Good morning, everyone.
I will now call this meeting to order.
As discussed at our previous meeting, Mr. Finnigan has a previous engagement in his constituency, so I will be stepping in as vice-chair.
Just to give Mr. Perron and Mr. MacGregor a heads-up, there's a very large thunderstorm rolling through rural southern Alberta right now, so I may lose power. If that is the case, Mr. Clerk, I would ask you to jump in and maybe get Mr. Perron or Mr. MacGregor to chair the meeting, but so far so good.
Welcome, colleagues, to meeting number 19 of our House of Commons Standing Committee on Agriculture and Agri-Food.
We will be continuing our study on business risk management today, with two panels of witnesses, one in each hour.
I just want to go through a few housekeeping items. I know we have all heard this several times, but for the benefit of our witnesses I want to make sure they are aware of how this is going to work. I know many of them, Mr. Carey and Mr. Bergmann, for example, have been here before.
I will just run through this quickly. Interpretation in this video conference will work very much as it does in a regular committee meeting. You have the choice, at the bottom of your screen, of floor, English or French. Please select on your screen the language you will be speaking in your presentation. That makes the job much simpler for our interpreters. When you intervene, please make sure your language channel is set to the language you intend to speak, not to the floor selection. This will certainly reduce the number of times we have to stop because of inaudible interpretation. It will also maximize the time we have for questions.
Also, before speaking, please wait until I recognize you and give you the floor. Obviously using Zoom is a bit different from meeting in person in a committee room. The clerk will activate your microphone. When you are not speaking, please ensure your microphone is on mute.
I would now like to introduce our witnesses.
From the Canadian Canola Growers Association, we have Mr. McClean, chair; and Mr. Carey, vice-president, government and industry relations. From Agri-Food Management Excellence, we have Mr. Martin,who's a partner in that organization. From the Canadian Pork Council, we have Mr. Bergmann, chair of the board of directors; and Mr. Ahrens, chair of the business risk management committee.
We will start with seven-minute presentations from our witnesses, beginning with the Canadian Canola Growers Association.
I apologize. There's a bit of confusion on time zones here today, so I'm operating from another site. I hope it works okay. I'll try to be loud and clear as best I can.
Again, thank you for the invitation to appear before the committee on your study of business risk management programs. We at the Canadian Canola Growers Association obviously find this one very important.
It's a pleasure to appear today on behalf of Canada’s 43,000 canola farmers. As you mentioned, my name is Bernie McClean. I'm the current chair of the Canadian Canola Growers Association. I operate a 2,000-acre grain farm in the northwestern part of Saskatchewan, near Glaslyn. We grow canola, barley, oats, wheat, peas and hay and, more recently, we've moved into raising bison.
As you mentioned, today I am joined by Dave Carey, vice-president of government and industry relations for the Canadian Canola Growers Association, or CCGA.
CCGA represents canola farmers from Ontario to British Columbia on national and international issues, policies and programs that affect their farms' success. CCGA is also an official administrator of the federal government’s advance payments program, and for the last 35 years we’ve been providing cash advances to help farmers better market their crops and finance their operations.
Developed in Canada, canola is a staple of Canadian agriculture as well as Canadian science and innovation. Today, it is Canada’s most widely seeded crop and is the largest farm cash receipt of any agricultural commodity, earning Canadian farmers over $8.6 billion in 2019 and—this next point is very important—this is a decline of $700 million from 2018. Annually, the sector provides $26.7 billion to the Canadian economy and provides approximately 250,000 jobs.
As farmers, we're faced with many risks, and I believe my approach to managing them is how the majority of farmers approach it. We put in place measures to manage the risks that we're able to and then we rely on business risk management programs such as crop insurance, AgriStability and AgriInvest to help us manage the risks that are beyond our capacity to manage.
For example, last year I purchased a grain dryer to help manage the risk of wet fall weather, and I've also, as mentioned earlier, diversified into hay production and more recently into bison production as we reduce reliance on grain markets. Given the many factors and risks that can impact my farm’s profitability, I cannot foresee and plan for everything. Last year alone, my farm and many other farms were impacted by an extremely wet harvest, rail disruptions and market access issues, not just for canola, but for durum, barley and pulse crops. The loss of any market is obviously a concern, but the loss of our largest canola market—the Chinese market—was of particular concern to canola farmers, who are still absorbing the impact of that market disruption today.
Coming into this year, grain and oilseed farms were starting from a challenging position, which is reflected in the statistics showing that farm cash receipts are down and farm debt levels are at record levels. More than ever, my farm and farms across Canada are relying on our suite of business risk management programs to help sustain our operations and to manage whatever 2020 will throw at us.
I use crop insurance to manage production-related risks and, although there is always room for improvement, that program does work relatively well. I use the advance payments program to help manage my cash flow, and thanks to program changes made by the government last year to increase the overall limit, the APP is now more relevant and useful for farmers.
For all other risks, most farmers will depend on AgriStability and AgriInvest. Last year, I used the money in my AgriInvest account, so that's not really an option for me this year. Despite comments that there is a large amount of money sitting AgriInvest accounts, I believe there are significant numbers of farmers who, like me, have already used this money, but we're still waiting for the analysis from the government on what's currently in these accounts.
That leaves us with AgriStability, where there is a very broad consensus among farmers and farm groups across the country that the program is not effective and is not working for farmers. This is reflected in the low participation number of approximately 30% nationally. Beyond my own experience with the program, which demonstrated that AgriStability is not effective, CCGA has done the analysis on a model farm to test how AgriStability functions. The results confirm that 2018 and 2019 were tough years for grain farms, and that while an AgriStability payment was triggered in 2019, it covers only a small portion of the actual loss, leaving the farm to sustain a large net loss for the second year in a row.
It's this type of analysis, coupled with real-life experiences with AgriStability, that has demonstrated there is need for immediate change.
As you've heard from other farm groups, CCGA is asking governments to adjust AgriStability, so that it covers losses, starting at 85% of historical reference margins with no reference margin limits.
Canola farmers have had a lot thrown at them in the last few years, and our ability to continue to shoulder these events that threaten the viability of our farms is diminished from what it was a few years ago. Therefore, it is important that these changes be implemented now for the current year. Waiting for the fall federal-provincial-territorial meetings means another year will be lost.
In addition, as we prepare for the next policy framework, CCGA looks forward to working with government to ensure the risk management tools available to farmers are effective and reflect the risks of modern farming. The best way to ensure that happens is for government to work closely with industry. Therefore, CCGA requests the establishment of an industry-government technical working group that allows farm groups to actively participate in business risk management data and impact analysis. This is extremely important to us.
As I wrap up, I want to talk a little more about diversification. As I mentioned, I've taken a few steps to diversify my farm operation, and that's been important to the financial viability of my farm. That is the same story for the canola industry. The impact of the China market disruption has really highlighted the need to diversify our markets.
Canada’s domestic biofuel market represents an important opportunity to diversify the canola market, and the upcoming clean fuel standard, or CFS, is an opportunity to realize this potential, if it's designed appropriately. The CFS, which is currently under development, could potentially triple the domestic demand for canola-based biofuels, providing much-needed market stability for farmers, incenting value-added investments, and making real and quantifiable reductions in greenhouse gases.
To leverage this potential opportunity, the government must consider immediate improvements to the regulatory design of the CFS by requiring all diesel fuel to contain a minimum 5% renewable content. The current standard mandates 2%. This would represent new domestic demand for Canadian canola that is not subject to trade disruptions, and is roughly the size of the Japanese export market.
Thanks for inviting me and for the opportunity to provide the written submission.
Just as a quick background, I have 45 years of experience observing and evaluating Canadian farm policy as a professor, as the head of an agri-food think tank, as a partner in agri-food management where we've provided management training for well over 300 farmers and as a facilitator of a very progressive six-family peer group at the moment.
My presentation, which basically summarizes my written one, has three major points, and they are: In my view, the current BRM suite emphasizes compensating people for losses, but underemphasizes preventing them; second, some elements of the CAP that facilitated prevention before have been removed by some provinces, which I think is a mistake; third, future emphasis, in my view, should be more on prevention and on moving the sector forward, and with the current structure, that's done through AgriInvest.
When we talk about the issue of compensation versus prevention, all of the programs, except for AgriInvest, are all about compensation of loss after the fact. AgriInvest is mostly about that, but with a second objective.
When we teach risk management at any management program, mine or anybody else's, there is, of course, emphasis on insurance, but the vast majority of what we talk about are the actions that will prevent losses, like Mr. McClean's talking about diversification, for example. The only part of the BRM suite that encourages that is that second title of the program. In fact, as an example, as Mr. McClean said, diversification is generally a major aspect of risk management and, ironically, given the way AgriStability is structured, it's much more likely to pay someone who is not diversified than who is, because of the fact that one commodity can offset the other. Probably, because of WTO requirements, there's likely little we can do to change that if we want to stay compliant and, as a result, many producers don't find it very useful and many, as we have heard, are not enrolled.
Most provinces used to have assistance for management training or planning but have removed it. The arguments that I've heard for why that's been the case are that there's no evidence that management training increases profitability or reduces risk, and that the programs haven't been used very much. In my view, the first argument is total nonsense in any industry, but especially for an industry like agriculture that has no management requirements for coming in, and so anything that's going to improve management should be good. In addition, there's large and growing evidence to the contrary that, in fact, management ability increases profitability and reduces risk and, therefore, the liability of government of programs.
We can go back to the “Dollars and Sense Study” that Farm Management Canada did a few years ago, which said that seven management factors are positively correlated with profitability. We did an analysis of our CTEAM program, which is like a mini-MBA for farmers, and we went back and asked them what impact it had on their businesses. They went through a whole long list of things that improved in terms of their management, and, as a result, their profitability increased, their organizations were better structured to manage and they had personal benefits such as improved confidence, improved leadership ability, improved mental health and stress management.
Most recently, as an illustration of the kinds of things we see, we did a study with BDO, and this is the third year in a row that we've found the same results. Part of it came up with 1,776 grain and oilseed farms in Manitoba. If you looked at $1 million of sales, our analysis of those farms said that the 25% most profitable had profits of $315,900 on $1 million of sales whereas the least profitable had losses of $160,900. Everything about that study and every other study says the same thing and suggests that many of those differences are because of management capacity. People could argue that is a function of soil and rain.
Let's go to the dairy part of this. We had 992 dairy farms in Ontario in that study, and the 25% most profitable had $270,000 in profit on $1 million of sales. The least profitable had losses of $150,000. I don't think weather and soil type has much impact on that. I think most of it is about management, although not all of it.
Obviously, investment in new technologies is also important. In much of my recent work, I have been working with those in horticulture. In some cases, a number of farmers have used government money, although in other cases have used their own money, to invest in machine planting and harvesting in the horticulture sector, which has reduced their labour costs and is certainly helping them manage the labour shortages they are experiencing this year after COVID.
Similarly, a few years ago, in a different kind of program, the Ontario tomato-processing industry decided, as a farm group, to invest in drip irrigation because of the risk in the industry of variation in yields. Doing that really reduced the variation and therefore reduced the risk, and that industry, which has been struggling to be competitive over time, has been helped an awful lot. Investing in technology is quite clearly an important thing and an important part of prevention.
To me, there are two issues with AgriInvest that are important. First, the amount available is relatively small. As Mr. McClean just pointed out, if you use it one year for income insurance, it becomes a problem later. Second, there is no requirement to use it. We have a situation where many farmers see it as a pension program because it's kind of administered as a pension program.
I have three suggestions for moving forward.
I have two more pages and then I'll be finished, Mr. Chair.
Thank you very much, Mr. Barlow.
Thank you for this invitation to appear before the committee on this important topic.
As mentioned, my name is Rick Bergmann. I chair the Canadian Pork Council and I'm a pork producer from Manitoba. Today I am joined by Doug Ahrens. He's a producer from Ontario, an executive member of CPC, and chairs our business risk management committee.
Producers are really hurting right now, folks. In an ideal world, we could take the next two years to figure out and fix AgriStability. That would be included in the next ag policy framework. However, with producers teetering on disaster, governments need to move quickly to fix AgriStability. This has been the message for four years. Federal leadership is required.
Here's how the Pork Council, and most other farm groups, want AgriStability fixed: first, just increase the trigger to 85%; second, remove the caps and update this program; third, eliminate reference margin limiting.
We know the FPT governments are talking about these challenges and changes, but they can't agree who should pay. Frankly, our producers don't care if costs are split sixty-forty, as usual, or, because of the COVID crisis, covered 90% by our federal government over the next three years. What matters is that the changes are made, and made sooner than later.
Again, we've been talking about this for four years now and even with these challenges farmers are still going to bear the burden of most of the loss.
I want to take a minute to remind you of the challenges pork producers face as they work to feed families in Canada and around the world.
In 2018, the China-U.S. trade war led to a 37% drop in prices from August to September. Canadian pig prices are based on those in the U.S. market, and our producers experienced losses of over $40 a pig in some regions of our country.
Since 2015, the U.S. hog herd has expanded rapidly, increasing the breeding herd by about 6% and the overall inventory by 17% as of March 2020. This incredible increase in supply drove prices down in both the U.S. and Canada.
In response, the U.S. government gifted a $16-billion—that's with a “b”—farm lifeline in May 2019. Canadian farmers got absolutely nothing.
Now the coronavirus has happened. The market prices are incredibly volatile, and no one knows what the future holds. The impact of the pandemic on the pork market is really significant. The Canadian hog industry was projected to lose $675 million this year. One of our provincial members in Quebec recently estimated that their producers alone would lose $150 million.
There is also an isowean segment of our industry, and it continues to lose $20 to $30 per piglet, with some piglets being given away or being euthanized.
According to the information from the Ontario Minister of Agriculture, Food and Rural Affairs, the market price for producers across Canada is forecasted to be well below the cost of production. Between now and the end of 2020, and well into 2021, producers are forecasted to lose $35 to $65 per hog marketed.
Over and over again, Canadian pork producers are being hurt by factors outside of our control, and the current BRM suite isn't helping. This program was built by government to help, but it's not. Despite all the hurt, the BRM is not doing much at all to help our producers.
There is a misperception that, because the government spends $1.6 billion on the BRM, the money is getting into the hands of pork producers who need it. If that were true, I would not be here today and presenting.
First of all, 55% of that support is for crop insurance premiums, which do absolutely nothing to help pork producers struggle through the COVID-19 crisis.
Secondly, AgriInvest pays farmers regardless of their need. Some farmers have positive balances while others need to withdraw the money out as soon as possible, leaving nothing for times like this. I'm one of those farms.
The average pork producer's account balance represents less than 2% of the farm cash expenses.
Thirdly, AgriRecovery hasn't really worked. Governments call it a disaster program, but COVID-19 has been a disaster, and AgriRecovery hasn't really done much.
Finally, AgriStability is a broken program. Governments of all stripes have cut the program, turning it into a meaningless risk management tool. Producers do not have confidence in the program, given its limited financial support and lack of predictability. That's primarily the only tool we have in our tool box and that tool is broken. We need to focus on fixing BRM once and for all.
None of this information is trying to fix the BRM suite. It has turned farm groups into dogs chasing their tails. It's sad to think how much time, effort and energy we have put into this, trying to fix a broken suite, only to see things getting worse, talking about that government leadership that we are needing.
Looking to the future, Canadian producers have not forgotten about the necessity to prepare for an outbreak of African swine fever. The risk remains, and it's still a significant risk. As COVID has shown, the BRM suite does not have the capacity to support producers during a market collapse. An ASF outbreak would be far worse for the pork sector, so we really need a new approach, and it's required immediately.
In conclusion, at the end of the day our message is very simple. It's been this way for numerous years, and this is our message. Farmers are hurting, and COVID-19 is making a bad situation worse. The BRM suite does little to help pork producers in their time of need. Targeted enhancements can quickly fix AgriStability, and long-term improvements to the entire BRM are required sooner rather than later.
Thank you for your time, and I'm looking forward to any questions.
Thanks, Rick. I will try to answer that.
From the perspective of what the pork industry needs, I think we have to take a serious look at our industry from the point of view that not all sectors are hurting.
We have an integrated sector that's doing very, very well. It's the independent producer that is based on the Chicago price or the U.S. price that is driven.
I think we as an industry truly recognize the value of AgriStability and we'd like to be there, but we need some changes within the program to make it more responsive and to give us a better idea of how it will support us. Rick already talked to you about ASF. If we actually had a crisis with African swine fever, we have no clue on how that would support the industry.
For the short term, I think what we need to do is to loosen the rules around AgriStability and turn it into maybe, as much as everybody hates the term, an “ad hoc” program. At the end of the day, there need to be safeguards in AgriStability to make sure that producers who need the money get the money and that producers who don't will end up having to pay it back or not receive it to start with.
The program is very cumbersome to try to use to make an interim claim. At this point, I know the rules have changed to 75%. I've talked to some producers and they have spent valuable time with their accountants even to put in an interim claim and they have no clue as to how they're going to handle it.
The 70% on 70% is a real detriment, because when your farm actually gets to the point of triggering that, you're pretty much on life support and you have no time to wait.
That's exactly where we have found ourselves with all the market disruptions we've had in the last year, and now COVID-19 is the final straw.
That's a very, very good question, Mr. Ellis. It really varies from year to year. What we do is we plan our farm for positive results. We do everything we can. Then things come our way that destroy that positive cash flow and create a loss. Again, COVID has done that.
To answer your question in terms of the average, I'd go back to Mr. Ahrens' comments with regard to our sector. We have farrow-to-finish producers who send animals to marketplace. We also have integrated models that own processing plants where they would not have the level of hurt that we would have. The profit-loss scenario would be different. Right now, the independent pork producer across Canada is on an island, and has very little protection, if any, in the situation.
This is a little bit off topic, but I would like to address the comment that was made with regard to AgriInvest. Pork producers don't use it as a pension plan. I talked with one producer not long ago. He said he had a little bit of money—it's gone now—in his account, and it was basically his last lifeline. If he has five employees and he's at the end of his rope, he has to employ those employees to the very end, because if they leave, who will look after all the animals?
I would like to defend the position that it is not a pension plan for the pork sector. If it is for other sectors, I can fully respect and understand that point of view, but for us, it's our last lifeline. That lifeline is fast eroding.
Mr. Ellis, I hope I answered your question. I deviated somewhat from it, but I wanted to get that point across.
Welcome back, everyone.
The clerk highlighted a lot of the issues. This works very similarly to a committee meeting, and I know many of you have presented at a committee meeting before, although obviously, we're on Zoom. He did highlight the language icon on the bottom. It's very important for our interpreters that you are on the language that you are speaking. That will ensure that we can move smoothly and that we have as much time for questions as possible. When you're not speaking, please ensure that your microphone is on mute. We want to ensure that we have good sound for our translators.
I would like to welcome our witnesses for the second half of our meeting today.
From the Canadian Horticultural Council, we have Brian Gilroy and Jan VanderHout.
It's good to see you both back at committee.
From the Canadian Ornamental Horticulture Alliance, we have Andy Kuyvenhoven.
From the Prairie Oat Growers Association, we have Jenneth Johanson and Chris Rundel.
Thank you very much for being with us today and giving us the opportunity to hear your testimony. You have seven minutes for your presentations, and they will be followed by questions and answers from members of the committee.
We'll start with the Canadian Horticultural Council. You have seven minutes.
Thank you for the opportunity to present to the committee on behalf of the Canadian Horticultural Council, representing the growers of over $5.7 billion in farm cash receipts for produce annually.
Canada's agriculture industry is primed for immense growth, as identified by the advisory committee on economic growth in 2017 and reinforced in the 2018 report of the agri-food economic strategy table, which set ambitious growth targets for our sector.
Navigating an unstable and unpredictable business investment climate as well as trying to manage risk beyond our control, such as pests, weather and disease, makes it increasingly difficult for us to sustain our family farms, let alone expand them. The onset of the COVID-19 pandemic and its impacts have shown the cracks in the current ineffective business risk management tools and have greatly compounded risks to our growers.
Despite following the necessary health and safety and quarantine requirements, there have been a number of outbreaks of COVID-19 on fruit and vegetable farms. Our first concern in these instances is the health and safety of everyone involved, especially workers and growers. From the perspective of a farm's capacity to produce food, the consequences of an outbreak can be devastating due to the impacts on the farm's ability to perform essential activities like planting, maintaining plant life, harvesting crops and packaging produce.
In the event of an outbreak, workers must isolate, and crop maintenance, harvesting and packing cannot occur, leaving essential work undone, causing product and crop loss that cannot be recovered. An ad hoc safety net program should be considered to see farmers through these extraordinarily difficult circumstances when a farm is in need.
The federal government has signalled to the provinces that labour shortages can be deemed an eligible risk for the horticultural sector under the AgriInsurance program. Unfortunately, we have not seen an uptake across the provinces, and there are a number of commodities, such as greenhouse vegetables and berries in some provinces, that cannot access crop insurance, so this announcement does not go far enough to addressing the need.
CHC requests that the government work with industry to ensure that BRM programming is diverse enough to include the various regions, crops, schedules and farm sizes. It must also provide the stability farmers need to grow, maintain, harvest and pack this important part of Canada's food supply, both this year and for years to come.
For many farmers of edible horticultural products, their season is at the mercy of unpredictable and sometimes downright brutal weather. Climate change will continue to exacerbate this, and pest and disease infestation can wipe out entire crops. In recent years, growers have experienced increasing market and trade risks due to trade disruptions and non-tariff barriers in many key markets. There were more extreme climate-related events, such as last year's floods, hurricane winds, heavy rains, early snowfall and frost across Canada.
Costs have increased rapidly, while farm receipts stagnate.
I'll hand it over to you, Brian.
It is clear that the business climate for fruit and vegetable growers has never been riskier. To mitigate some of the risks that our growers take on year after year, the Canadian Horticultural Council is pleased to provide its recommendations for improving the federal suite of BRM programs.
First and foremost, changes to the AgriStability program would have the most meaningful and far-reaching impact for growers. We recommend that the AgriStability program be amended as soon as possible to raise the coverage level to 85% of reference margin, and the compensation rate to 85¢ on the dollar of loss beyond this trigger, and eliminate the reference margin capping.
Secondary measures, such as ensuring that federal, provincial and territorial governments increase their share of the AgriInvest contribution, and program caps need to be increased to reflect the current realities in agriculture.
The effectiveness of the AgriRecovery program needs to be improved. Where catastrophes with long-term business impacts are concerned, the program should be streamlined to provide a timelier response. Narrowing the gap between AgriRecovery compensation and that of other business risk management programs will also help growers effectively recover from disaster situations.
Additionally, the federal government must examine options for enhancing access to production insurance for commodities that currently do not have traditional insurance programs, such as greenhouse growers. Some other crops have available production insurance programs but very low participation rates, and enhancements are needed. CHC has been proactive in working on a concept of recognition of risk mitigation. Many growers actively spread the risk or, in other words, diversify their operations through growing a variety of different crops, multi-season harvests, or growing in different geographic areas. These are just some examples.
Currently, under a whole farm program like AgriStability, diversified farms may not receive adequate coverage for a drop in the value of one or more of their crops if the value of one or more of their other crops has increased in the same program year, in other words, offsetting the risk.
Product diversification and having farms mitigate their own risks should be encouraged rather than penalized through program design. We therefore encourage the government to establish comprehensive and equitable insurance coverage by considering the individual risk profiles of farms.
CHC has submitted a proposal under the AgriRisk programs to explore developing a whole farm, grower paid, top-up insurance product for horticulture growers, which would address the gap in coverage and serve as a complement to AgriStability and AgriInsurance.
To ensure the long-term stability and growth of Canada's agricultural sector and edible horticulture in particular, a stronger partnership between the federal government, provinces and territories, and industry experts is needed to develop meaningful business risk management programs for growers. It is time for the Canadian agricultural partnership to become more than words.
Current funding envelopes hinder imaginative discussions to changing program policies and structures. If the Canadian government is serious about prioritizing agriculture as a key economic driver, then it needs to be prepared to make program changes based on demonstrated needs and gaps, rather than limiting itself to small adjustments with rigid existing funding allocations.
We look forward to working with the federal government on solutions for our sector. The agricultural sector plays a critical role in Canada's economy, and we believe it can be a big part of the economic recovery.
Thank you, Mr. Chair and committee members, for this opportunity to address you this afternoon.
My name is Andy Kuyvenhoven. I own and operate a flower greenhouse farm in Ontario. I serve as a director on the board of the Canadian Ornamental Horticulture Alliance and I am a past president of the organization.
As a citizen of this great country, we are thankful for the work our elected officials and public servants continue to do during these extraordinary times in keeping us safe and doing their best to improve what is happening in our economy.
I would like to address what ornamental horticulture is. Our products include trees, shrubs, turf, potted plants and cut flowers. You can buy our products in garden centres, at florists and large retail stores across Canada.
How important is our sector to the Canadian economy? Let's review key facts about the vital role ornamentals play in Canadian agriculture. The figures I am citing are taken from a publication of Agriculture and Agri-Food Canada entitled “Statistical Overview of the Canadian Ornamental Industry, 2018”.
Our sector had a farm gate value of $2.3 billion across Canada. Every province in Canada contributes to our sector. Our sector had exports valued at $543 million, primarily to the U.S.A. Our sector directly employs over 26,000 people at the farm gate level, and as many as four times that in the activities after farm gate, such as roles in retail and landscaping services.
Why should we care about ornamental horticulture in Canada? Its value has been particularly shown during the past two months when millions of Canadians were confined to their homes due to the risk of the spread of COVID-19. One activity that Canadians could safely pursue was gardening. Gardening is healthy for the soul and is food for the soul. Not only is it recreational, but it also allows amazing expressions of creativity. After early setbacks at Easter in April, when product had to be dumped and when market channels were closed, the demand for our products has been strong in May and in the beginning of June when Canadians needed and valued the great diversity of the plants we produce.
In addition to enhancing the aesthetic appeal of homes and workplaces, plants give us great value. Plants improve the quality of soil, air, water, help manage greenhouse emissions by taking carbon dioxide from the air, reduce soil erosion, provide living green infrastructure to manage heat waves in urban centres and reduce flood risk. They are essential to preserving and increasing biodiversity, providing a habitat for birds and insects.
Now that we have explained our sector of agriculture and why it matters, let's talk about the business risk management programs.
First of all, our sector is grateful to be in an advanced country like Canada where the government provides business risk management to our farmers. We operate a business that has unique risks—risks that our entire crop could be wiped out, or that an entire market might collapse. We appreciate the fact that the government has put in place programs to support us during such times of distress and crisis.
How could the current suite of programs be more responsive to our needs?
Let's first talk about AgriStability. As the scale of agriculture has increased, the fact that this program has a cap of $3 million as a maximum payout for losses incurred in a year is an issue. Our sector supports the recommendation made by the Canadian Federation of Agriculture to raise this cap to at least $5 million. Many of the producers in our sector, both nursery and floriculture farmers, have a highly seasonal crop that comes to market in the spring, the optimal time for planting for most ornamental plants. There's also a window for nursery in the fall. If product cannot be sold during this window, as happened at Easter, the losses to our sector are catastrophic. We threw out a large percentage of our Easter crop.
When COVID-19 hit our sector, we retained four CPA firms to analyze the worst-case scenario. If our highly seasonal product inventory had not been moved to market in April and May, what would the impact have been? Based on the sample of 12 farms, four nurseries and eight floriculture farms, five of the 12 operations would have capped under the current structure. The losses not covered by the program would have been so significant as to have caused major liquidity challenges leading to insolvency.
The loss of the largest farms in our sector would be devastating as they tend to be the most advanced in terms of technology deployment and export savvy. They are also the largest employers, another aspect of the program design that is crucial to ensure that the funds needed by growers flow to them when they are needed. For this reason, the interim payout needs to be raised to 75% permanently as part of the program design rather than being at the discretion of program managers.
Finally, with regard to AgriStability, the reference margin of 70% needs to be examined. In B.C. it's 80%, as a result of provincial government intervention. While our growers in B.C. appreciate the province's support, it would be good to get it to 85% across the entire country. A grower who lost 25% of the expected business would receive nothing when the trigger point is set at 70%. We request that the reference margin be raised to 85%.
On AgriRecovery, I will echo the comments of a previous speaker who said that under AgriRecovery, he would be paid to throw his product out, but that's the minor cost. The real cost would be the loss of product we have produced and that we need to throw away. That issue needs to be solved because that is our biggest cost.
In summary, our sector is composed of hundreds of small farm entrepreneurs who go about their business day to day. Our farmers have grown substantially over the years through generations. Our sector is not a major user of business risk management. However, during the COVID-19 time frame, we've learned that we do need it, and we've identified the aforesaid issues inside of the program.
We ask you to please re-examine all of that.
Thank you, Mr. Chairman.
Members of Parliament and observers, it is an honour to speak on behalf of the Prairie Oat Growers Association.
POGA represents about 90% of the oats grown in Canada. Our crop is worth approximately $1 billion annually and is a heart-healthy, nutritious crop. Canada is the world's largest exporter of oats, representing 70% of the global trade. We are very pleased to note there has been tremendous investment in domestic milling capacity, so we are working to add more value in Canada to those oats we eat here and abroad.
These past few months have driven home the importance of the agri-food sector, as farmers, ranchers, meat packers, millers and retailers have been on the front line of response. Agriculture truly is an essential service. In this light it is more important than ever that we improve the business risk management programs. AgriStability, AgriInvest and the cash advance program should help address risks due to issues such as weather, market access issues and other factors beyond our control. AgriStability can be difficult for producers to collect even when income falls below a sustainable level, leaving unmanageable risk for producers. In particular, the challenges with AgriStability fall in five areas: it's not transparent, it's not predictable, it's burdensome administratively, it's inadequately funded and it's hard to access. Farmers report AgriInvest is easier to use, with strong predictability, bankability, transparency and a low administration burden.
Oat growers support the call by many groups, including Grain Growers of Canada and the Canadian Federation of Agriculture, for the immediate injection of a minimum of 5% of producers' 2018 allowable net sales into AgriInvest accounts, which is one of eight actions outlined in our submission. These eight actions are needed to address immediate crises, not only caused by COVID, but also prior disruptions to trade in multiple countries, including China and Italy.
In the medium term, one, we suggest this committee consider recommending the following: increase the AgriStability benefit trigger level to 85% for the 2019-20 program year, and for the remainder of the Canadian Agriculture Partnership; remove the reference margin limit; increase the maximum payment to $5 million; allow for retroactive enrolment for the 2019-20 program year; and put systems in place to process claims more quickly, including requests for interim payments. These changes will give farms and financial institutions confidence to keep operating and to keep credit available.
Longer term, to address AgriStability's current challenges, we would propose the following.
First, reinstate the AgriStability reference margin to 85% instead of 70%. There have been significant cost increases since 2013, when the margin was reduced.
Second, align the reference margin with producers' tax filing methods and use the net profit as determined on taxes with the same allowable expenses to be included. POGA realizes this may require a change to the reference margin, but then it should be predictable and verifiable. Farmers would not apply if it were in a profit position. This would also lower the administration burden on both the government and producers, reducing costs.
Third, when a producer increases their production insurance, for example, to 80%, that insurance payout should not be allowed to be included in the reference margin for AgriStability because the producer has paid a fee to buy insurance, and they should not be penalized for that.
To be clear, POGA would prefer that AgriStability be increased to 85% and improved. Should 85% not be reached, POGA does not believe that AgriStability will meet farmers' needs, and for the subsequent cap period, BRM programs should be altered to consider the following options.
The first is to eliminate AgriStability and increase the AgriInvest percentage to a 5% match.
The second is to eliminate AgriStability and put 100% of those dollars to increased crop insurance coverage to greater than the current 80% maximum level, and/or reduce administration costs.
The third is to increase the interest-free portion of the advance payments program from $100,000 to $250,000. It should be open to all commodities. Several commodities, including oats, have been negatively impacted and need security loan programs. The move to $250,000 would be 25% of the $1-million maximum allowable, which is consistent with the ratio of interest-free to maximum allowable in prior years, which was previously $100,000 of $400,000.
These options would require additional considerations. POGA supports the increased interest-free amount for the advance payments program that was provided in 2019, but believes it should have been applied to all crops.
On applications for the APP, it is recommended that a lower administrative burden be implemented for loans of $250,000 or less. Currently every credit supplier and banking institution must sign a priority agreement, which is very time-consuming. For loans of $250,000 or less, it is suggested that priority agreements are needed from three creditors or 60% of the farm operations creditors, whichever is less.
Cut AgriStability, but increase crop insurance coverage percentage and allowable expenses to cover labour, depreciation, carbon tax, equipment, etc. Also, most farmers do not have off-farm jobs. Farming is their employment, and therefore it should be expected that they take a salary at a set amount per acre.
Cut AgriStability, but increase the amount paid for AgriInvest to 5% with no maximum. While this would, on paper, increase total dollars from the federal government, it would eliminate all risk for the government and put the responsibility on producers to save that money to use in tough years. This would also significantly reduce the administrative costs of the BRM programs, as AgriStability is very labour intensive.
In conclusion, functioning business risk management is critical for farmers and the country. BRM programs must be monitored for effectiveness, and there needs to be methods for refinement at more regular intervals.
Farmers and agricultural businesses are the backbone of Canada’s rural economy. Rural communities frequently see less investment in infrastructure, services and job creation than other areas. With this in mind, it is important to consider that business risk management is one of the primary ways the Government of Canada not only supports its farmers but its rural communities as well.
Thank you, Mr. Chair.
Thanks, Mr. Rundel. I appreciate your time.
This proves once again that access to Internet service in rural communities is an essential utility that we all have to work on. Certainly, the COVID situation has shown that in our committee meetings as well.
I want to thank our witnesses for being with us today. It's much appreciated.
To my colleagues, have a great weekend. Before you sneak off, I have a reminder. You should have been given the second version of the BRM letter we're sending to the minister. It should have been in your email this morning. Please review it quickly. If you have any changes, please get them back to the analyst by 9 a.m. on Monday, so we can discuss them at Tuesday's committee meeting, which is bright and early for Alistair and me in western Canada at 11 a.m. eastern time, which is 9 a.m. for me and 8 a.m. for Alistair.
I hear that the Internet works way better earlier in the morning.
We'll see you all next week. Have a great weekend.