Canadian Farm Business Risk Management Programs Still Lacking

It has been a week since USDA shocked the market giving us those big crop numbers.  Of course, there has been lots of vitriol in farm country about what the USDA can do with those crop numbers.  Needless to say, those numbers are big and cash prices are lower especially for our American friends.  The inconvenient truth of the situation is prices have been lower for about three years now and this eventually will be showing up in the bottom lines within the financial statements of American farmers. Sub $3 or $4 dollar corn prices aren’t sustainable for many within farm country.

Of course, I hope prices go back up to levels where everybody can find their way.  I am no expert on American agricultural safety net programs.  However, over the years I’ve been involved in Canadian agricultural safety net policy.  In the old days I was active in farm organizations as these policies were developed.  Of course, in 2006 I led protests across eastern Canada and in Ottawa when these agricultural stabilization programs were further threatened.  Those were wild times, especially when I had 10,000 Canadian farmers in front of me at the Ottawa Solidarity farm rally in 2006.

Little did I know that day there would be good times ahead over the next 5 to 7 years for agriculture.  We were at the start of the US ethanol boom, which came from US energy policy.  Over the next several years we saw prices go up and many of our financial problems go away.  There was no need for any Canadian agricultural safety net for grain and oilseed farmers.  These years post-2006 were some of the best we had ever seen.

This was coupled of course with some of the lowest interest rates ever, which are still with us in 2017.  Over this 10-year time frame, the ground shifted underneath us as low interest rate sent investment capital into fixed assets like land.  This was coupled with higher commodity prices, which led to much higher land values.  I didn’t see that happening in 2006 as I mounted the stage at several farm rallies.  However, in 2017 our farm revenues in the grain and oilseeds sector have dwindled in US dollar terms.
Those foreign exchange cash price optics have created the illusion that everything is okay.

And those agricultural safety net stabilization policies that we used to fight for, what has happened to them?  I say that because I’ve always believed ever since that day I mounted the stage in Ottawa that we needed a Canadian agricultural safety net policy that worked.  I always felt the day would come when farm revenues would drop significantly and that we would need some way of stabilizing farm income.  In 2017, attitudes have changed and so have many of the farmer players on the ground.  It was in that context that I read the headlines last week that Ontario farm groups and the federal government continue to disagree about the review of business risk management programs such as Agristability, AgriInvest and AgriInsurance.

Essentially, the federal government continually wants to eliminate facets of the business risk management programs long fought for in the past.  It doesn’t matter whether it’s the Trudeau government or the Harper government before they act the same.  The Grain Farmers of Ontario will continue to press for continuity of these stabilization programs, but the new $3 billion framework called the Canadian Agricultural Partnership takes effect April 1, 2018.  It leaves little time to get things right.  In fact, it’s hard to imagine that’s even possible.

I find it all so disappointing.   I say that because there are few people within government and sadly few people among farmers that really understand business risk management stabilization programs as they are.  For instance, Agristability is the old margin based CAIS program, which doesn’t work and nobody understands.  I have always maintained that the Minister of Agriculture doesn’t understand that either.  Former Prime Minister Stephen Harper promised to get rid of it during a speech in Chatham Ontario in 2006, but promptly reneged on that promise and we’ve had Agristability ever since.  The Liberals have simply continued their cut down of all those programs.

The problem is our agricultural economics tell us that farm revenues are inherently cyclical.  We are cursed by inelastic demand for agricultural commodities, which generally means prices can go very low.  When they do we need an agricultural stabilization program which works.  As of 2017, in my opinion Canadian grain and oilseed farmers don’t have that anymore.  In fact, I think there are many younger farmers that don’t understand the need for it.  However, I think it’s a very good thing that the Grain Farmers of Ontario continue to work at it.

Simply put, an agricultural stabilization program for Ontario grain and oilseed farmers is essential for the long-term viability of the sector.  Sure, low interest rates and high land prices have changed the equation.  That will be a challenge for new leadership on the ground in Ontario.  They will be the ones mounting the campaigns and possible protests and doing the work.  There are different ways of grabbing the brass ring.   Needless to say, our foreign exchange nirvana can’t last forever.  Having an agricultural safety net in place is essential when that time comes.