Agriculture Committee on March 10th, 2020

[The Chair, Liberal, Pat Finnigan]

Welcome everyone.

Pursuant to Standing Order 108, we are studying the business risk management program. We have witnesses with us today.

First, I would like to take a minute to talk about our next meeting on Thursday, when we will have the supplementary estimates with the minister. For your information, because of the motion that was passed in the House yesterday, we're not able to go back. These estimates are deemed to have been adopted. There is no use voting on them on Thursday because we cannot go back and move them in the House.

[Francis Drouin, Liberal, Glengarry—Prescott—Russell, ON]

We tried to get extra days.

[The Chair, Liberal, Pat Finnigan]

Without further ado, let's go to our invited guests. From the Canadian Federation of Agriculture, we have Chris van den Heuvel, second vice-president. Thank you for being here.

We also have from Catalyst LLP, Candace Roberts, manager, by video conference from Calgary, Alberta. Welcome to our committee.

We also have, from Farm Management Canada, Mr. Mathieu Lipari, program manager. Bienvenu, M. Lipari.

There is up to 10 minutes for opening statements. You can start, Mr. van den Heuvel.

[Chris van den Heuvel, Second Vice-President, Canadian Federation of Agriculture]

Thank you very much, Mr. Chairman and committee members, for the opportunity to appear before you to speak on the state of Canada's business risk management programs.

Ensuring an effective BRM program is critical to our membership, and we welcome this very timely discussion on what is an increasingly urgent issue for farmers from across Canada.

As mentioned, my name is Chris van den Heuvel. I'm a beef and dairy farmer from Cape Breton, Nova Scotia, and I'm second vice-president of the Canadian Federation of Agriculture. I'm joined here today by CFA's assistant executive director, Scott Ross.

CFA is Canada's largest general farm organization, representing 200,000 farm families from across Canada. Through a unified voice at the national level, we work to ensure the continued development of a viable and vibrant agricultural industry in Canada. As you all know, Canada's agricultural industry is primed for immense growth, as identified by the advisory council on economic growth in 2017 and reinforced in the 2018 report from the agri-food economic strategy table, which has set ambitious growth targets for our sector.

Canada's agri-food industry already contributes $143 billion to Canada's GDP. However, this economic activity, the viability of many Canadian family farms, and the sector's overall potential for growth are challenged by a number of immediate risks confronting our family farms across Canada.

For context and to emphasize the urgency of this matter for Canadian farmers, I believe that it's worth highlighting that Canadian farmers saw their realized net income decline by 45.1% in 2018. Meanwhile, we have seen government supports to Canadian farmers drop nearly 50% between 2008 and 2018, declining to only 3.6% of farm income. At the same time, this past year nearly 40% of total farm income in the United States is expected to have come from government supports, with recent estimates finding that EU farmers receive 38% of their total income from public supports as well.

This directly affects Canadian farmers' ability to compete in international markets, leaving us farmers at a distinct competitive disadvantage. Compounding this challenge—following difficult financial years for Canadian farmers, and the headwinds they face when competing in global markets—is that these same farmers now face a wide array of risks beyond their control, risks that continue to increase. Farmers must deal with increasing market and trade risks due to trade disruptions and non-tariff trade barriers to key markets. Examples of this include disruptions to the trade of canola and soybeans with China, pulses with India, and durham wheat with Italy. The rail strike last November and the recent rail blockades have resulted in lost sales and increased costs for farmers.

There are more extreme climate-related events, with this past year seeing farm harvests negatively affected across Canada due to everything from floods to hurricane winds, to heavy rains, to early snowfall. Finally, there has been a rapid increase in costs while farm receipts are effectively stagnating. This was exacerbated by additional climate-related costs due to fuel use for heating barns and grain drying, including the added expenses arising both directly and indirectly from Canada's carbon-pricing regime.

The current BRM suite, which was created to help farmers manage risks beyond their control, is failing farmers as these risks increase and program coverage does not keep pace. The financial challenges facing producers—largely the result of matters beyond their control—are increasingly urgent, yet repeated calls for urgent BRM enhancements continue to face delays.

Canada's AgriStability program is a core pillar of Canada's BRM suite, representing the only tool currently available to all farmers to manage both production and market risks. However, participation has declined precipitously since cuts were made to the program in 2013, reducing the level of support available to farmers who are facing losses. The most recent 2017 statistics indicate that only 31% of eligible producers are in the AgriStability program, and while these numbers did follow a number of years of relatively strong farm incomes, ongoing engagement with our members does not suggest that the recent significant challenges have seen any meaningful increase in participation.

We continue to hear from farmers across Canada that AgriStability no longer provides meaningful support capable of responding to the plethora of challenges affecting farmers, and this is borne out by industry analysis undertaken by the Agricultural Producers Association of Saskatchewan. We have some data in this regard that we would be happy to share with the group. This analysis found that, even if canola prices were to drop precipitously, the vast majority of grain farmers would see little or no support provided, leaving them without meaningful or predictable support to manage these risks that are beyond our control.

Saying that, we are not advocating that farmers opt out of AgriStability based on this analysis, as we believe that farmers must work with their financial advisers to make informed risk management decisions and take advantage of any supports that are available to them. However, it's been nearly three years since the announcement of the BRM review, and we have seen little progress towards meaningful program reforms that address farmers' fundamental concerns with the AgriStability program.

The changes announced in December are modest in nature and fail to address the primary concerns voiced by Canadian farmers. In fact, it's important to highlight that the benefits of any improved treatment of private sector insurance are largely longer term in nature, as current offerings are neither widely available nor suitable for many producers in Canada based on cost and the nature of products available at this point in time.

Despite continued optimism about the prospects of private insurance in this space, we have yet to see the private sector develop cost-effective programs that adequately address the continued deficiencies in Canada's BRM suite. Timeliness, simplicity and predictability are all important, but without adequate support levels, any improvements to these areas will not respond or result in increased participation.

This is why CFA and industry associations across Canada, through the AGgrowth Coalition, continue to highlight that the cost neutrality mandate of the BRM review process is undermining its potential efficacy in addressing farmers' needs. If any significant changes are to be decided upon in July, we have heard that these would be implemented in 2021, and the continued challenges in AgriStability timeliness would suggest that any improvements would not be seen by producers until at least 2022 if not 2023. These timelines fail to respond to the urgent financial challenges facing farmers, and continued reviews and tweaks only further threaten to delay the provision of meaningful support for farmers.

We believe there is a straightforward solution to this issue that could be implemented immediately if supported by FPT governments, and it involves four key actions. Number one, AgriStability coverage should be immediately adjusted to cover losses starting at 85% of historical reference margins with no reference margin limits. Number two, there should be prioritization of the discussions on production insurance for livestock and horticultural crops that are not currently covered by AgriInsurance. Number three, discussions on BRM programming options should be meaningful and focused on program effectiveness rather than funding levels. Number four is the establishment of an industry-government technical working group that would allow farm groups to actively participate in BRM data and impact analysis. To date, engagement has been largely ad hoc and doesn't allow producer associations with the access to data needed to adequately assess or engage in the development of proposed program changes.

Without urgent action, farmers across Canada face immense uncertainty and financial pressures as they approach a new cropping season that threaten to undermine the viability of their businesses and the continued success of Canadian agricultural production.

These enhancements require additional funding from FPT governments, and commitments to consider additional support are critical to moving this review from discussion and minor tweaks to meaningful reforms. Even if urgently adopted, support through AgriStability is still at least two years away, and for those commodities affected by the ongoing U.S.-China trade war, we believe an immediate trade war mitigation fund is also needed to bridge that gap. Some work has been done on this front out of Saskatchewan, and, as mentioned, we would be happy to table that as well.

We also support the continual review of BRM programs to address other elements of the suite, such as increasing AgriInvest matching contribution limits, addressing taxation barriers that continue to limit withdrawal of AgriInvest funds for proactive investment and programming to respond to phytosanitary crises. However, without urgent implementation of the most significant changes I referenced above, we will continue to see producers frustrated and increasingly disenfranchised with the BRM suite and AgriStability in particular.

As a country uniquely positioned to capitalize on the growing demand for sustainably produced agricultural products both domestically and abroad, the cost of inaction not only hurts farm families across Canada but the prosperity of all Canadians.

Thank you.

[The Chair, Liberal, Pat Finnigan]

Thank you, Mr. van den Heuvel.

I apologize to Mr. Ross for failing to recognize him. He is the assistant executive director, who is also here with the federation.

Mr. Lipari.

[Mathieu Lipari, Program Manager, Farm Management Canada]

Mr. Chairman and honourable members, thank you for inviting Farm Management Canada to speak before you today.

I am Mathieu Lipari, program manager at Farm Management Canada, leading our risk management initiatives. Our executive director, Heather Watson, is sorry she cannot be here today. She is hosting the first cohort of our new national farm leadership program.

The farm financial crisis of the 1980s caused governments and industry stakeholder groups to contemplate how to best prepare the agricultural industry to better manage against risk and uncertainty. They turned to investing in farm business management. Farm Management Canada was established in 1992 to coordinate farm business management programs and training across Canada to equip farmers with the resources, tools and information to prevent the fallout from the 1980s from happening again and to position Canada’s farmers for sustainable growth and competitiveness. We continue to serve that mandate today.

We are very pleased that the standing committee is opening up discussion on business risk management programs, or BRM programs.

The term “business risk management” has been adopted by government as the term of choice to represent support programs. While this is raising the profile of risk management in agriculture, it has inadvertently led to limiting our understanding of risk management and the tools available to help manage risk. The OECD has cautioned Canada that government policies “should take a holistic approach to risk management, and avoid focusing on a single source of risk", noting that “in many cases, the public farm support programs 'have crowded out other ways to manage risk.'”

Unfortunately, this is exactly what is happening and what we’re trying to correct through our programming.

When first announced, the Canadian agricultural partnership framework identified six priority areas: markets and trade; science, research and innovation; risk management; environmental sustainability and climate change; value-added agriculture and agri-food processing; and public trust.

We expressed concern for the lack of explicit attention to farm business management and capacity building as a priority. Farm business management and skills development fall under markets and trade, and risk management is reserved for the BRM programs, perpetuating the idea that BRM programs are the only risk management option.

As the CAP program has come into effect, we have observed decreasing support for farm business management—and, by extension, risk management—from many of the provinces and territories. This decline is expected to continue.

We started realizing that we have a different understanding of risk management in 2013, when we attended a risk management conference in Ottawa and the only risk management strategy being talked about was insurance. This led us to research the different types of risk faced by farmers and possible risk management strategies.

We produced a publication called the “Comprehensive Guide to Managing Risk in Agriculture” in 2014. Our aim was simple: to show Canada’s agricultural industry the risks we face and how we could start to manage these risks by taking a comprehensive approach.

Risk management is about taking a proactive approach to build the underlying capacity to weather any storm and to seize opportunities, positioning the farm for continued success. It is in this way that farm business management is a fundamental component of risk management. The BRM programs are just one way that farmers can manage certain risks. Farmers should be optimizing their use of these programs while also optimizing the other risk management tools available to them, such as planning, working with advisers, putting standard operating procedures in place, etc.

Top farmers focus their efforts on putting measures in place to manage the risks they can mitigate directly, measures such as having a solid business strategy, knowing how to work with family, finding ways of recruiting and keeping good labour, ensuring good cash flow and liquidity, and the list goes on.

In 2016, with the support of AAFC's AgriRisk initiatives program, the comprehensive guide was turned into an online risk identification, assessment and planning tool called AgriShield, which identifies more than 500 best management practices to help farmers mitigate risk.

Under CAP, we have been able to secure additional funds to launch the Roots to Success project. It’s important to note that it wasn’t easy to secure funds under the risk management funding program, which seems to remain designed for insurance program development.

During the FPT ministers' meeting in July 2018, increasing risk management education was recommended. We worked with AAFC to open the discussion to risk management in general by hosting a national focus group involving key stakeholders. The core messages from this meeting included building confidence and supporting mental health through strategic planning, continuous education, working more collaboratively with others, involvement in industry associations and embracing technology as key steps to improving a producer’s capacity to manage their risk, going beyond the BRM programs.

Our Roots to Success project is aimed at improving risk management through education and training that promotes a comprehensive approach to managing risk under the AgriShield platform. A national round table has been set up to steer the project and achieve a more comprehensive approach to managing risk for Canada's agricultural sector.

The BRM review work of the standing committee, along with Canada's agricultural policy framework, offers an incredible opportunity to promote farm business management as Canada's best risk management strategy. We hope that government and industry will invite us to be part of the BRM review, so that we can encourage farmers to adopt a comprehensive approach to managing risk.

A comprehensive approach provides a systematic means for farmers to manage that which is in their control, use the appropriate tools to manage that which is outside of their control, and invest in what works. Our process for making informed business decisions is now more critical than ever. The time has come to take a comprehensive approach to managing risk in agriculture.

We look forward to reading the committee's report on this topic. We're happy to keep you informed of our progress and report back to the committee as often as you like.

Thank you, Mr. Chairman, members and guests.

[The Chair, Liberal, Pat Finnigan]

Thank you, Monsieur Lipari.

Now, by video conference, we have Ms. Candace Roberts.

You have up to 10 minutes. Go ahead.

[Candace Roberts, Manager, Catalyst LLP]

Mr. Chairman, members and guests, my name is Candace Roberts. I'm a chartered professional accountant at Catalyst in Calgary. I work with many primary agricultural producers.

In addition, I'm a fourth generation farmer in east-central Alberta. I am also in the 2019-20 AdvancingAg Future Leaders program with Alberta Wheat and Alberta Barley.

Farmers face many challenges, many of which are beyond their control at the farm level, including weather, trade, getting products to market—particularly the last number of months with the rail strike and then blockades—and global commodity prices, which are affected by supply and demand. In addition, consumer perception is impacting our farmers.

Other factors that can be controlled and are impacting farmers are transitioning to the next generation, managing debt, rising input costs and land values, and the mental health of our farmers, among other challenges.

It's important that we have business risk management tools in place to support our farmers who feed our nation. Farmers need increased levels of support. These programs need to be able to provide benefit or future benefit to operations, or a perception of benefit. The programs need to be improved so that they are bankable and predictable. Calculation needs to be transparent and easily understood by our producers.

Supports must be timely. We need to reduce the lag time between the disaster and the financial support. We need to be responsive to producers' needs and reduce the administrative burden of our producers. Is there a better, simpler way of administering the programs and supporting our farmers?

The business risk management programs should consider the various farm types and take into consideration grain and livestock, or a variation, etc. The stage of a farmer's farming career should also be looked at when considering these business risk management programs.

Thank you for the opportunity to speak today.

[The Chair, Liberal, Pat Finnigan]

Thank you very much, Ms. Roberts.

Now we'll move to our question portion.

Mr. Barlow, you have six minutes.

[John Barlow, Conservative, Foothills, AB]

Thank you very much, Mr. Chair.

Thank you to all of our witnesses for taking the time to be here today and for giving us your insight on the ground about why some of these programs may or may not be working.

I'll go first to Chris. I know you talked about it a bit in depth. We changed the AgriRecovery program from 85% to 70%. I think the landscape for agriculture was very different at that point. We made that change because the program had become almost a source of profit for some producers, rather than stability, which is what the program was intended for. At that time, we did not have the trade disruptions we have now. We did not have a carbon tax. We had reliable transportation to get our commodities to market, for the most part.

Chris, I don't want to say “demand”, but was a lot of that ask to get back to 85% precipitated by the change in the landscape that agriculture is facing right now? Certainly we have seen that in the last six months alone with a very difficult harvest, the CN strike, the illegal blockades and a carbon tax. When you add all of those things onto agriculture, one can certainly see why the need to revisit AgriStability is so imperative.

Is that change in landscape a big reason this has become such a priority for the CFA?

[Chris van den Heuvel]

Yes, absolutely, I couldn't agree more. When those changes, the cuts to the programs, were put in place it was at a point in time when income levels were relatively stable and, as an industry, we were in a good place.

As you mentioned, those introductions were put in as cost-saving measures, and we're certainly not advocating for support from a profitability perspective. We understand why some of those changes have been put in place, but the landscape has changed tremendously. This is becoming an increasingly global marketplace. Well, it's not “increasingly”: We are there. We're not competing with our neighbours anymore; we're competing with farmers from around the globe. When you tack on domestic policies such as the carbon tax and domestic issues, the rail strikes and whatnot that impact us, and you look at some of the trade wars and some of the international events that are happening, you see that they have a severe, detrimental effect on our ability to move our industry forward and to grow our businesses.

Absolutely, I couldn't agree more, the landscape is a key issue, which is why these programs must have some sense of timeliness and must be able to change and be flexible. That's key.

What worked 10 years ago doesn't work now. Whatever we develop going forward, we have to make sure it's flexible to meet the demands for anything that we can see coming down the pipeline in the foreseeable future.

[John Barlow, Conservative, Foothills, AB]

Thanks, Chris. I appreciate that.

Candace, you spoke in your presentation as well about the difficulty with AgriStability in terms of its bankability, accessibility and timeliness. I thought it was interesting that Chris gave the statistic that only 31% of eligible producers are actually subscribing to AgriStability.

In your career, or your profession as a chartered accountant, what are some of the issues you see with the ability to navigate the existing suite of BRM programs that may be scaring some of these producers away? I'm assuming that some accountants may be saying, “Don't bother because the likelihood of your actually being able to get a payout is slim.”

What are some of the issues, from that chartered accountant perspective, that our producers are facing when it comes to BRM programs?

[Candace Roberts]

Yes, I would agree with your comment. A lot of producers have opted out of the program because they didn't see the benefits and it was costing them more to do the paperwork than it was worth. It wasn't worth it, plus the paperwork is very time- consuming and it just hasn't been worth it for some producers. Obviously, in the last number of years, we've had the changing landscape in agriculture and many challenges, especially in 2019 with the harvest from hell, trade disputes, rail blockades and stuff. It has been challenging.

What we often see with the producers who have participated in AgriStability is that because there is such a lag between when the disaster happens and when they receive a potential payout, it's just not effective for the producers.

[John Barlow, Conservative, Foothills, AB]

With that in mind, Candace, I think the frustrating part of this is that a lot of some of these issues that you have listed are self-inflicted by government policy or government errors that could have been resolved by now. But my concern is that even if we were able to change this to 85%, which the government could have tried to do long before now, I don't know if there would be a big increase in subscriptions if, again, it's not timely and it doesn't address the crises we are facing right now.

Chris, I want to get your opinion, if you don't mind expanding a little further. You said that cost neutrality was undermining the process of a BRM review that was promised more than three years ago. Can you explain what your concern is about that cost neutrality and what is holding up this process?

[The Chair, Liberal, Pat Finnigan]

You have 15 seconds.

[Chris van den Heuvel]

I have 15 second. Okay.

We're asked to develop a program that moves the industry forward, and as soon as we put constraints in place ahead of time, how can we effectively develop a program that makes sense?

It should be the opposite. We should be developing a program and then figuring out how we can make it work, thinking about the constraints that are now in place, and then working backwards.

[The Chair, Liberal, Pat Finnigan]

Thank you.

We have Mr. Tim Louis for six minutes.

[Tim Louis, Liberal, Kitchener—Conestoga, ON]

Thank you all for being here.

I can't tell you how extremely helpful this has been; I appreciate it.

Besides your coming today to visit, it's productive for us if any of the stakeholders come to visit our office. I know that Mary Robinson is coming to our office, and those sit-downs, those one-on-ones, become even more productive than this, which happens fast. I'm typing as furiously as possible; it's amazing. Please keep those one-on-ones coming, because that gets us to a deeper conversation. It means a lot to us, so I appreciate that.

Mr. van de Heuvel, I enjoy it if there's an issue, something of concern, and people bring solutions. You brought some solutions so quickly, I didn't even have a chance to write them all down as quickly as I could. You talked about the AgriStability cutback in 2013 to 70%, and I've heard this from many stakeholders—I'm sure we all have—about bringing it back up to 85%, which we are willing to listen to, obviously. You mentioned no reference limits. Can you expand on that?

[Chris van den Heuvel]

When the program cuts were put in place...we're now at a position where we're actually at 70% of 70%. These reference margin limits were introduced by the government purely as a cost-saving measure from a budgetary perspective. That goes to the root of one of the key issues that rendered this program ineffective for farmers. APAS, the Agricultural Producers Association of Saskatchewan, has done a deep dive into what it would take for their farmers to see a payout from AgriStability, and because of the reference margin limits that were put in place, it is far below the cost of production. How is that program effective in helping guarantee and mitigate risk when, as everybody is saying, the payout is simply not worth the paperwork? These cost-saving measures get to the root of the issue.

[Tim Louis, Liberal, Kitchener—Conestoga, ON]

Do you have more specific solutions? Is it just removing those limits?

[Chris van den Heuvel]

Maybe I'll defer to Scott to talk in a little more detail.

[Scott Ross, Assistant Executive Director, Canadian Federation of Agriculture]

I think at the time of their introduction as part of the cuts in 2013, the reference margin limit was introduced to address some of what John had referenced earlier about paying into profitability, this notion that the margins had got to a point where a proxy was needed to see whether the program was paying farmers in profit or responding to loss, and so this was introduced. At the time, we raised concerns about the mechanism used.

To date, our position has very much been that we are willing to look at how we can ensure that the program doesn't pay farmers who are in profitable situations. We think that's a meaningful intent, certainly, but the mechanism itself is a very rough proxy. I could get into the mechanics of it, but it's a pretty deep dive. We have seen a model out of Quebec that uses a net income test that we think warrants some further consideration as an alternative to that.

While we do advocate for the removal of the reference margin limit, we're certainly open to the concept of ensuring that a program doesn't pay farmers in profitable situations.

[Tim Louis, Liberal, Kitchener—Conestoga, ON]

Helping the people who need help, that does make sense.

This probably reinforces my point about sitting down one-on-one to have these conversations, which are very helpful.

You also mentioned a technical working group, and you said that the data itself would help. Can you expand on that? What kind of data would be helpful to you? How can we help get that to you?

[Chris van den Heuvel]

That gets back to Mr. Barlow's question that we were talking about before. For us to understand the constraints being put in place, we need to have a look at the data. We need to have an underlying understanding of the reasons for it and how we can make it better. We're being asked to put forth suggestions for a program in place, but we don't necessarily understand what's really going on at that lower level and why those constraints are indeed constraints from their perspective, other than the simple blanket statement that it's a cost-saving measure. We think that by having access to the underlying data for the programs, industry and government could sit down together to be able to do a deep dive into this to help us understand and get to that point. Maybe the answer is not there. We don't know, but until we have a look at it, we can't say for sure.

[Tim Louis, Liberal, Kitchener—Conestoga, ON]

Understood. I appreciate that.

Mr. Lipari—I'm trying to mix up the questions here—the funding that's supplied for AgriStability would be sixty-forty federal-provincial, is that correct?

Basically, their support is coming from the federal level, and it's also coming from the provincial level. Are you seeing co-operation in all forums, working with the provinces?