A year of many changes in agriculture sector

Looking back, it's been an extraordinarily busy year on the farm and food file, with changes to the structure and substance of farm policy in Canada so dramatic, the effects may take years to sink in.

The change that captured all the headlines -- the move to open marketing for wheat, barley and durum produced in Western Canada -- may or may not prove to be the most significant, given everything else that is taking place.

While all that was going on, there was some fundamental restructuring of farm supports and regulatory protection for farmers put into play that might give farmers a rude awakening when prices fall or a crop failure strikes.

Farmers and two levels of government cost-share a farm-support program called AgriStability, a sort of insurance plan that shelters them from sudden downturns in the value of their crops. It's a complicated formula that is designed to guarantee them a sizable portion of their average returns based on their farm's historical financial performance. Until 2012, farmers were able to insure 85 per cent of their farm's reference margin, which is based on the value of sales.

But with commodity prices soaring in recent years, program administrators could see a worrisome scenario looming. Farmers were building up some whopping reference margins, big enough that if prices dropped, they could be eligible for program payouts even if their farms remained in a profitable position.

Plus, there was evidence to suggest this level of risk-sharing was prompting farmers to over-extend themselves by bidding up the price of farmland.

That's a classic manifestation of "moral hazard," and many farm leaders were prepared for an increase in program premiums from 15 per cent to 30 per cent. But a second adjustment caught them by surprise. Governments also changed the payment eligibility criteria, so farmers are compensated based on the lesser of their reference margin or allowable expenses.

In most situations, that means the farmer is only able to insure to recover 70 per cent of his or her eligible expenses, rather than 85 per cent of the farm's average sales.

That shifts a large measure of the risk of marketplace downturns back onto farmers' plates and farm leaders were none too happy about it. One can hope farm-gate prices will keep going up, which would make all this moot, but every grain-price boom in the past has always been followed by a downturn.

Plus, 2012 was the year the Canadian Grain Commission celebrated its 100th anniversary. That celebration however, coincided with a major government-ordered overhaul, moving it away from its historic role as a regulator and defender of farmers against the "big, bad grain trade" and toward a less intrusive role as the keeper of Canada's export grain-quality reputation.

Oh, and by the way, it's moving to 91 per cent cost recovery instead of the current 50-50 split government and industry share right now. That means the fees it charges for its services will rise an average of 44 per cent, prompting a spirited debate on whether some of those mandatory services should be made voluntary.

The CGC is also getting out of the business of licensing grain buyers, which ensured farmers weren't left hanging by grain brokers who bought grain and then went broke before they paid for it. Although there are plans to replace the system, it will likely be in the form of an insurance plan paid for by farmers, not the grain commission or companies.

In other changes, federal agencies are no longer monitoring whether fertilizer products actually work. The responsibility for pedigreed seed field inspections is being off-loaded onto seed growers, and there is ongoing talk of making the seed-variety registration process less restrictive -- a move many argue could cause long-term damage to Canada's reputation for quality.

The one regulation announced in 2012 that actually increases the government's role was the long-awaited introduction of legislation designed to give rail shippers the ability to hold the railways accountable for poor service. To get that, grain shippers worked with other rail shippers across Canada, who all had the same complaints with the railway's performance.

All in all, these changes send a clear message to farmers, who have traditionally alternated between portraying an image of independent business operators or victims of circumstances beyond their control when it comes to environmental disasters or low prices.

The business of farming may be riskier than most, but this government is giving farmers the freedom -- and some tough-love nudging toward proactively managing more of those risks on their own.

Republished from the Winnipeg Free Press print edition December 29, 2012 B7