Agriculture Risk Management Review Task Force
809-401 York Ave
Winnipeg, Manitoba
R3C 0P8
September 30, 2015
National Farmers Union Submission to
Manitoba Agriculture Risk Management Review Task Force
The National Farmers Union (NFU) welcomes the opportunity to provide input to the Manitoba Agriculture Risk Management Review Task Force regarding climate-related challenges. The NFU is a direct-membership voluntary organization made up of Canadian farm families who believe that the problems facing farmers are common problems, and that farmers producing diverse products must work together to advance effective solutions. The NFU works toward the development of economic and social policies that will maintain the family farm as the primary food-producing unit in Canada.
1. What are the gaps or challenges with current risk management programs?
The federal-provincial AgriRecovery program under Growing Forward 2 (GF2) is an ad hoc safety net program that does not recognize the ongoing and cumulative impacts of climate change and which, too often, seems to be deployed with more regard to the impact on the public purse than the needs of affected farmers and the viability of Canada’s food system. The NFU commends Manitoba for seeking more effective ways to address problems farmers are experiencing as our climate becomes less predictable. However, we do not believe private insurance is a viable solution to climate change-related risk, and we oppose any move to introduce it.
Insurance is a form of financial risk management that transfers the cost of potential adverse events to an insurance provider in return for paying a premium. Insurance systems rely on risk calculations to make certain the premiums collected will, over time, cover payouts. Insurance providers must assess the probability of various events and their costs, which allows them to set premiums rates that will cover claims. Often premiums are tied to an assessment of the insured person’s behaviour and
The National Farmers Union (NFU) welcomes the opportunity to provide input to the Manitoba Agriculture Risk Management Review Task Force regarding climate-related challenges. The NFU is a direct-membership voluntary organization made up of Canadian farm families who believe that the problems facing farmers are common problems, and that farmers producing diverse products must work together to advance effective solutions. The NFU works toward the development of economic and social policies that will maintain the family farm as the primary food-producing unit in Canada.
1. What are the gaps or challenges with current risk management programs?
The federal-provincial AgriRecovery program under Growing Forward 2 (GF2) is an ad hoc safety net program that does not recognize the ongoing and cumulative impacts of climate change and which, too often, seems to be deployed with more regard to its impact on the public purse than on the needs of affected farmers and the viability of Canada’s food system. The NFU commends Manitoba for seeking more effective ways to address problems farmers are experiencing as our climate becomes less predictable. However, we do not believe private insurance is a viable solution to climate change-related risk, and we oppose any move to introduce it.
Insurance is a form of financial risk management that transfers the cost of potential adverse events to an insurance provider in return for paying a premium. Insurance systems rely on risk calculations to make certain the premiums collected will, over time, cover payouts. Insurance providers must assess the probability of various events and their costs, which allows them to set premium rates that will cover claims. Often premiums are tied to an assessment of the insured person’s behaviour and track record. With climate change and agriculture, the insurance provider is faced with increasing uncertainty. Past weather patterns are no longer a reliable guide to the future. Even sophisticated climate change modelling can only provide future scenarios based on emerging knowledge. Furthermore, the rate of GHG accumulation in the atmosphere depends on many factors, both policy-based and bio-physical, which interact in complex ways.
There are big challenges with applying an insurance model to manage climate change-related risks in agriculture. The increasing frequency and severity of unusual weather is due to more energy being stored in the atmosphere by heat-trapping chemicals such as CO2, methane and nitrous oxide produced by industrial processes. The individual farmer who pays premiums cannot influence climate-related hazards, such as drought, torrential rainstorms, flooding, tornados, “parked” low pressure systems that cause prolonged rain during harvest, etc.
While insurance-based risk management is often seen as an attractive market-based solution, it has limits, both in terms of the scope of coverage and the ability to pay in the event of a widespread or prolonged hazard. Climate change-related coverage would likely stretch insurance systems beyond these limits. Relying on a self-funding insurance scheme to compensate farmers for climate change-related losses is, therefore, unlikely to succeed. Furthermore, it is not fair for farmers, who have virtually no control over the conditions that lead to the events that cause losses, to bear the financial burden of insurance while others who do have some power over these conditions do not contribute to the insurance fund.
2. What adjustments and alternatives to current programming could be considered?
Publicly-funded disaster relief and safety net programs are an alternative that can provide a social and economic backstop that is based on, and which serves, the public interest. Such programs must be designed to help farmers manage during and recover from disasters, and to prevent the loss of productive assets (e.g. slaughter of breeding stock and destruction of farm equipment). They should also recognize that supporting farmers’ work as food producers and carriers of specific farming knowledge and skills is not just a matter of individual benefit, but also a vital part of larger society. All Canadians benefit from our farmers’ ability to continue producing food for our population as well as commodities for export.
The NFU encourages Manitoba to pursue policy changes at all levels of government that will promote climate-friendly farming practices as well as mitigation measures, both within agriculture and throughout the economy.
Ending GF2’s Business Risk Management suite’s perverse incentives regarding climate change should be a priority. AgriStability rewards high-input practices by providing a payout based on the farmer’s reference margin or eligible input expenses, whichever is lower. It thus discriminates against low-input production systems and instead rewards the use of inputs such as synthetic nitrogen fertilizer, whose manufacture is energy-intensive and which contributes to agriculture’s GHG emissions in the form of nitrous oxide off-gassing. AgriStability also discriminates against farmers who use longer, more complex crop rotations and/or mixed farming to reduce financial and weather-related risks. The type of production GF2 rewards both contributes to climate-related problems and experiences greater income volatility due to higher production costs, less certain harvests and greater exposure to price fluctuations due to foreign currency exchange rates.
AgriStability payments should be triggered by reference margins alone, and should be returned to the 15% threshold as a way to encourage federal and provincial agriculture policies that reduce price volatility. Payouts should be capped, ensuring that small and medium-sized farmers benefit and to encourage smaller scale farming. AgriRecovery support should be available to all farmers who are faced with climate-related disasters, regardless of whether they were enrolled in crop insurance programs.
GF2’s Innovation priority should be re-focused on solving practical agronomic problems that promote more climate-friendly agriculture and the adoption of practices that buffer the effect of the changing climate. It should also help farmers share the knowledge, ideas and processes they develop on their own farms. Innovations in crop rotations, harnessing synergistic relationships among plants, insects and micro‐organisms, methods to build up soil organic matter, plant breeding for low-input and perennial crops, new ways of organizing work, and more effective decision‐making tools, for example, could be harnessed to prevent and reduce the impacts of climate change.
Mixed farming offers both a risk management strategy and climate benefits. Perennial forage crops sequester carbon, prevent erosion and promote biodiversity; premium prices for grassfed (pastured) livestock, sheep and poultry can provide income for farmers. Locally produced fruit and vegetables can replace GHG emissions from transporting imports. Investing in the processing capacity and the social infrastructure to ensure mixed farming and fruit and vegetable production are economically viable would be a beneficial strategy for Manitoba.
Climate-related uncertainty can be managed more effectively if farmers have the benefit of market structures that provide fair returns. When margins go down because farmers have less market power than their input suppliers and buyers, farmers have to produce higher yields just to maintain the same income and service increasing debt loads. High yields do not translate into better incomes when they produce a glut on the market and/or backlogs in the transportation system. Better prices for farmers through orderly marketing would make smaller-sized farms more economically viable, which would in turn sustain rural communities and provide farmers with more resources to use climate-friendly production methods.
Good climate and farm income results will not be an outcome of a laissez-faire market approach, but will require effective regulations, which must be designed and assessed according to the triple bottom line: the simultaneous delivery of economic, social and ecological benefits.
Respectfully submitted by
The National Farmers Union
September 30, 2015
