Evidence of meeting #5 for Agriculture and Agri-Food in the 43rd Parliament, 1st Session. (The original version is on Parliament’s site, as are the minutes.) The winning word was agristability.

A recording is available from Parliament.

On the agenda

MPs speaking

Also speaking

Chris van den Heuvel  Second Vice-President, Canadian Federation of Agriculture
Mathieu Lipari  Program Manager, Farm Management Canada
Candace Roberts  Manager, Catalyst LLP
Scott Ross  Assistant Executive Director, Canadian Federation of Agriculture
Patty Rosher  General Manager, Keystone Agricultural Producers
Katie Ward  President, National Farmers Union
Martin Caron  First Vice-President, Union des producteurs agricoles
David Tougas  Coordinator, Business Economics, Union des producteurs agricoles

4:20 p.m.

Liberal

Kody Blois Liberal Kings—Hants, NS

Talking about the provinces, and obviously there is a sixty-forty cost share between the federal and provincial governments, you mentioned that not all provinces are created equal. From your vantage point on CFA, where are the provinces in terms of being able to contribute their share toward the 85%, because certainly the feedback I've heard is that there are different viewpoints across the provinces? Can you just speak on that very quickly, because I have about two minutes and I just want to get a few more questions in?

4:20 p.m.

Second Vice-President, Canadian Federation of Agriculture

Chris van den Heuvel

Yes, there are certain provinces that you mentioned. Quebec and B.C. just made the announcement where they're doing some top-ups. The unfortunate reality is that provinces have some fiscal issues before them as well and they are not all in the position to be able to make that commitment.

Again, it just goes back to the dialogue and having everybody at the table to do an in-depth analysis from both industry and government perspectives.

4:25 p.m.

Liberal

Kody Blois Liberal Kings—Hants, NS

I want to take you quickly to your second recommendation that has been mentioned. Just quickly, do you have an estimate on what that would cost government to implement?

If you don't have it today, I would appreciate it from the committee level.

4:25 p.m.

Assistant Executive Director, Canadian Federation of Agriculture

Scott Ross

It would just depend on the nature of the tools ultimately developed, so we wouldn't at this time be able to provide an estimate of the cost.

4:25 p.m.

Liberal

Kody Blois Liberal Kings—Hants, NS

Based on your recommendations that you'd be putting forth, I think that would be helpful for the committee.

The other piece is that you talked about crops that are not necessarily covered from the horticultural.... I have about 30 seconds. Can you explain which crops aren't covered and which ones you'd certainly be referencing in your remarks?

4:25 p.m.

Second Vice-President, Canadian Federation of Agriculture

Chris van den Heuvel

It's a lot of the horticultural crops that you see growing in your own riding.

I don't know if you have any details around the specifics on....

4:25 p.m.

Assistant Executive Director, Canadian Federation of Agriculture

Scott Ross

I think in horticulture there is just an immense diversity of production, as you know, and I think with any product that has challenges on price discovery, it becomes difficult to make insurance products, and that's been part of the challenge. Greenhouse operations are another example of an aspect of the industry that doesn't have adequate production insurance, and that's certainly an area we'd like to see some attention devoted to.

4:25 p.m.

Liberal

The Chair Liberal Pat Finnigan

Thank you, Mr. Ross.

Thank you, Mr. Blois.

Unfortunately, that's all the time we have for our first panel.

I want to thank everyone from the Canadian Federation of Agriculture, Mr. Chris van den Heuvel and also Mr. Scott Ross; and also from Farm Management of Canada, Monsieur Lipari; and also joining us by video conference, Ms. Candace Roberts. Thank you so much for taking the time to help us in our study.

We'll break for a few minutes to get a new panel in, and we'll come back again after

4:35 p.m.

Liberal

The Chair Liberal Pat Finnigan

We're okay for our second hour of study on business risk management. We have from Keystone Agricultural Producers, by video conference, Ms. Patty Rosher.

Can you hear us, Ms. Rosher?

4:35 p.m.

Patty Rosher General Manager, Keystone Agricultural Producers

Yes, I can.

4:35 p.m.

Liberal

The Chair Liberal Pat Finnigan

Welcome to our committee.

Also, from the National Farmers Union, here in person, we have Ms. Katie Ward, president.

March 10th, 2020 / 4:35 p.m.

Katie Ward President, National Farmers Union

Thank you.

4:35 p.m.

Liberal

The Chair Liberal Pat Finnigan

Thanks for being with us today to talk about business risk management programs.

By videoconference, we will also hear from vice-president Martin Caron and coordinator David Tougas, both from the Union des producteurs agricoles.

Thank you for being here, everyone, and welcome to our meeting on the study of business risk management programs.

Each witness will have the floor for 10 minutes to deliver their opening remarks.

From the Keystone Agricultural Producers, Ms. Patty Rosher, do you want to get going with a 10-minute opening statement?

4:35 p.m.

General Manager, Keystone Agricultural Producers

Patty Rosher

Yes. Thank you.

My name is Patty Rosher. I'm the general manager of Keystone Ag Producers.

KAP is the voice of Manitoba farmers on public policy issues. We work with governments, industry and stakeholders to ensure that primary agriculture in Manitoba remains profitable, sustainable and globally competitive.

I would like to begin my remarks by thanking the House of Commons Standing Committee on Agriculture and Agri-Food for initiating a study on business risk management and inviting us to participate. We appreciate the attention of the committee to this topic, which is important for our members, and we appreciate your recognition of the need for broad consultation.

In her December mandate letter, Minister Bibeau was asked to draw lessons from evidence-based research. KAP places great importance on evidence-based advocacy and is increasing its investment in research to support it. We recently issued a request for expressions of interest on four research topics. One of them was business risk management. In particular, we asked, what is the potential to augment AgriInsurance and AgriInvest to provide the kind of farm income risk management that is intended by AgriStability? We're very much interested in the answer to those questions because it may be time for a fresh look at business risk management, particularly as our members have not had the opportunity to consider those questions. We encourage the standing committee to commission research and to share those findings with farmers and farm advocacy groups.

The ground is shifting for farmers, and I know you're going to hear this many times, but they are facing an increasingly protectionist international trade environment. Net income has started to trend downward while farm expenses continue to increase. The expectations placed on primary producers from climate change and environmental interests continue to increase, and the industry must navigate a significant turnover of assets and operations to the next generation.

This past year, farmers, especially in Manitoba, faced almost every kind of risk there is, from production risk due to adverse weather and disease pressures to market risk from trade disruptions. Even though this causes great and sometimes unmanageable fluctuations in revenue for producers, costs continue to march upward. Manitoba Agriculture crop production cost guidelines show that operating, fixed and labour costs this spring will be $418 an acre to plant canola. Of that, $143 is just for the seed, seed treatment and fertilizer that goes in at the beginning of the spring, before anybody knows what kind of growing season it is going to be. Wheat will require an investment of $380 per acre, soybeans $368 and corn $533. Just for those crops alone, which represent 70% of our seeded acres, Manitoba farmers will be investing $3.4 billion this year. That investment represents revenue for agriculture input suppliers, equipment dealers and municipalities, and really keeps the provincial agriculture industry and our economy going. The experience this year highlights the types of risks that farmers face, and those risks have increased as production costs have increased. When we talk about business risk management, this is the kind of magnitude of risk that primary producers are taking on.

AgriStability was once thought to work very well, but increasing numbers of farmers say it is essentially useless to them and participation has been decreasing, leaving more and more farmers exposed to margin declines. KAP, through the AGgrowth Coalition, has long been lobbying for a reformed AgriStability, because of issues with its complexity, timeliness, predictability and overall effectiveness. We have talked about long-term reforms that are needed, including going back to an 85% coverage level; removing the reference margin, which was part of the most recent announcement; adding production insurance for those commodities that lack access to those programs; and a commitment to a technical working group that would enable producer groups like ours to participate more directly in analysis and development of potential BRM solutions.

On the AgriInvest side, in August 2015 along with the CFA, we conducted a survey specifically about AgriInvest on how farmers were using the program and whether they found it a useful financial tool. The majority of farmers using AgriInvest were using it as intended to overcome small variations in income, but they stated that the matching contribution was not enough to adequately fill the gap left by AgriStability. The allocated dollars were out of touch with the current financial needs of farm operations.

In 2017, our members passed a resolution that we lobby the Government of Manitoba and the Government of Canada to increase AgriInvest matchable deposits to 3% and to allow up to 2% additional contributions that were non-matchable and tax-deductible.

KAP has been working very hard this year to ensure that the priorities of young farmers are reflected in our policy. Young farmers have unique challenges with access to land and capital. We know about that. We talk about it a lot. There can also be unique challenges with access to business risk management programs.

We would like to share with you comments brought forward by one of our young farmers because I think he said it better than I could, as follows:

When a young producer first applies for crop Insurance it can be difficult to get their own contract because they don’t own any physical assets. In our case, my brother applied for crop insurance twice before he was granted a contract. We ended up juggling his acres into mine and my dad’s operation. If I didn’t have canola and he did, I would insure it, or if dad didn’t have any of the canola acres dad would insure [my brother’s] stuff. Because he didn’t have a crop insurance number he couldn’t enroll into Agri-Invest, Agri-Stability and I had to enter his acres into my Agri-whatever and try to carve it off down the road. It was a nuisance.

I’d like to head this off in the future because a lot of young farmers start farming without any assets making qualifying for crop insurance a bit of a pain to get into. Our rep was great and helped my brother get his crop insurance number eventually, but it made for a couple of years where [he] was very reliant on my dad and myself.

Here, I reiterate that we appreciate the attention of the committee to this topic, which is an important one for our members. We appreciate your recognition of the need for broad consultation.

However, not all consultations this year have seemed genuine. In fact, quite a bit of our advocacy work has been to speak up where consultations were inadequate. The seed royalty discussion is a case in point. Industry-wide consultations on value creation in the cereal grain sector began in the fall of 2018, but started with a focus on two potential models. KAP and its partners weren't satisfied with farmer involvement, so we issued our own survey and are still seeking that business case that defines the needed return on investment.

The uncertainty about the consultation on the Canada Grain Act is making farmers very nervous, although I understand some information has been shared at the grains round table meeting. When I started in this role a year ago, this was one of the top issues. There still does not seem to be any movement on it.

We look forward to the standing committee's review of BRMs because of the transparency that is embedded in your processes. We have also said that the discussions on improvements to current BRMs have been hamstrung by constraints in the the current provincial-federal funding envelope. Let's not make the same mistake and start this discussion by standing in place. We ask that consideration be given to enable real improvements that reflect current income risk levels. Indeed, farmers cannot afford to be cost-neutral year after year as they make their decisions.

Our goal is not to increase government payments to the farming sector. Rather, government best fit where farmers are not able to adequately cover their risk to make the investments necessary for agriculture to achieve the economic development goals that have been set.

Thank you.

4:45 p.m.

Liberal

The Chair Liberal Pat Finnigan

Thank you, Ms. Rosher.

Now, in person, we have Katie Ward from the National Farmers Union for up to 10 minutes.

4:45 p.m.

President, National Farmers Union

Katie Ward

Thank you, Mr. Chair, for the opportunity to speak today on behalf of the National Farmers Union.

The National Farmers Union is a direct membership organization made up of Canadian farm families who seek to ensure the dignity and security of income for farm families while enhancing the land and rural communities for future generations.

I'll start by stating what is perhaps obvious: that all farmers want to make a good living by farming. We do not seek government handouts. In fact, when you look up “self-reliance” in the dictionary, you'll probably find a picture of a Canadian farmer.

Business risk management programs are the backstops necessary to enable farmers to continue farming in the face of unexpected bad harvests, low prices or other unexpected events. We note that when we lose farmers to one or two bad seasons, we lose not only their production but the skills and knowledge these farmers hold.

We must have a robust food system that can deliver both production and fair incomes in Canada in the face of such huge shocks to the system as COVID-19 and increasingly erratic weather. A well-functioning BRM program can be part of ensuring this strong food system.

In the past decades, Canadian farmers have lost the majority of their security and income. The chart in your handout entitled “Tackling the Farm Income Crisis” shows incomes, without government support, at the top of the graph. The lower green line is the amount farmers keep after paying for expenses. The dark blue area, the difference between farmers' gross revenues and net incomes, is the money paid out for farm inputs.

Although farm incomes have gone up, farm expenses have gone up faster. The result is that total realized net farm income in Canada is hovering very close to zero. This divergence between the revenue and expense lines has many causes, including deregulation, decreasing farmer market power in relation to both our suppliers and our buyers, cuts to supply management, and leaving important decisions in the hands of corporations without adequate consultation with farmers.

It might be obvious, but I'll state it clearly: This lack of net income leaves the vast majority of Canadian farmers increasingly vulnerable to market fluctuations, weather-related yield reductions, and rising input costs. We are in need of BRMs that work effectively for Canadian farms.

I have a number of brief requests for your consideration.

First, BRM program expenditures were slashed during the transition from Growing Forward 1 to Growing Forward 2 when eligibility criteria were narrowed. An important start for this government, to support farmers and rebuild national unity, would be to reinstate BRM programs to previously supported levels, prior to the 2013 implementation of Growing Forward 2.

The drop in funding for BRM programs post-2012 mostly had to do with capping AgriStability at the lower of the reference margin or eligible expenses and changing the margin drop trigger from 15% to 30%. Therefore, to make an AgriStability claim, you had to have both a precipitous drop in total farm income and high input costs. This would only be available, as a practical matter, to farms that were highly specialized, with high production costs and highly exposed to volatile export markets, such as the hog sector, and it wouldn’t make any sense to enrol if you were a low input farmer with diversified production in a stable market, such as mixed farms selling into domestic markets. Thus, from 2011 to 2015, the participation rate dropped from nearly half of Canadian farmers to less than one-third.

We recommend that AgriStability return to the 15% reference margin trigger and eliminate the eligible expenses cap. We could also continue to ask, as we have in the past, that total payout to an individual farm be capped, we're suggesting in the amount of $750,000; and that all subsidiaries of a large farm enterprise be counted as part of the larger farm for purposes of the payout cap.

Secondly, crop insurance is calculated to address historical risk levels and patterns. The climate crisis is increasing risk and farmers are bearing the brunt of early snows, hailstorms, increasing wind speeds and drought. They will not be able to do so for long with the income fragility shown in the chart I've already referenced.

Given that farmers are the source of what may be the most important national asset of the 21st century, food, BRM programs need to recognize the increasing risk posed by climate change and must enhance farmers’ financial capability to weather these changes.

There is still a high uptake for AgriInsurance, or crop insurance, and there are increasing dollars spent on it. We actually oppose options that would offload that risk management tool onto various private insurance schemes. We would like to have crop insurance expanded so it serves a wider range of farm types and sizes.

It is difficult to assess risk for diversified farms because there are more variables. At the same time, we need to increase on-farm diversity to have the resilience to deal with climate change.

If crop insurance is privatized, it will make it even more difficult for small and diversified farms to get insurance, because they are a less profitable customer for insurance companies. There is a legitimate role for our cost-shared federal-provincial farmer system to help farmers cope with crop production risk.

Third, we hear from many young farmers that they are not signing up for the BRM programs because the paperwork required is overly complicated and onerous, especially during the start-up phase of their business when they may be the most vulnerable.

Please facilitate access to BRM programs as much as possible so that farmers of all levels of experience can reap the rewards during their time of crisis. Because many new entrants focus on domestic markets, we feel that it is worthwhile to recommend that you consider encouraging the development of domestic markets and import substitution so that our farmers will be less exposed to volatile export prices, currency exchange rate fluctuations and unstable export market access. Policies that would support an agriculture economy focused on stability and adequate farm income would help keep the cost of BRM programs down.

Lastly, I must mention the importance of the Canadian Grain Commission in protecting grain farmer interests. The CGC is the watchdog that ensures fairness and prevents more powerful grain and railway companies from taking advantage of farmers by paying less for their grain via weights, grades and dockage. It also ensures that our export products are high quality and can command a high price from export customers.

Keeping the mandate of the CGC to act in the best interests of farmers and ensuring that the CGC has the funds and capacity to enforce the regulations will help keep farmers' incomes to levels where they do not have to call upon BRM programs to survive.

Thank you for your time and consideration today.

I look forward to any questions.

4:50 p.m.

Liberal

The Chair Liberal Pat Finnigan

Thank you very much, Ms. Ward.

We now go to the representatives of the Union des producteurs agricoles.

Gentlemen, you have 10 minutes.

4:50 p.m.

Martin Caron First Vice-President, Union des producteurs agricoles

Good afternoon. Mr. Chair and committee members, thank you for inviting the Union des producteurs agricoles, or UPA, to comment on the business risk management programs as part of the committee's work in this area. I have a two-part brief.

First of all, I'm going to tell you how we have seen business risk management programs evolve over time since the first agricultural policy framework came into effect in 2003, particularly with respect to the AgriStability program.

In the second part, I will share with you the UPA's recommendations on the future development of these programs and the federal government's involvement in risk management.

In general, Canada's investment in risk management has declined sharply since 2003. From the time the first agricultural policy framework was implemented in 2003 to the final year of Growing Forward 2 in 2017, farm cash receipts grew by over 80%, while direct payments to Canadian farm businesses were cut in half.

Many might think that farm business profits improved substantially during that period. However, from 2007 to 2012 and from 2012 to 2017, the OECD's estimated producer support for Canada fell at twice the average OECD rate, from about 14% to 9%.

Transfer payments, a key factor in producer support or estimated producer support, dropped by 50%, from 6% to 4%, between 2012 and 2017. For Canada, the transfer payment to production value ratio is well below that observed in a number of OECD countries. For example, on average, OECD countries have a stable ratio of 11%, while in the United States, the ratio rose from 7% to 8% between 2012 and 2017.

As you know, the Canadian government made significant program cuts in 2013 that included reducing the reference margin coverage under AgriStability from 85% to 70%. Due to this measure and the capping of reference margins, the program is no longer accessible when the situation requires it. This demonstrates that the program has stopped doing what it was designed to do. In fact, these changes have turned this stabilization program into a disaster program. This reality has been confirmed, in particular, by a sharp drop in farmer participation in AgriStability, which now stands at about 30%.

At the time, the government justified these adjustments—as it continues to do today—by stating that earlier production covered what were considered normal business risks, and that the agricultural sector was seeing commodity prices rise and, as a result, businesses were more profitable than they had been. That may have been true in 2013, but it is really not the case today. Those days are gone. Farm commodity prices have been back to normal levels for several years now, as evidenced by the decline in total net farming income from $12.2 billion in 2013 to $3.6 billion in 2018. In addition, farm business debt is on the rise.

Farm businesses are unstable and receiving inadequate support from risk management programs, and they must now cope with an increased level of risk beyond their control. Think of the risks associated with climate change, which exacerbate extreme weather events, and trade wars, which can radically change commodity prices, or the risks that come with labour disputes—take rail transportation as an example. We could even talk about the potential impact of COVID-19 on Canada's agricultural sector, in terms of exports or the availability of foreign workers.

These business risks cannot be considered normal. Some countries, like the United States, acted swiftly and broadly to cover these new risks, including a $23-billion payout under the market facilitation program, which aims to support U.S. producers affected by the trade war with China.

Unlike those producers, Canada's grain producers received no special assistance from their government, and the current AgriStability program is unable to effectively cover this type of risk, which limits the competitiveness of our businesses in the export market.

The government has held several consultations to make changes to the programs available to Canadian farm businesses, but only minor adjustments have been made to business risk management programs since 2013. That status quo is because of the federal government's condition that any adjustments to business risk management programs must be cost-neutral. Based on that, the UPA must state that an increase in allocations to the agricultural sector has become inescapable and urgent. In particular, this would make it possible to improve the AgriStability program so that it meets the objectives for which it was designed. In fact, restoring 85% coverage and eliminating the cap on reference margins would help Canadian farm businesses effectively deal with the new risks associated with the current business situation.

It is important to remember that these proposed enhancements to AgriStability were supported by all industry stakeholders following the consultations on the last agricultural policy framework and, with this in mind, they must be reflected in a timely manner in federal government policy.

Furthermore, to maintain competitiveness for Canadian farm businesses, the Canadian government must be proactive and must respond quickly on an ad hoc basis when an exceptional event beyond the control of producers occurs. The trade war with China is a perfect example where the government could intervene, as the U.S. government has, to support businesses affected by the conflict. There will be other situations in the future. COVID-19 may be the next example where the government will need to truly commit to supporting Canadian farmers to ensure growth in the sector for years to come.

Thank you.

5 p.m.

Liberal

The Chair Liberal Pat Finnigan

Thank you, Mr. Caron.

We will now begin the first round of questions.

Mr. Lehoux, you have six minutes.

5 p.m.

Conservative

Richard Lehoux Conservative Beauce, QC

Thank you, Mr. Chair.

First, I want to thank our guests, our witnesses, for coming to share their concerns with us. The comments you made were really very interesting and enriching.

My first question is for Mr. Caron.

Mr. Caron, in your conclusion, you reiterated the importance of AgriStability and returning to 85%, as opposed to 70%, and also removing caps on reference margins.

We clearly understand the difference between the situation back in 2013, when these measures were introduced, and today's realities in 2020. You provided some very interesting figures on the decline in net business income from $12.5 billion to $3.6 billion.

Can you elaborate on that? How do you think the situation would change if the cap on this reference margin were completely eliminated and coverage were increased to 85%?

5 p.m.

First Vice-President, Union des producteurs agricoles

Martin Caron

I will start to answer your question, then I will give the floor to Mr. Tougas.

First, it is very important that we react quickly when it comes to the increase. We mentioned that in the brief. This also gives us the opportunity to tell committee members and other partners that our brief includes tables. They truly reflect the concrete data we are putting forward. One thing we must never forget is that we are competing with our next-door neighbours. We are price takers in many cases. As the other partners mentioned earlier, we must not forget the next generation in our farm businesses. We owe it to ourselves to have a system in place.

As for the cap, I will let Mr. Tougas answer you.

5 p.m.

David Tougas Coordinator, Business Economics, Union des producteurs agricoles

Good afternoon.

With respect to capping the reference margin, we consider this to be an unfair measure. This measure targets some production sectors more than others. As an example, take maple syrup production in Quebec, a sector that has few eligible expenses and that requires significant support based on the fluctuations in annual yield due to weather conditions, which are always uncertain in spring.

That is one of the sticking points for us. This measure needs to be reviewed, to eliminate it or at least come up with something else that will be fairer for the various agricultural production sectors in Canada.

5 p.m.

Conservative

Richard Lehoux Conservative Beauce, QC

Thank you.

You also referred on a few occasions to the importance of adapting programs to support start-up businesses. The two previous speakers mentioned that as well. I think it is important.

Paperwork must be reduced if we want to improve program productivity. When you consider that the cost of administering AgriStability is 24% of its total funding, some reductions may be possible.

Do you have any comments on this key issue?

5 p.m.

First Vice-President, Union des producteurs agricoles

Martin Caron

Certainly. Simple and flexible programs are needed to respond quickly to the needs. I would add that a business risk management program is also an investment in our rural areas. We must never forget that. It keeps farm businesses going across Canada, in every municipality and every region. We need to be very aware of that.

That is why we need risk management programs that are well tailored to our needs.

5 p.m.

Conservative

Richard Lehoux Conservative Beauce, QC

My other question is about ad hoc programs, which we also spoke about. Over the past few years, a number of things have happened, particularly due to climate change. We know that agriculture is directly affected by climate change.

Should there not be a fund built into the AgriInsurance program to address the issues we are facing? Last fall, we had some difficult situations, such as crop failures and the rail strike, which had repercussions across Canada. How do you feel about an exceptional event fund?

These concerns exist elsewhere in the world, in the United States and in Europe. I gather that they must exist here at home as well. Isn't that right?