Agriculture Committee on June 23rd, 2020

[The Chair, Liberal, Pat Finnigan]

Welcome, everyone, to the 20th meeting of our House of Commons Standing Committee on Agriculture and Agri-Food. We're continuing our study on business risk management programs.

First of all, I will thank my colleague John Barlow for taking the chair at the last meeting. I heard it went quite well, so thank you, John, for doing that.

In calling the meeting to order, I will quickly go over some of the rules to follow.

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

We have a few witnesses here. Can I get a nod that you've understood those guidelines? Is everything good? Thank you.

Also, before speaking, please wait until I recognize you by name. When you are ready to speak, you can click on the microphone icon to activate your mike.

Also, make sure your microphone is off when you are not talking.

We are now ready to begin.

I want to welcome our witnesses to today's meeting.

In the first hour, we have the following witnesses: Mr. Mario Rodrigue, acting director general, and Mr. René Roy, administrator, from Les Éleveurs de porcs du Québec; from MNP, Mr. Stuart Person, senior vice president of agriculture, and Mr. Steve Funk, director of agricultural risk management resources; and Mr. Jake Ayre, farmer, from Southern Seed Ltd.

We will begin with opening remarks of seven minutes each.

I will ask the representatives of Les Éleveurs de porcs du Québec to begin. Mr. Rodrigue or Mr. Roy, you have seven minutes in total. Please go ahead.

[René Roy, Administrator, Les Éleveurs de porcs du Québec]

Thank you, Mr. Chair.

I will provide the opening remarks.

On behalf of Les Éleveurs de porcs du Québec, I thank you for this opportunity to share our concerns and our expectations regarding risk management programs. My name is René Roy and I am a pig farmer in the Chaudière-Appalaches region. I am also an administrator with Les Éleveurs de porcs du Québec. I am accompanied by Mr. Mario Rodrigue, our director general.

Les Éleveurs de porcs du Québec brings together more than 2,700 producers who own pig farms. They are the foundation of an industry that generates more than 31,000 jobs in Quebec and exports 70% of what it produces. The entire Canadian agriculture and agri-food sector wants to contribute to the recovery of the Canadian economy, and the pig sector is particularly well positioned to increase its already considerable contribution. However, producers must have the tools and resources they need to ensure that their businesses are sustainable and to harness its development potential. It is important that the toolbox include risk management programs properly tailored to the realities and issues facing the businesses for which the programs have been created. From this perspective, improvements must be made to the risk management programs offered by Agriculture and Agri-Food Canada.

We fully support the Canadian Pork Council's position that it is important to review the parameters of the AgriStability program to restore the trigger level to 85% and remove the factor that limits the reference margin. In its current form, this program is not fulfilling its role. The result is increased pressure on business liquidity and on the risk management tools developed and provided by some provinces, including Quebec. When deprived of the cash flow they need, producers must postpone investments that are necessary to stay competitive and meet societal requirements in terms of animal welfare.

Improvements are also needed to the AgriRecovery framework to ensure it has the flexibility to adapt to the specific realities of sectors facing extraordinary costs following a catastrophe. For example, although they have had to cope with costs directly related to COVID-19, producers will not likely be able to receive their share of the $125-million envelope announced on May 5. This is because only expenses resulting directly or indirectly from the obligation to euthanize pigs are eligible.

The $3.7 billion generated by Canada's pork exports is a key asset for the Canadian economy. However, this strong presence in export markets exposes producers and the industry to risks over which they have little control. It is important to remember that the prices paid to producers by U.S. packing plants serve as a reference for determining the selling price of pigs in Quebec. The trade war involving the United States and China in 2018 led to a significant drop in the selling price of pigs in the United States, which directly affected the price received by Quebec pork producers.

More recently, the pandemic has caused major disruptions. Within a few weeks, the forecast average price of pigs sold in Quebec for 2020 dropped by nearly $20 per 100 kilograms, below the cost of production. This represents a $150-million shortfall for Quebec producers.

Like the other Canadian provinces, the Quebec government offers risk management solutions for farm businesses. Pork producers in Quebec have access to the Farm Income Stabilization Insurance program, or FISI. However, producers must assume one third of the compensation paid under FISI. It is important that Agriculture and Agri-Food Canada provide producers with risk management programs that are complementary to those provided in the provinces.

The drop in the selling price of pigs due to external shocks, such as the trade war or COVID-19, has increased FISI payouts. As a result, the premiums paid by producers increase at the same rate and prevent them from reaching their cost of production. For this reason, steps must be taken to limit the frequency and dollar amount of FISI payouts.

In addition, FISI parameters do not make it possible to record and take into account costs that are not in line with the realities observed during the investigations commissioned by La Financière agricole au Québec. COVID-19 had the effect of temporarily reducing slaughter capacity, thereby forcing producers to postpone the delivery of pigs. The consequences of this delay on the various technical efficiency coefficients, such as the decrease in average daily gain or the increase in mortality rate, are not covered by FISI.

Several studies show that volatility in agricultural markets has increased since the early 2000s due to new factors over which individual businesses have no control and which they cannot predict, prevent or adjust to. From this perspective, it is imperative to establish an income safety net that provides sufficient, predictable and competitive support. To continue to operate, adapt to change, innovate and compete, farm businesses need a stable base on which to build. They must have access to effective and reliable business risk management programs. These financial tools represent a strategic investment by governments in the economy.

Thank you.

[The Chair, Liberal, Pat Finnigan]

We will now go to Mr. Stuart Person and Mr. Steve Funk, from MNP.

Gentlemen, you have seven minutes.

[Stuart Person, Senior Vice-President, Agriculture, MNP LLP]

Good morning, and thank you for the opportunity to present to you.

In April, MNP provided this committee with a number of recommendations for improvements that can be made to the existing suite of business risk management programs to support Canadian farmers. Our goal then, as it is today, was to suggest to this committee how simple changes to the AgriStability program could support Canadian farmers through COVID-19 and beyond. We are pleased that a number of our initial recommendations have been adopted already by various BRM administrations across the country. Our hope is that many of these constructive changes remain in place and become permanent features of the program.

There is a broad discussion happening across the country related to business risk management programs, with diverse opinions as to the right way forward. This discussion is crucial as we work to improve BRM programs to safeguard both our food supply and the economic contribution of Canadian agriculture.

Today we are going to focus on what we feel are two specific improvements that can be made to ensure that AgriStability meets its stated goals of equitability across all sectors, and to make the program simpler and more predictable, bankable, transparent, responsive, timely and decision- and market-neutral. Our presentation today is not exhaustive, nor does it address all the potential improvements to AgriStability. Rather, today we will focus on issues of fairness and equitability in the program.

Our first recommendation is to temporarily remove the $3-million cap on payments and consider whether a cap is even necessary moving forward. Farm sizes have grown tremendously since the inception of AgriStability. In our experience, a $3-million cap is not reflective of the reality facing contemporary agriculture operations, and it unjustly exposes those operations to additional risk based on an arbitrary threshold.

While unfair to any large producer, the cap is a particular problem for certain grain operations, nurseries and feedlots. While the government may feel that a cap is warranted to address the total cost associated with the program, our preference would be that the program be applied equitably and fairly, regardless of whether someone farms 4,000 acres or 40,000 acres. That risk per acre is the same.

Our second key point is to remove the reference margin limit. To explain the nuance of this, I will ask Steve Funk, MNP’s national leader for farm income programs, to provide his insight.

[Steve Funk, Director, Ag Risk Management Resources, MNP LLP]

From the late 1990s to date, some form of margin-based government program such as AgriStability has been in place. At all times and throughout the various five-year frameworks that have existed, the key principles of simplicity, predictability, bankability, transparency, responsiveness, timeliness, and decision and market neutrality have been the guideposts through which the original design and subsequent changes have been steered.

Since 2013 and the beginning of Growing Forward 2, however, the inclusion of the reference margin limit, or RML, within program parameters has been counter to those principles, and the program has never been more complex. Consequently, we are recommending that the RML be abolished immediately.

RML applies to individual producers and/or sectors where AgriStability allowable expenses are low in relation to AgriStability allowable income. In theory, it's where producers have a low-cost structure. If the allowable expenses on average are less than 50% of the allowable income, a producer will be limited and have an automatic and arbitrary reduction to their reference margin or support level under AgriStability.

Unfortunately, the RML has negatively impacted the effectiveness of AgriStability and the equitability of the program across many agricultural sectors, including cow-calf, organic crops, dairies, apiaries, bee pollinators, maple syrup producers and cranberry producers, to name a few.

For sectors impacted by the RML, the margin drop required to trigger benefits varies between 30% and 51%, compared to a standard 30% for sectors not impacted by the RML. This concept is illustrated in our submission, which includes case study examples.

That leads producers to face one of three potential scenarios. First, producers who are not limited will only require the 30% trigger point before the AgriStability benefit is activated. Second, fully limited producers will need to experience a 51% trigger point before an AgriStability benefit is activated. Third, producers who are partially limited will require a drop of between 30% and 51% in reference margin, depending on the degree to which they are limited.

These RML rules have resulted in a program that is less responsive and fundamentally unfair for many types of farms, even among farms in the same sector.

The CAP agreement, effective for the 2018 program year, put into effect a marginally positive change that increased, but did not restore, many limited reference margins. The examples I just mentioned are inclusive of this change, meaning that prior to 2018 some producers required a drop of even more than 51%.

Given that this change was layered upon the ill-understood complexities of the RML, it, too, is not well understood. Furthermore, the CAP changes to the RML failed to address the issue of the distortion of payment trigger points for certain sectors of agriculture. In the end, the systemic inequities and negativity towards the program remain, and national participation in AgriStability has yet to significantly recover. These are precisely the undesirable side effects of the RML that require its immediate removal from the AgriStability program parameters.

In the end, there are many opportunities to address the shortcomings and bolster the strength of AgriStability to simply and quickly support Canadian ag producers. MNP's recommendations in our written submission have been focused on fixing the timeliness, inequalities and complexity of the program. In our opinion, removing the payment cap and removing the RML would make for two significant strides towards this goal.

Thank you.

[The Chair, Liberal, Pat Finnigan]

Thank you, Mr. Funk.

Now we'll go to Mr. Jake Ayre.

Welcome, Mr. Ayre. You have up to seven minutes for your opening statement. Go ahead.

[Jake Ayre, Farmer, Southern Seed Ltd.]

Thank you.

My name is Jake Ayre, and I'm a young farmer from Minto, Manitoba. Like many Canadians, my family and I immigrated to Canada in 2002 for a chance at a better life. I'm proud to come from a long lineage of farmers that dates back to the 1400s and traverses two continents. The Ayres have always been farmers, and agriculture has been the central tenet of our family's culture, heritage and way of life. Today, we continue the tradition of multi-generational farming with my mother, father and sister on our 1,900-acre farm and farm retail business.

On our farm, we produce and process pedigreed seed crops such as wheat, barley, oats and soybeans, as well as growing corn, canola and soybeans as cash crops. We also operate a farm retail business, Southern Seed Ltd., which sells pedigreed crops, inoculants and biologicals fertilizer, and cleans seeds with the option of optical sortation. I also crop 140 acres in my own name and am actively working on acquiring more land to grow our operation and business.

We are currently in the midst of succession planning. Both my father and I have taken an active interest in farm policy and have held various leadership roles, in addition to serving on boards and producer committees across our province.

Today I am speaking as an individual, and the opinions and thoughts expressed are my own.

I thank the standing committee for the opportunity to present today. I am pleased to see they're studying business risk management programs and have invited me to present. Now more than ever, the issue of business risk management is one that is very pertinent to agriculture and agri-food.

[Yves Perron, Bloc, Berthier—Maskinongé, QC]

Mr. Chair, I apologize for interrupting the witness. Could he hold the microphone closer to his mouth? The interpreter cannot hear everything he is saying.

[Jake Ayre]

Is this better?

[The Chair, Liberal, Pat Finnigan]

It looks good. Give it a try.

[Jake Ayre]

Okay, my apologies.

My understanding is that we have five main business risk management programs offered in our country. In the interest of time, I will quickly touch on each.

AgriInsurance is the program that I believe has the highest uptake amongst all producers. It's structured slightly differently province to province. This program is one that has evolved and continues to evolve to react to our ever-changing agricultural environment. There has been an abundance of consultations and changes implemented as a result of active engagements in Manitoba with the body that delivers the program. I do feel that there is room for improvement, and updates in addition to alternative models such as field-by-field coverage or a gross revenue-based coverage need to be explored.

[The Chair, Liberal, Pat Finnigan]

Sorry, Mr. Ayre, can you pause for a second? I don't seem to get the French interpretation.

Monsieur Perron, does it work on your end?

[Yves Perron, Bloc, Berthier—Maskinongé, QC]

No, we were not getting the interpretation; I don't think there was any at all.

[The Chair, Liberal, Pat Finnigan]

I noticed there was none.

Can we suspend the committee to make sure the interpretation is working, Mr. Clerk?

[The Clerk of the Committee, Mr. Marc-Olivier Girard]

All right, we will do that.

[The Chair, Liberal, Pat Finnigan]

Okay. We'll suspend and work with Mr. Ayre to make sure we have good sound.

[The Chair, Liberal, Pat Finnigan]

Mr. Ayre, you have approximately four minutes left. I'm sorry about the interruption.

You can continue.

[Jake Ayre]

Thank you.

With AgriInvest, in the past, groups have called for an increase in matchable deposits to 3% and to allow up to 2% additional non-matchable, tax-deductible contributions. I believe this could be a positive change that would benefit a variety of producers, if implemented.

The AgriRisk Initiatives program isn’t directly applicable to my farm, but after researching the program, I am pleased to learn that the initiative has been taken to invest in and explore the development of new risk management tools.

After 2019, I feel AgriRecovery and AgriStability need some serious updates or a redesign.

I wanted to take the time today to talk about the 2019 harvest, and how it helped shape my views on AgriRecovery and AgriStability.

The 2019 growing season on our farm was fantastic, up until September. Torrential downpours followed by cool, wet weather delayed and dragged out our harvest. On our farm, we typically are finished with all our cereals by mid-September or the end of September, and with our canola shortly thereafter. This was not the case in 2019.

Historically, we harvest together with a neighbouring farm of the same size and share resources such as labour, equipment and storage. This is done to increase efficiency in both of our operations and ensure that the harvest is finished as quickly and effectively as possible.

Even with additional labour and resources, we were extremely behind schedule come the weekend of October 11. What happened that weekend was felt by many farmers in Manitoba and across the Canadian prairies. A severe winter storm hit, bringing freezing rain, sleet and upwards of two feet of snow across the prairies and on my family’s farm. After this storm, a state of emergency was declared in the province of Manitoba to help with the cleanup and restoration of power. Before this storm hit, my family and many other farm families in my area were struggling with an abundance of crop left out in the fields. Receiving upwards of two feet of snow, sleet and freezing rain made the harvest from hell that much harder.

Farmers are known for their resilience and willingness to get the job done. In the end, we did just that; however, it was not without unplanned costs or consequences. Bushels of crop were left on the ground or out in the fields. Due to wet weather, soybeans shelled out and we were unable to harvest the pods lowest to the ground over our whole farm. Subsequently, we purchased additional aeration fans, rented and installed tracks on our combine, utilized a natural gas dryer to dry tough grain, spent many extra hours fixing and troubleshooting problems on our machines, used heaters and propane torches to dry out and thaw our equipment, and also rented an additional combine to help finish.

Preliminary estimates by my father and me have approximated this cost at $30 per acre, or close to $90,000. These costs will continue to be felt as we are seeing the events of 2019 carry on into 2020. Extra tillage was needed this spring to fill in ruts left by last year’s harvest, as well as to work crop left in the field. Acres of land were rendered unseedable and became incapable of being travelled on. Extra turning and overlap of seed, fertilizer and crop protection will see these costs carry over into 2020.

With the kindness and help of neighbours, we were able to harvest most of our crop; however, this was not the case for many.

In my opinion, moving forward, our BRM programs need to speak to and account for all types of farming operations, and not paint us all with the same brush. This can be achieved by having genuine and transparent conversations and consultations with producer groups Canada-wide.

BRM programming is something that needs to be easily communicated. I myself struggle to wrap my head around the program some of the time, and I see that as a major issue. How do we expect farmers and the next generation such as me to enrol in these programs if they don’t understand them?

Minister Bibeau's mandate letter states that she must “[h]elp producers manage environmental and business risks by providing faster and better-adapted support.” I cannot stress enough the importance and the timeliness of this. We will survive 2019, but real and proactive changes need to be implemented.

Agriculture is my passion, and I love what I do. It is my dream to farm and continue to provide safe, nutritious food for Canada and the world alike. Food security is something that I wish our country continues to have, now and into the future. Agriculture’s potential to contribute and grow our economy is exponential and excites me.

I worry that if we do not act and implement changes to our business risk management suite, agriculture will not reach its potential, and the next generation such as me—

[The Chair, Liberal, Pat Finnigan]

Thank you very much for your statement, Mr. Ayre.

Now we'll go to our questions, and we'll start with Mr. Barlow for up to six minutes.

[John Barlow, Conservative, Foothills, AB]

Thank you very much, Mr. Chair. I will be sharing my time with my colleague Mr. Lehoux.

Thank you very much to all the witnesses for appearing here today.

I want to comment on Jake's presentation specifically.

Mr. Ayre, you made the interesting statement that one of the issues with the business risk management is that we're trying to do a one-size-fits-all type of program. You were quite clear, and we'll hear from the cattlemen later on today, that these business risk management programs do not work for all types of farms. I think the pressure is on us to come up with some programs that are flexible for various different commodities. I found your comment quite interesting.

Turning to MNP, I apologize, but I can't remember if it was you, Stuart, or Mr. Funk who mentioned an “arbitrary threshold”, which I found interesting. Many producers and associations have been proposing that the trigger point be raised from 70% to 85% or beyond. However, neither one of you mentioned that in your presentation. I'm just wondering why.

What are your thoughts on the discussion around moving that trigger from 70% to 85%? You mentioned an arbitrary threshold, and those are the only two numbers that people have discussed. I wanted your thoughts on that.

[Steve Funk]

In our opinion, an increase in the trigger point would help all farmers and increase the effectiveness of the program, but we can appreciate that it's a significant funding decision. We would recommend that producers and government discuss and agree on the trigger point together, but to be cautious. If the RML, the reference margin limit, is not removed, the desired impact will not be fully achieved. There will still be inequities between various agricultural sectors.

[John Barlow, Conservative, Foothills, AB]

Thank you.

Again to MNP, you didn't touch a lot on AgriInvest. We had a lot of commodity groups over the last few meetings talk about the benefits of AgriInvest as a much more useful program than AgriStability, as something that's a bit more dependable. Do you have any opinion on AgriInvest as maybe a better option for us to strengthen or expand, as compared with AgriStability?

[Stuart Person]

I'll take that one, Steve.

Thanks, John, for the question. AgriInvest does put money into producers' hands on a regular basis, and more quickly. It could be used as a savings account for when situations like this happen. In order to make it more effective, though, you would need to raise the amounts paid. At 1% it takes a long time to build up a sizable account that's going to have any sort of significant impact on the operation. I would recommend that you take a look at raising those amounts if you want it to be more effective for producers.

[John Barlow, Conservative, Foothills, AB]

Stuart, is that reversing the changes from 2018, when they were reduced, or is that going further? That 5% number has been tossed around.

[Stuart Person]

You would have to go back a number of years to get back to 5%. More recently, we've been moved down to 1%. At 1% it takes a long time to build up an account, even in the matching, whereby you get 2% a year, right?

If we're looking at AgriInvest to cover the shortfalls of what AgriStability is not covering, we need to get up to, right now, 30% of the shortfall. It would take many, many years to get to that level for a producer, at this point, if they were just starting out or if they didn't have any money in that account.