Some farm-support programs hard to justify

In Canada, there's a long history of insurance programs in which federal and provincial governments help farmers weather the often-sharp ups and downs of their income. But since farmers also pay the premiums to participate, they justifiably feel entitled to some say in how those programs are structured. That's partly why farm leaders were perturbed when they read the fine print of the newly minted federal-provincial agreement on a suite of programs called "Growing Forward" for the next five years.

The other part is the changes themselves. The farm community had been prepared for some change, although the "consultation" process consisted largely of briefing sessions on how things are going to unfold.

But farm leaders and even some provincial ministers claim they didn't get the full story until after the deal presented at the recent federal-provincial ministers' confab in Whitehorse was done. From the perspective of farmers paying into these programs, they are getting a raw deal.

AgriStability, the main support program, hasn't just been modified -- some would argue it has been gutted. Until now, farmers have had a program that lets them insure against sudden drops in revenue relative to their farm's past performance. Under the new rules, their program payments will be based on a reduced portion of whichever is lower, their reference margin or their eligible sales.

Without going into all of the convoluted details, it means farmers will be eligible for significantly less support if they need to draw on the program.

While some suggest these programs now provide too little value to be much good, others quietly concede there was a significant moral hazard in the way the programs were designed.

Surging commodity prices in recent years have allowed farmers who harvested decent crops to build a healthy reference margin under AgriStability. A downturn in revenue, either through lower prices or reduced production, could have made farmers eligible for payments even though they were still in a profitable position.

Another dilemma for government is new thinking on how farmers' incomes stack up to the rest of Canadians.

An analysis prepared for the Canadian Agricultural Policy Institute (CAPI) in 2009-2010 points out the oft-reported net farm income, which has been flat or declining, is a poor measure of actual farm-family wealth.

Farmers, like the rest of us, earn income from diverse sources, and because of the capital-intensive nature of farming, farmers have traditionally been asset rich and income poor. But they do accumulate significant wealth through asset appreciation.

For example, despite stable net farm operating income between 1996 and 2007, the total value of farmers' land and buildings rose 31 per cent for grain and oilseed farmers, and 46 per cent for dairy farmers.

Farmers' average net worth is about triple that of the average Canadian family. And because commodity prices have been strong, they've recently enjoyed family incomes that are well above the Canadian average.

On that basis alone, farm supports become harder to justify, especially farm supports that prop up existing ways of doing business in a rapidly changing environment.

Studies show farm supports are quickly capitalized into land -- accounting for up to 50 per cent of values. With governments acting as a revenue backstop, farmers have been aggressively expanding their operations. That's causing land prices to soar, with some farmland in Manitoba now selling for $6,000 an acre.

Canadian farms carry almost twice the debt of their American counterparts, and their debt is growing faster, despite the fact they are less able to carry that debt due to shorter growing seasons and fewer cropping options.

Farmers here also have higher debt-to-earning ratios, which means they carry more risk, which in turn leaves them vulnerable in the event things take a turn. So stabilization may actually be destabilizing the sector.

Earlier this year the federal government changed the rules to make it harder for people to over-extend themselves buying homes. It can hardly justify propping up a similar spending spree on farmland.

When CAPI looked at federal spending on farm supports a couple of years ago, it found 59 per cent of the $8 billion in annual spending in agriculture was going into farm supports, 11 per cent on marketing and promotion and only seven per cent into research and development. It strongly recommended government focus spending on research and innovation, which provides more return on investment.

The government says that's what it's doing. If they are to protect public investment in agriculture, farm leaders need to make sure that's what it does.

Laura Rance is editor of the Manitoba Co-operator. She can be reached at 204-792-4382 or by email: laura@fbcpublishing.com

Republished from the Winnipeg Free Press print edition September 22, 2012 B8