Limitations: How much change is needed to business risk management programs?

CAPI Report: A cross-country review of business risk management programs will need to address how they encourage or impede innovation

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It’s going to be a balancing act between the protection of agriculture safety net programs and the need for innovation as farmers pitch in to meet the goal of growing Canada’s food and agriculture exports.

The federal government flagged agriculture as a growth area in the 2017 budget, calling for exporters to grow to $75 billion a year by 2027.

“People will say that innovation and business risk management (BRM) are strategic substitutes,” Al Mussell, an agricultural economist and research lead with Agri-Food Economic Systems in Guelph, Ont.

“If you’re doing a real good job on innovation and constantly growing, you reduce the need for business risk management (programs) because you have fewer wrecks. And I think there is some truth to that… but we need business risk management programs to get the kind of investment that we need to really protect farmers from some of the perils we are liable to run into. So you just can’t swap one for the other.”

BRM programs are hardly mentioned in the 15-page Canadian Agri-Food Policy Institute document. They come up in a section on encouraging farmers to adopt more sustainable practices by tying them to farm support programs.

That grabbed Ron Bonnett’s attention.

“One of the things that jumped out was the whole idea of cross-compliance,” the president of the Canadian Federation of Agriculture said. “Depending on the type of cross-compliance it might be acceptable, but it might be something that farmers say isn’t going to work. The devil is in the details.”

Another approach is to offer farmers money, through short-term programs, to implement a specific sustainable farm practice, Bonnett said.

He used funding from such a program to fence his cattle out of waterways.

“That had a real benefit for the environment,” Bonnett said. “One of the things that happened on our farm is animal health has gone up. The cattle are away from wet spots and have access to cleaner water. There’s an example where you can incent behaviour and it gets a positive response from the farm community.”

Bonnett agrees risk management is critical to encourage farmers to innovate.

“Take the example of soybeans the way they expanded in Manitoba the last few years,” he said. “The first people who planted soybeans wouldn’t have had much in insurance coverage because they have no track record. So we need to look at how we deal with new crops coming along and make sure the risk is covered.”

The CFA and many other farm groups have long complained Canada’s main farm income support program, AgriStability, doesn’t meet farmers’ needs. A committee struck by Canada’s agriculture ministers is reviewing BRMs. Its ministers will agree at their annual meeting in July to extend that review.

Managing farmers’ risk also benefits lenders, Bonnett added.

There’s also a new risk facing farmers — trade uncertainty driven by U.S. President Donald Trump, Mussell said.

Reduced corporate taxes could be another factor that favours the U.S. over Canada. Both could drive new food production south.

The U.S. already has an advantage with major food brands. Canada has lots of oats and wheat to make breakfast cereals, but U.S. brands are well established on both sides of the border.

“These are really developed brands and to manage that distribution function out of this market with 35 million people I am not going to say it can’t be done, and there are success stories where we have done it, but that’s tough,” Mussell said.

“We can maybe do intermediary processing, but the final goods and the marketing and brand development and all that naturally belongs in that market of 260 million people, not here.

“The nature of the business is you need scale, it’s going to be hard for us to crack into it.”

But Canada has the scale and capacity to compete globally with canola oil and meal, wheat, pulses, beef, pork, processed potatoes and greenhouse vegetable, he added.

The Barton Report and CAPI’s summary look at the big picture. But there needs to be a lot more discussion, including on BRMs, before any “solid” recommendations are made, Bonnett said.

CAPI’s report talks about potential roadblocks to reaching $75 billion on agri-food exports. That could require modernizing regulations, fixing labour shortages and improving the transport of products to export position, he said.

Barton’s $75-billion export target is doable, Bonnett said. If seafood is included Canada is already exporting more than $68 billion in raw and processed food.

But ultimately in a free enterprise economy agri-food exports hinge on the actions of individuals and companies who grow the raw materials, build the processing plants and sell the products.

“It’s always up to industry,” Mussell said.

About the author

Glacier FarmMedia staff

Allan Dawson

Allan Dawson is a Glacier FarmMedia reporter who's covered agriculture since 1980.



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