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.