1, 2003: A better way of providing financial support
for farmers is imminent. The federal government has been pushing
its new approach to business risk management for months. Most
provinces have signed on to the Canadian Agricultural Income
Stabilization program. Ontario's new provincial government
may be just weeks from signing on - after one last push to
tweak the details. The basic concepts are not likely to change
- mainly because this is a well-designed program. "Well-designed"
maybe a little overstated. The Canadian Agricultural Income
Stabilization program is a good replacement for past programs,
particularly the Net Income Stabilization Accounts.
The improvements are significant:
- The program will trigger payments more often and for
- The use of declining production margins, as the trigger
for payments, is more sensitive to need than gross margins.
- Farmers can choose to contribute in proportion to the
amount of risk for which they want stabilization.
- Payments will be larger.
Most important, the new program is much better focused on
need - more of the government assistance will go to those
farmers whose losses stem from market and weather variability.
It will differ substantially from NISA, the Net Income Stabilization
Accounts, slated for phasing out. Governments contributed
to those accounts based on farmers' net eligible sales. While
the NISA program was an excellent way for farmers to build
up a rainy-day reserve fund, not all farmers had rainy days
-- while others had back-to-back disasters with no reserves
left in their accounts.
Some of the technical details are cause for concern. Should
negative margins be covered? Is farm labor an expense when
calculating production margins? How do you value inventories
of livestock and crops when market prices never stand still?
Will there be a cap on payouts so that government funds will
be targeted to family farms? Do farmers really have to tie
up so much money in a savings account to establish their eligibility
for the government support? These questions will likely lead
to subsequent improvements in the new program.
There are two big issues that will cause all of us concern.
One, this program is no match for the massive subsidies that
the U.S. government allots its farmers. Two, it is not a solution
when a whole farm sector gets hit with a disaster -- like
closed borders as a result of one sick cow. It is only a stabilization
program, designed to buffer the low points in price and weather
cycles by getting farmers to set some money aside and matching
it with government dollars.
The Canadian Agricultural Income Stabilization program is
coming. It is a better way than previous programs. It is NOT
a complete solution.
The detailed CFFO policy statement on the Canadian Agricultural
Income Stabilization Program can be found here.
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