Planning For the Payout – Has crop insurance crossed the line into subsidy?

As supply management continues to make headlines at the political level, provincial crop insurance quietly slips in what, I believe, is a comparable subsidy. With the MASC pricing release this week and the other provinces to follow shortly, I think we’ve finally seen the shift from insurance program to government subsidy. So here is what I find interesting: why do grain producers continue to back negative rhetoric regarding quota and supply management, and nobody on the opposing side points out the elephant in the room?

 

Let’s take the blatant overestimate of base prices out of the discussion to start. For those who are unaware, crop insurance premiums for grandfathered participants are subsidized by more than $25 per acre for every producer. Furthermore, the premiums do take into account historical claim history, but for new producers or entrants trying to enter the program, the discount is nullified. This seems counterproductive when premium discounts and premium costs are not based on the strength of the insured, only the participation history. Furthermore, provincial crop insurance does not remove producers who are “going concerns” or are living off of the program at this point. While you see private crop insurance providers pull out of certain risk zones, the government-backed insurance will continue to cover all producers, no matter their ability around production. To me, this continues to resemble more of a subsidy than an insurance coverage.

 

Let’s push forward with the choice of base prices. When commodity markets thrive, we often see coverage prices well below the actual futures or elevator pricing in each province. When producers can produce a profit, the pricing on crop insurance moves lower as it is not required to cover profit or limited loss liability. When the cost of production or commodity markets indicates that profit is going to be in short supply, we see what is currently occurring in Western Canada. Inflated insurance prices to prop up producers. Again, this continues to sound like a bailout or subsidy.

 

The last interesting area around government programs is AgriStability. As a proponent of the program, I believe this is the “least awful” subsidy provided by our leaders. Yes, the program is relatively free to participate in, and, for the current year, provides coverage up to $6M per operation (with a 20% deductible tied to payouts). However, this program at the very least takes into account historical profitability and performance. I am a proponent of this program because it provides coverage to farms that have a proven track record in contributing to the system that we call agriculture and GDP. I am less concerned when programs cover producers that have proven track records, rather than a shotgun approach of “guaranteed income”.

 

I think we need to identify the repercussions of this type of subsidy program. I have talked to enough US farms to realize that bailouts like the current $12B payout from the current US government are not used to prop up working capital or keep most farms in business. These cash payouts are directly linked to land purchases and keeping the land market at the current valuations (or higher). I also think we need to identify that in Canada, types of coverage that provide guaranteed income will do the same and keep new producers from being able to buy land by inflating prices further than where they currently are. I have said it before and will reiterate (until I am proven wrong), I don’t believe land softens because our government will step in well before that occurs.

 

I cannot be too negative, as the producers we work with will be better off with high coverage through any of the programs. I do need to call out the ignorance in the room sometimes, as I have not seen anybody from supply management come out and throw stones as grain producers tend to do towards their partners in the agriculture industry. I think this should be a sombre message to grain producers that sometimes we need to look into our own systems before jumping into other sectors in the industry. I see that Sylvain Charlbois is speaking at Manitoba Ag Days this week. I wonder if he brought up this elephant as he does with the quota system?