Of course, under revenue insurance, producers would not be covered against increases in input costs. However, given the issues of program complexities that some of the previous witnesses have spoken to, I think many producers would welcome a simpler program that is somewhat less comprehensive.

However, certain producers, perhaps those in the livestock sector who face greater input price risk, might prefer a margin insurance, so I would imagine that the government could create a program where producers would choose revenue insurance versus margin insurance.

I thank the committee for waiting, and I thank them for hearing my testimony. I'm happy to answer questions.

[The Chair, Liberal, Pat Finnigan]

Thank you very much, Mr. Slade. We're very happy that we were able to get your input.

We'll now go to the question portion of this hour.

We'll start with you, Mr. Barlow. I believe you're going to split your time with Mr. Lehoux.

Go ahead.

[John Barlow, Conservative, Foothills, AB]

Thank you very much, Mr. Chair.

Yes, I want to certainly thank Mr. Slade for his patience. His insight and testimony were excellent, as they were for all of our witnesses.

I would like to start with you, Mr. Bourgeois. You bring a really unique skill set to this committee.

I'm just curious. You didn't mention it in your testimony, but there has been a lot of discussion in terms of expanding the western livestock price insurance program to include eastern and Atlantic Canada, and that is obviously specifically for cattle and pork. Is this something that you have some knowledge of?

There are a couple of reasons why I think this is a program that would be a benefit if we were to nationalize this across Canada. It's a price insurance program, but it's also for new farmers who are getting into the pork or cattle industries. When you can go to your financial institution and tell them that you're backed by an insurance program, it's much easier for you to get loans to grow your business or get assets or even to start.

I'll ask for any insights from you on expanding the livestock price insurance program to Atlantic Canada as a business risk management program.

[Léopold Bourgeois]

We don't actually have insurance on either beef or pork in the area, but I think the concept could be interesting. It could maybe even apply to crops also.

Our biggest crop, of course, is potatoes. We've seen a drastic diminution, a decline in participation, and that's our major problem.

However, we would be open to seeing how that would apply to our area too. Price is certainly one thing. Anything that would simplify and make things easier and more predictable and understandable for producers would be welcome.

[John Barlow, Conservative, Foothills, AB]

It is not offered in Atlantic Canada right now. It's only in western Canada. Our idea is to expand it nationally.

Cattle producers and pork producers don't enrol in AgriStability because it just doesn't work for their business structure. However, this price insurance program works extremely well if the premiums are manageable, which they are not right now because of COVID.

You have a growing cattle industry, especially in Nova Scotia and New Brunswick, but these operations are very much at risk because of what's going on right now.

[Léopold Bourgeois]

Yes. It makes sense.

We've been asked by cattle producers and pork producers to try to have an insurance program available for them, so it would be a good thing to discuss and investigate, for sure. It's a good idea.

[John Barlow, Conservative, Foothills, AB]

Thank you.

Erin, I'm really glad that you brought up the Simpson centre's study that was released a couple of weeks ago. We're really excited, obviously, to have that school of public policy at the University of Calgary.

In reading through that—you kind of touched on it and I think Peter touched on it a bit—a couple of the things it mentioned were that there is a really big difference between when AgriStability reference margins were changed in 2013 to the landscape around agriculture now, from the 85% margin to the 70% margin.

How has the landscape facing agriculture right now made an impact on the desirability for AgriStability and AgriInvest?

[Erin Gowriluk]

I'm going to invite my director Andre Harpe to speak to this as well, in terms of how that has shifted.

Certainly from hearing from our members, I know there was an acceptance when the changes were made that the changes at the time were appropriate, in 2013. That acceptance no longer exists. There have been significant changes since 2013.

I'll invite my chair, Andre, to speak to that.

[Andre Harpe]

Thank you very much.

I think if you're looking at changes between 2013 and 2020 right now, basically we are looking at crop prices that have not really changed a lot. Our inputs have changed tremendously. The capitalization has changed tremendously. Also, I think if you look at even the trade component, when was the last time we could talk about having a major trader that basically doesn't want to deal with us anymore?

We face a whole lot of uncertainty right now. In 2013, times were fairly good. Across western Canada, the crops were good and the pricing was probably the same as it is now. If you go back, a bushel of barley then went a lot further than it does now.

Basically, we're faced with a lot more uncertainty right now.