Thank you very much, Mr. Chairman and committee members, for the opportunity to appear before you to speak on the state of Canada's business risk management programs.
Ensuring an effective BRM program is critical to our membership, and we welcome this very timely discussion on what is an increasingly urgent issue for farmers from across Canada.
As mentioned, my name is Chris van den Heuvel. I'm a beef and dairy farmer from Cape Breton, Nova Scotia, and I'm second vice-president of the Canadian Federation of Agriculture. I'm joined here today by CFA's assistant executive director, Scott Ross.
CFA is Canada's largest general farm organization, representing 200,000 farm families from across Canada. Through a unified voice at the national level, we work to ensure the continued development of a viable and vibrant agricultural industry in Canada. As you all know, Canada's agricultural industry is primed for immense growth, as identified by the advisory council on economic growth in 2017 and reinforced in the 2018 report from the agri-food economic strategy table, which has set ambitious growth targets for our sector.
Canada's agri-food industry already contributes $143 billion to Canada's GDP. However, this economic activity, the viability of many Canadian family farms, and the sector's overall potential for growth are challenged by a number of immediate risks confronting our family farms across Canada.
For context and to emphasize the urgency of this matter for Canadian farmers, I believe that it's worth highlighting that Canadian farmers saw their realized net income decline by 45.1% in 2018. Meanwhile, we have seen government supports to Canadian farmers drop nearly 50% between 2008 and 2018, declining to only 3.6% of farm income. At the same time, this past year nearly 40% of total farm income in the United States is expected to have come from government supports, with recent estimates finding that EU farmers receive 38% of their total income from public supports as well.
This directly affects Canadian farmers' ability to compete in international markets, leaving us farmers at a distinct competitive disadvantage. Compounding this challenge—following difficult financial years for Canadian farmers, and the headwinds they face when competing in global markets—is that these same farmers now face a wide array of risks beyond their control, risks that continue to increase. Farmers must deal with increasing market and trade risks due to trade disruptions and non-tariff trade barriers to key markets. Examples of this include disruptions to the trade of canola and soybeans with China, pulses with India, and durham wheat with Italy. The rail strike last November and the recent rail blockades have resulted in lost sales and increased costs for farmers.
There are more extreme climate-related events, with this past year seeing farm harvests negatively affected across Canada due to everything from floods to hurricane winds, to heavy rains, to early snowfall. Finally, there has been a rapid increase in costs while farm receipts are effectively stagnating. This was exacerbated by additional climate-related costs due to fuel use for heating barns and grain drying, including the added expenses arising both directly and indirectly from Canada's carbon-pricing regime.
The current BRM suite, which was created to help farmers manage risks beyond their control, is failing farmers as these risks increase and program coverage does not keep pace. The financial challenges facing producers—largely the result of matters beyond their control—are increasingly urgent, yet repeated calls for urgent BRM enhancements continue to face delays.
Canada's AgriStability program is a core pillar of Canada's BRM suite, representing the only tool currently available to all farmers to manage both production and market risks. However, participation has declined precipitously since cuts were made to the program in 2013, reducing the level of support available to farmers who are facing losses. The most recent 2017 statistics indicate that only 31% of eligible producers are in the AgriStability program, and while these numbers did follow a number of years of relatively strong farm incomes, ongoing engagement with our members does not suggest that the recent significant challenges have seen any meaningful increase in participation.
We continue to hear from farmers across Canada that AgriStability no longer provides meaningful support capable of responding to the plethora of challenges affecting farmers, and this is borne out by industry analysis undertaken by the Agricultural Producers Association of Saskatchewan. We have some data in this regard that we would be happy to share with the group. This analysis found that, even if canola prices were to drop precipitously, the vast majority of grain farmers would see little or no support provided, leaving them without meaningful or predictable support to manage these risks that are beyond our control.
Saying that, we are not advocating that farmers opt out of AgriStability based on this analysis, as we believe that farmers must work with their financial advisers to make informed risk management decisions and take advantage of any supports that are available to them. However, it's been nearly three years since the announcement of the BRM review, and we have seen little progress towards meaningful program reforms that address farmers' fundamental concerns with the AgriStability program.
The changes announced in December are modest in nature and fail to address the primary concerns voiced by Canadian farmers. In fact, it's important to highlight that the benefits of any improved treatment of private sector insurance are largely longer term in nature, as current offerings are neither widely available nor suitable for many producers in Canada based on cost and the nature of products available at this point in time.
Despite continued optimism about the prospects of private insurance in this space, we have yet to see the private sector develop cost-effective programs that adequately address the continued deficiencies in Canada's BRM suite. Timeliness, simplicity and predictability are all important, but without adequate support levels, any improvements to these areas will not respond or result in increased participation.
This is why CFA and industry associations across Canada, through the AGgrowth Coalition, continue to highlight that the cost neutrality mandate of the BRM review process is undermining its potential efficacy in addressing farmers' needs. If any significant changes are to be decided upon in July, we have heard that these would be implemented in 2021, and the continued challenges in AgriStability timeliness would suggest that any improvements would not be seen by producers until at least 2022 if not 2023. These timelines fail to respond to the urgent financial challenges facing farmers, and continued reviews and tweaks only further threaten to delay the provision of meaningful support for farmers.
We believe there is a straightforward solution to this issue that could be implemented immediately if supported by FPT governments, and it involves four key actions. Number one, AgriStability coverage should be immediately adjusted to cover losses starting at 85% of historical reference margins with no reference margin limits. Number two, there should be prioritization of the discussions on production insurance for livestock and horticultural crops that are not currently covered by AgriInsurance. Number three, discussions on BRM programming options should be meaningful and focused on program effectiveness rather than funding levels. Number four is the establishment of an industry-government technical working group that would allow farm groups to actively participate in BRM data and impact analysis. To date, engagement has been largely ad hoc and doesn't allow producer associations with the access to data needed to adequately assess or engage in the development of proposed program changes.
Without urgent action, farmers across Canada face immense uncertainty and financial pressures as they approach a new cropping season that threaten to undermine the viability of their businesses and the continued success of Canadian agricultural production.
These enhancements require additional funding from FPT governments, and commitments to consider additional support are critical to moving this review from discussion and minor tweaks to meaningful reforms. Even if urgently adopted, support through AgriStability is still at least two years away, and for those commodities affected by the ongoing U.S.-China trade war, we believe an immediate trade war mitigation fund is also needed to bridge that gap. Some work has been done on this front out of Saskatchewan, and, as mentioned, we would be happy to table that as well.
We also support the continual review of BRM programs to address other elements of the suite, such as increasing AgriInvest matching contribution limits, addressing taxation barriers that continue to limit withdrawal of AgriInvest funds for proactive investment and programming to respond to phytosanitary crises. However, without urgent implementation of the most significant changes I referenced above, we will continue to see producers frustrated and increasingly disenfranchised with the BRM suite and AgriStability in particular.
As a country uniquely positioned to capitalize on the growing demand for sustainably produced agricultural products both domestically and abroad, the cost of inaction not only hurts farm families across Canada but the prosperity of all Canadians.
Mr. Chairman and honourable members, thank you for inviting Farm Management Canada to speak before you today.
I am Mathieu Lipari, program manager at Farm Management Canada, leading our risk management initiatives. Our executive director, Heather Watson, is sorry she cannot be here today. She is hosting the first cohort of our new national farm leadership program.
The farm financial crisis of the 1980s caused governments and industry stakeholder groups to contemplate how to best prepare the agricultural industry to better manage against risk and uncertainty. They turned to investing in farm business management. Farm Management Canada was established in 1992 to coordinate farm business management programs and training across Canada to equip farmers with the resources, tools and information to prevent the fallout from the 1980s from happening again and to position Canada’s farmers for sustainable growth and competitiveness. We continue to serve that mandate today.
We are very pleased that the standing committee is opening up discussion on business risk management programs, or BRM programs.
The term “business risk management” has been adopted by government as the term of choice to represent support programs. While this is raising the profile of risk management in agriculture, it has inadvertently led to limiting our understanding of risk management and the tools available to help manage risk. The OECD has cautioned Canada that government policies “should take a holistic approach to risk management, and avoid focusing on a single source of risk", noting that “in many cases, the public farm support programs 'have crowded out other ways to manage risk.'”
Unfortunately, this is exactly what is happening and what we’re trying to correct through our programming.
When first announced, the Canadian agricultural partnership framework identified six priority areas: markets and trade; science, research and innovation; risk management; environmental sustainability and climate change; value-added agriculture and agri-food processing; and public trust.
We expressed concern for the lack of explicit attention to farm business management and capacity building as a priority. Farm business management and skills development fall under markets and trade, and risk management is reserved for the BRM programs, perpetuating the idea that BRM programs are the only risk management option.
As the CAP program has come into effect, we have observed decreasing support for farm business management—and, by extension, risk management—from many of the provinces and territories. This decline is expected to continue.
We started realizing that we have a different understanding of risk management in 2013, when we attended a risk management conference in Ottawa and the only risk management strategy being talked about was insurance. This led us to research the different types of risk faced by farmers and possible risk management strategies.
We produced a publication called the “Comprehensive Guide to Managing Risk in Agriculture” in 2014. Our aim was simple: to show Canada’s agricultural industry the risks we face and how we could start to manage these risks by taking a comprehensive approach.
Risk management is about taking a proactive approach to build the underlying capacity to weather any storm and to seize opportunities, positioning the farm for continued success. It is in this way that farm business management is a fundamental component of risk management. The BRM programs are just one way that farmers can manage certain risks. Farmers should be optimizing their use of these programs while also optimizing the other risk management tools available to them, such as planning, working with advisers, putting standard operating procedures in place, etc.
Top farmers focus their efforts on putting measures in place to manage the risks they can mitigate directly, measures such as having a solid business strategy, knowing how to work with family, finding ways of recruiting and keeping good labour, ensuring good cash flow and liquidity, and the list goes on.
In 2016, with the support of AAFC's AgriRisk initiatives program, the comprehensive guide was turned into an online risk identification, assessment and planning tool called AgriShield, which identifies more than 500 best management practices to help farmers mitigate risk.
Under CAP, we have been able to secure additional funds to launch the Roots to Success project. It’s important to note that it wasn’t easy to secure funds under the risk management funding program, which seems to remain designed for insurance program development.
During the FPT ministers' meeting in July 2018, increasing risk management education was recommended. We worked with AAFC to open the discussion to risk management in general by hosting a national focus group involving key stakeholders. The core messages from this meeting included building confidence and supporting mental health through strategic planning, continuous education, working more collaboratively with others, involvement in industry associations and embracing technology as key steps to improving a producer’s capacity to manage their risk, going beyond the BRM programs.
Our Roots to Success project is aimed at improving risk management through education and training that promotes a comprehensive approach to managing risk under the AgriShield platform. A national round table has been set up to steer the project and achieve a more comprehensive approach to managing risk for Canada's agricultural sector.
The BRM review work of the standing committee, along with Canada's agricultural policy framework, offers an incredible opportunity to promote farm business management as Canada's best risk management strategy. We hope that government and industry will invite us to be part of the BRM review, so that we can encourage farmers to adopt a comprehensive approach to managing risk.
A comprehensive approach provides a systematic means for farmers to manage that which is in their control, use the appropriate tools to manage that which is outside of their control, and invest in what works. Our process for making informed business decisions is now more critical than ever. The time has come to take a comprehensive approach to managing risk in agriculture.
We look forward to reading the committee's report on this topic. We're happy to keep you informed of our progress and report back to the committee as often as you like.
Thank you, Mr. Chairman, members and guests.
Mr. Chairman, members and guests, my name is Candace Roberts. I'm a chartered professional accountant at Catalyst in Calgary. I work with many primary agricultural producers.
In addition, I'm a fourth generation farmer in east-central Alberta. I am also in the 2019-20 AdvancingAg Future Leaders program with Alberta Wheat and Alberta Barley.
Farmers face many challenges, many of which are beyond their control at the farm level, including weather, trade, getting products to market—particularly the last number of months with the rail strike and then blockades—and global commodity prices, which are affected by supply and demand. In addition, consumer perception is impacting our farmers.
Other factors that can be controlled and are impacting farmers are transitioning to the next generation, managing debt, rising input costs and land values, and the mental health of our farmers, among other challenges.
It's important that we have business risk management tools in place to support our farmers who feed our nation. Farmers need increased levels of support. These programs need to be able to provide benefit or future benefit to operations, or a perception of benefit. The programs need to be improved so that they are bankable and predictable. Calculation needs to be transparent and easily understood by our producers.
Supports must be timely. We need to reduce the lag time between the disaster and the financial support. We need to be responsive to producers' needs and reduce the administrative burden of our producers. Is there a better, simpler way of administering the programs and supporting our farmers?
The business risk management programs should consider the various farm types and take into consideration grain and livestock, or a variation, etc. The stage of a farmer's farming career should also be looked at when considering these business risk management programs.
Thank you for the opportunity to speak today.
Thank you very much, Mr. Chair.
Thank you to all of our witnesses for taking the time to be here today and for giving us your insight on the ground about why some of these programs may or may not be working.
I'll go first to Chris. I know you talked about it a bit in depth. We changed the AgriRecovery program from 85% to 70%. I think the landscape for agriculture was very different at that point. We made that change because the program had become almost a source of profit for some producers, rather than stability, which is what the program was intended for. At that time, we did not have the trade disruptions we have now. We did not have a carbon tax. We had reliable transportation to get our commodities to market, for the most part.
Chris, I don't want to say “demand”, but was a lot of that ask to get back to 85% precipitated by the change in the landscape that agriculture is facing right now? Certainly we have seen that in the last six months alone with a very difficult harvest, the CN strike, the illegal blockades and a carbon tax. When you add all of those things onto agriculture, one can certainly see why the need to revisit AgriStability is so imperative.
Is that change in landscape a big reason this has become such a priority for the CFA?
Thank you all for being here.
I can't tell you how extremely helpful this has been; I appreciate it.
Besides your coming today to visit, it's productive for us if any of the stakeholders come to visit our office. I know that Mary Robinson is coming to our office, and those sit-downs, those one-on-ones, become even more productive than this, which happens fast. I'm typing as furiously as possible; it's amazing. Please keep those one-on-ones coming, because that gets us to a deeper conversation. It means a lot to us, so I appreciate that.
Mr. van de Heuvel, I enjoy it if there's an issue, something of concern, and people bring solutions. You brought some solutions so quickly, I didn't even have a chance to write them all down as quickly as I could. You talked about the AgriStability cutback in 2013 to 70%, and I've heard this from many stakeholders—I'm sure we all have—about bringing it back up to 85%, which we are willing to listen to, obviously. You mentioned no reference limits. Can you expand on that?
My name is Patty Rosher. I'm the general manager of Keystone Ag Producers.
KAP is the voice of Manitoba farmers on public policy issues. We work with governments, industry and stakeholders to ensure that primary agriculture in Manitoba remains profitable, sustainable and globally competitive.
I would like to begin my remarks by thanking the House of Commons Standing Committee on Agriculture and Agri-Food for initiating a study on business risk management and inviting us to participate. We appreciate the attention of the committee to this topic, which is important for our members, and we appreciate your recognition of the need for broad consultation.
In her December mandate letter, Minister Bibeau was asked to draw lessons from evidence-based research. KAP places great importance on evidence-based advocacy and is increasing its investment in research to support it. We recently issued a request for expressions of interest on four research topics. One of them was business risk management. In particular, we asked, what is the potential to augment AgriInsurance and AgriInvest to provide the kind of farm income risk management that is intended by AgriStability? We're very much interested in the answer to those questions because it may be time for a fresh look at business risk management, particularly as our members have not had the opportunity to consider those questions. We encourage the standing committee to commission research and to share those findings with farmers and farm advocacy groups.
The ground is shifting for farmers, and I know you're going to hear this many times, but they are facing an increasingly protectionist international trade environment. Net income has started to trend downward while farm expenses continue to increase. The expectations placed on primary producers from climate change and environmental interests continue to increase, and the industry must navigate a significant turnover of assets and operations to the next generation.
This past year, farmers, especially in Manitoba, faced almost every kind of risk there is, from production risk due to adverse weather and disease pressures to market risk from trade disruptions. Even though this causes great and sometimes unmanageable fluctuations in revenue for producers, costs continue to march upward. Manitoba Agriculture crop production cost guidelines show that operating, fixed and labour costs this spring will be $418 an acre to plant canola. Of that, $143 is just for the seed, seed treatment and fertilizer that goes in at the beginning of the spring, before anybody knows what kind of growing season it is going to be. Wheat will require an investment of $380 per acre, soybeans $368 and corn $533. Just for those crops alone, which represent 70% of our seeded acres, Manitoba farmers will be investing $3.4 billion this year. That investment represents revenue for agriculture input suppliers, equipment dealers and municipalities, and really keeps the provincial agriculture industry and our economy going. The experience this year highlights the types of risks that farmers face, and those risks have increased as production costs have increased. When we talk about business risk management, this is the kind of magnitude of risk that primary producers are taking on.
AgriStability was once thought to work very well, but increasing numbers of farmers say it is essentially useless to them and participation has been decreasing, leaving more and more farmers exposed to margin declines. KAP, through the AGgrowth Coalition, has long been lobbying for a reformed AgriStability, because of issues with its complexity, timeliness, predictability and overall effectiveness. We have talked about long-term reforms that are needed, including going back to an 85% coverage level; removing the reference margin, which was part of the most recent announcement; adding production insurance for those commodities that lack access to those programs; and a commitment to a technical working group that would enable producer groups like ours to participate more directly in analysis and development of potential BRM solutions.
On the AgriInvest side, in August 2015 along with the CFA, we conducted a survey specifically about AgriInvest on how farmers were using the program and whether they found it a useful financial tool. The majority of farmers using AgriInvest were using it as intended to overcome small variations in income, but they stated that the matching contribution was not enough to adequately fill the gap left by AgriStability. The allocated dollars were out of touch with the current financial needs of farm operations.
In 2017, our members passed a resolution that we lobby the Government of Manitoba and the Government of Canada to increase AgriInvest matchable deposits to 3% and to allow up to 2% additional contributions that were non-matchable and tax-deductible.
KAP has been working very hard this year to ensure that the priorities of young farmers are reflected in our policy. Young farmers have unique challenges with access to land and capital. We know about that. We talk about it a lot. There can also be unique challenges with access to business risk management programs.
We would like to share with you comments brought forward by one of our young farmers because I think he said it better than I could, as follows:
When a young producer first applies for crop Insurance it can be difficult to get their own contract because they don’t own any physical assets. In our case, my brother applied for crop insurance twice before he was granted a contract. We ended up juggling his acres into mine and my dad’s operation. If I didn’t have canola and he did, I would insure it, or if dad didn’t have any of the canola acres dad would insure [my brother’s] stuff. Because he didn’t have a crop insurance number he couldn’t enroll into Agri-Invest, Agri-Stability and I had to enter his acres into my Agri-whatever and try to carve it off down the road. It was a nuisance.
I’d like to head this off in the future because a lot of young farmers start farming without any assets making qualifying for crop insurance a bit of a pain to get into. Our rep was great and helped my brother get his crop insurance number eventually, but it made for a couple of years where [he] was very reliant on my dad and myself.
Here, I reiterate that we appreciate the attention of the committee to this topic, which is an important one for our members. We appreciate your recognition of the need for broad consultation.
However, not all consultations this year have seemed genuine. In fact, quite a bit of our advocacy work has been to speak up where consultations were inadequate. The seed royalty discussion is a case in point. Industry-wide consultations on value creation in the cereal grain sector began in the fall of 2018, but started with a focus on two potential models. KAP and its partners weren't satisfied with farmer involvement, so we issued our own survey and are still seeking that business case that defines the needed return on investment.
The uncertainty about the consultation on the Canada Grain Act is making farmers very nervous, although I understand some information has been shared at the grains round table meeting. When I started in this role a year ago, this was one of the top issues. There still does not seem to be any movement on it.
We look forward to the standing committee's review of BRMs because of the transparency that is embedded in your processes. We have also said that the discussions on improvements to current BRMs have been hamstrung by constraints in the the current provincial-federal funding envelope. Let's not make the same mistake and start this discussion by standing in place. We ask that consideration be given to enable real improvements that reflect current income risk levels. Indeed, farmers cannot afford to be cost-neutral year after year as they make their decisions.
Our goal is not to increase government payments to the farming sector. Rather, government best fit where farmers are not able to adequately cover their risk to make the investments necessary for agriculture to achieve the economic development goals that have been set.
Thank you, Mr. Chair, for the opportunity to speak today on behalf of the National Farmers Union.
The National Farmers Union is a direct membership organization made up of Canadian farm families who seek to ensure the dignity and security of income for farm families while enhancing the land and rural communities for future generations.
I'll start by stating what is perhaps obvious: that all farmers want to make a good living by farming. We do not seek government handouts. In fact, when you look up “self-reliance” in the dictionary, you'll probably find a picture of a Canadian farmer.
Business risk management programs are the backstops necessary to enable farmers to continue farming in the face of unexpected bad harvests, low prices or other unexpected events. We note that when we lose farmers to one or two bad seasons, we lose not only their production but the skills and knowledge these farmers hold.
We must have a robust food system that can deliver both production and fair incomes in Canada in the face of such huge shocks to the system as COVID-19 and increasingly erratic weather. A well-functioning BRM program can be part of ensuring this strong food system.
In the past decades, Canadian farmers have lost the majority of their security and income. The chart in your handout entitled “Tackling the Farm Income Crisis” shows incomes, without government support, at the top of the graph. The lower green line is the amount farmers keep after paying for expenses. The dark blue area, the difference between farmers' gross revenues and net incomes, is the money paid out for farm inputs.
Although farm incomes have gone up, farm expenses have gone up faster. The result is that total realized net farm income in Canada is hovering very close to zero. This divergence between the revenue and expense lines has many causes, including deregulation, decreasing farmer market power in relation to both our suppliers and our buyers, cuts to supply management, and leaving important decisions in the hands of corporations without adequate consultation with farmers.
It might be obvious, but I'll state it clearly: This lack of net income leaves the vast majority of Canadian farmers increasingly vulnerable to market fluctuations, weather-related yield reductions, and rising input costs. We are in need of BRMs that work effectively for Canadian farms.
I have a number of brief requests for your consideration.
First, BRM program expenditures were slashed during the transition from Growing Forward 1 to Growing Forward 2 when eligibility criteria were narrowed. An important start for this government, to support farmers and rebuild national unity, would be to reinstate BRM programs to previously supported levels, prior to the 2013 implementation of Growing Forward 2.
The drop in funding for BRM programs post-2012 mostly had to do with capping AgriStability at the lower of the reference margin or eligible expenses and changing the margin drop trigger from 15% to 30%. Therefore, to make an AgriStability claim, you had to have both a precipitous drop in total farm income and high input costs. This would only be available, as a practical matter, to farms that were highly specialized, with high production costs and highly exposed to volatile export markets, such as the hog sector, and it wouldn’t make any sense to enrol if you were a low input farmer with diversified production in a stable market, such as mixed farms selling into domestic markets. Thus, from 2011 to 2015, the participation rate dropped from nearly half of Canadian farmers to less than one-third.
We recommend that AgriStability return to the 15% reference margin trigger and eliminate the eligible expenses cap. We could also continue to ask, as we have in the past, that total payout to an individual farm be capped, we're suggesting in the amount of $750,000; and that all subsidiaries of a large farm enterprise be counted as part of the larger farm for purposes of the payout cap.
Secondly, crop insurance is calculated to address historical risk levels and patterns. The climate crisis is increasing risk and farmers are bearing the brunt of early snows, hailstorms, increasing wind speeds and drought. They will not be able to do so for long with the income fragility shown in the chart I've already referenced.
Given that farmers are the source of what may be the most important national asset of the 21st century, food, BRM programs need to recognize the increasing risk posed by climate change and must enhance farmers’ financial capability to weather these changes.
There is still a high uptake for AgriInsurance, or crop insurance, and there are increasing dollars spent on it. We actually oppose options that would offload that risk management tool onto various private insurance schemes. We would like to have crop insurance expanded so it serves a wider range of farm types and sizes.
It is difficult to assess risk for diversified farms because there are more variables. At the same time, we need to increase on-farm diversity to have the resilience to deal with climate change.
If crop insurance is privatized, it will make it even more difficult for small and diversified farms to get insurance, because they are a less profitable customer for insurance companies. There is a legitimate role for our cost-shared federal-provincial farmer system to help farmers cope with crop production risk.
Third, we hear from many young farmers that they are not signing up for the BRM programs because the paperwork required is overly complicated and onerous, especially during the start-up phase of their business when they may be the most vulnerable.
Please facilitate access to BRM programs as much as possible so that farmers of all levels of experience can reap the rewards during their time of crisis. Because many new entrants focus on domestic markets, we feel that it is worthwhile to recommend that you consider encouraging the development of domestic markets and import substitution so that our farmers will be less exposed to volatile export prices, currency exchange rate fluctuations and unstable export market access. Policies that would support an agriculture economy focused on stability and adequate farm income would help keep the cost of BRM programs down.
Lastly, I must mention the importance of the Canadian Grain Commission in protecting grain farmer interests. The CGC is the watchdog that ensures fairness and prevents more powerful grain and railway companies from taking advantage of farmers by paying less for their grain via weights, grades and dockage. It also ensures that our export products are high quality and can command a high price from export customers.
Keeping the mandate of the CGC to act in the best interests of farmers and ensuring that the CGC has the funds and capacity to enforce the regulations will help keep farmers' incomes to levels where they do not have to call upon BRM programs to survive.
Thank you for your time and consideration today.
I look forward to any questions.
Good afternoon. Mr. Chair and committee members, thank you for inviting the Union des producteurs agricoles, or UPA, to comment on the business risk management programs as part of the committee's work in this area. I have a two-part brief.
First of all, I'm going to tell you how we have seen business risk management programs evolve over time since the first agricultural policy framework came into effect in 2003, particularly with respect to the AgriStability program.
In the second part, I will share with you the UPA's recommendations on the future development of these programs and the federal government's involvement in risk management.
In general, Canada's investment in risk management has declined sharply since 2003. From the time the first agricultural policy framework was implemented in 2003 to the final year of Growing Forward 2 in 2017, farm cash receipts grew by over 80%, while direct payments to Canadian farm businesses were cut in half.
Many might think that farm business profits improved substantially during that period. However, from 2007 to 2012 and from 2012 to 2017, the OECD's estimated producer support for Canada fell at twice the average OECD rate, from about 14% to 9%.
Transfer payments, a key factor in producer support or estimated producer support, dropped by 50%, from 6% to 4%, between 2012 and 2017. For Canada, the transfer payment to production value ratio is well below that observed in a number of OECD countries. For example, on average, OECD countries have a stable ratio of 11%, while in the United States, the ratio rose from 7% to 8% between 2012 and 2017.
As you know, the Canadian government made significant program cuts in 2013 that included reducing the reference margin coverage under AgriStability from 85% to 70%. Due to this measure and the capping of reference margins, the program is no longer accessible when the situation requires it. This demonstrates that the program has stopped doing what it was designed to do. In fact, these changes have turned this stabilization program into a disaster program. This reality has been confirmed, in particular, by a sharp drop in farmer participation in AgriStability, which now stands at about 30%.
At the time, the government justified these adjustments—as it continues to do today—by stating that earlier production covered what were considered normal business risks, and that the agricultural sector was seeing commodity prices rise and, as a result, businesses were more profitable than they had been. That may have been true in 2013, but it is really not the case today. Those days are gone. Farm commodity prices have been back to normal levels for several years now, as evidenced by the decline in total net farming income from $12.2 billion in 2013 to $3.6 billion in 2018. In addition, farm business debt is on the rise.
Farm businesses are unstable and receiving inadequate support from risk management programs, and they must now cope with an increased level of risk beyond their control. Think of the risks associated with climate change, which exacerbate extreme weather events, and trade wars, which can radically change commodity prices, or the risks that come with labour disputes—take rail transportation as an example. We could even talk about the potential impact of COVID-19 on Canada's agricultural sector, in terms of exports or the availability of foreign workers.
These business risks cannot be considered normal. Some countries, like the United States, acted swiftly and broadly to cover these new risks, including a $23-billion payout under the market facilitation program, which aims to support U.S. producers affected by the trade war with China.
Unlike those producers, Canada's grain producers received no special assistance from their government, and the current AgriStability program is unable to effectively cover this type of risk, which limits the competitiveness of our businesses in the export market.
The government has held several consultations to make changes to the programs available to Canadian farm businesses, but only minor adjustments have been made to business risk management programs since 2013. That status quo is because of the federal government's condition that any adjustments to business risk management programs must be cost-neutral. Based on that, the UPA must state that an increase in allocations to the agricultural sector has become inescapable and urgent. In particular, this would make it possible to improve the AgriStability program so that it meets the objectives for which it was designed. In fact, restoring 85% coverage and eliminating the cap on reference margins would help Canadian farm businesses effectively deal with the new risks associated with the current business situation.
It is important to remember that these proposed enhancements to AgriStability were supported by all industry stakeholders following the consultations on the last agricultural policy framework and, with this in mind, they must be reflected in a timely manner in federal government policy.
Furthermore, to maintain competitiveness for Canadian farm businesses, the Canadian government must be proactive and must respond quickly on an ad hoc basis when an exceptional event beyond the control of producers occurs. The trade war with China is a perfect example where the government could intervene, as the U.S. government has, to support businesses affected by the conflict. There will be other situations in the future. COVID-19 may be the next example where the government will need to truly commit to supporting Canadian farmers to ensure growth in the sector for years to come.
First, I want to thank our guests, our witnesses, for coming to share their concerns with us. The comments you made were really very interesting and enriching.
My first question is for Mr. Caron.
Mr. Caron, in your conclusion, you reiterated the importance of AgriStability and returning to 85%, as opposed to 70%, and also removing caps on reference margins.
We clearly understand the difference between the situation back in 2013, when these measures were introduced, and today's realities in 2020. You provided some very interesting figures on the decline in net business income from $12.5 billion to $3.6 billion.
Can you elaborate on that? How do you think the situation would change if the cap on this reference margin were completely eliminated and coverage were increased to 85%?