Thank you, Michel.
Government support to manage agricultural risk comprises four programs. These include AgriInsurance, AgriInvest, AgriRecovery and AgriStability. Together, they provide about $1.6 billion annually to producers, but very little of that is for, or can be accessed, by ranchers and cattle feeders.
First, about $1 billion is paid out through AgriInsurance for crop production failures. This has little relevance for cattle.
Second, about $250 million is a government match for producers who make deposits into their AgriInvest accounts. These can be drawn upon in times of need, and the average size of a cattle account is only $13,000. That would cover the $450 per head price drop of a herd of only 28 animals. This is not much considering that an average cow-calf herd is about 70 head, and feedlots have thousands of heads.
That leaves about $350 million annually for AgriStability, which is one of the most important BRM tools for all of agriculture. However, there are a number of challenges that work against participation by ranchers and cattle feeders.
This explains why the beef industry made such a strong appeal to the federal government for special COVID-19 support under the fourth BRM program, AgriRecovery. It was the only tool to help us effectively handle the processing slowdowns, the backed-up cattle and the crash in prices. While it is appreciated, we fear it is not enough, and producers will be looking towards AgriStability.
We need to make sure that programs like AgriStability work, and work well. Currently, only 31% of agricultural producers are enrolled in AgriStability. In 2012, that figure stood at almost 45%. Why is there a change? I think there are two reasons.
First, a number of changes were made to the program in 2013. For example, payments used to trigger “after farm” net income fell by 15%. Today, payments are triggered only after net income falls by 30%. This has simply made the program less attractive as a risk management tool.
Second, there are a number of structural issues with the program that work against participation, particularly for beef producers. For cattle feeders, a key issue is the $3-million cap on payments. For cow-calf ranchers and backgrounders, the practice of limiting the reference margin used to calculate a drop in net income likewise reduces and limits their payouts.
What exactly does this mean for a cattle feeder? We reached out to Meyers Norris Penny to do some analysis for us. The work is still under way, but I can share some preliminary findings.
Based on the results of the modelling, given everything that has happened this year, and the potential threat of a second wave of COVID, we can expect a 25,000-head feedlot to generate a loss in the range of $6.5 million to $28 million in accrued income. Even in the best-case scenario, less than half that anticipated loss is covered by AgriStability. The payment caps out at $3 million very quickly, leaving a feedlot of this size exposed to potential losses in the tens of millions of dollars.
The current $3-million cap on AgriStability payments has not changed in approximately 20 years. Yet, there has been a 47% increase in the consumer price index, a 50% increase in the average annual price for finished cattle, and a 70% increase in feedlot input costs.