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Evaluation of AgriStability, AgriInvest, AgriInsurance and the Wildlife Compensation Program

Combined Evaluation Report

The evaluation was approved by the Deputy Minister in March 2017.

Agriculture and Agri-food Canada

List of acronyms

AAFC
Agriculture and Agri-Food Canada
ADM
Assistant Deputy Minister
AMPA
Agricultural Marketing Programs Act
ANS 
Allowable Net Sales
APP
Advanced Payments Program
ASRA
Assurance Stabilisation des Revenues Agricoles
BRM
Business Risk Management
CAIS
Canadian Agricultural Income Stabilization
CALA
Canadian Agricultural Loans Act
CANSIM
Canadian Socio-Economic Information Management System
FIPA
Farm Income Protection Act
FPT
Federal/Provincial/Territorial
FTE
Full Time Equivalents
GDP
Gross Domestic Product
GF
Growing Forward
GF2
Growing Forward 2
NCI
Net Cash Income
NOI
Net Operating Income
NPAC
National Program Advisory Committee
NPF
Next Policy Framework
OAE
Office of Audit and Evaluation
OECD
Organisation of Economic Cooperation and Development
PMS
Performance Measurement Strategy
PT
Provincial/Territorial
RAD
Research and Analysis Directorate
RML
Reference Margin Limit
RMP
Risk Management Program
SDRM
Self-Directed Risk Management
TAP
Targeted Advanced Payment
WLPIP
Western Livestock Price Insurance Program

Executive summary

Purpose of the evaluation

The purpose of the evaluation was to examine the relevance and performance of AgriStability, AgriInvest, AgriInsurance and the Wildlife Compensation Program. These programs are offered under the Business Risk Management (BRM) suite of programs as part of Growing Forward 2 (GF2), AAFC’s five-year (2013/14-2017/18) Federal/Provincial/Territorial (FPT) Multilateral Framework Agreement for Canada's agricultural and agri-food sector.

The evaluation was conducted by the Office of Audit and Evaluation (OAE) in accordance with the Treasury Board Policy on Results (2016). The results are intended to inform planning for the next phase of policy and program development under Next Policy Framework (NPF) beginning 2018/19, the next multilateral framework agreement for agriculture.

Background

The BRM suite of programs is designed to support GF2 objectives by helping farmers manage risk due to severe market volatility and disaster situations. Within the suite are four core BRM programs: AgriStability, AgriInvest, AgriInsurance and AgriRecovery. Other BRM programs outside the core suite include the Wildlife Compensation Program, AgriRisk Initiatives Program, loan guarantees under the Canadian Agricultural Loans Act (CALA), the Advance Payments Program (APP) delivered under the authority of the Agricultural Marketing Programs Act (AMPA), and the supply-management of a number of commodities.Footnote 1

AgriStability is a margin-based program that covers large income declines in a producer’s farm income relative to previous years. AgriInvest is a self-managed savings account into which a producer deposits funds and receives matching government contributions. AgriInsurance is a cost-shared production insurance program designed to reduce the economic effects of production losses caused by severe but uncontrollable natural hazards such as drought, flood, wind, frost, hail or snow, or losses resulting from uncontrollable diseases and insect infestations.

The Wildlife Compensation Program is a separate program from AgriInsurance but is also legislated under the Farm Income Protection Act (FIPA).Footnote 2 The Wildlife Compensation Program compensates producers for losses caused by wildlife either because producers are restricted from taking direct action against wildlife as a result of federal government regulation, or because there are no effective mitigation and prevention measures available to eliminate the losses. Producers are not required to participate in AgriInsurance to be eligible for the Wildlife Compensation Program and do not have to pay premiums or administration fees. Both crops and livestock are eligible for compensation under the Program.

The four programs (AgriStability, AgriInvest, AgriInsurance and the Wildlife Compensation Program) are delivered through a mix of federal and provincial government administrations. Government contributions and costs to administer the programs are cost-shared by the federal government and provinces on a 60:40 basis. As the four programs are demand-driven, program expenditures fluctuate from year to year and payments to producers are based on program agreements. AgriStability payments fluctuate in accordance with program participation and industry conditions, increasing during sector downturns; AgriInvest payments are directly related to participation and allowable farm sales and purchases; AgriInsurance costs fluctuate based on commodity values and the number of acres insured; and Wildlife Compensation Program payments vary based on the number and value of claims. For the period from 2013/14 to 2017/18, the AgriStability budget is $1.43 billion, the AgriInvest budget is $0.81 billion, and the AgriInsurance budget is $3.23 billion, including the costs of the Wildlife Compensation Program.Footnote 3

Methodology

The evaluation was national in scope and covered the period from 2013/14 to 2016/17. It focused on understanding the effects of the changes made to the programs for GF2, both in terms of the programs meeting their objectives and also their administrative efficiency and economy.

The evaluation employed a summative, non-experimental design and gathered quantitative and qualitative data from the following lines of evidence:

Key findings and conclusions

The key findings and conclusions resulting from the evaluation are as follows:

Relevance

The Canadian agriculture sector has experienced positive growth on average over the past decade. Recent strong market conditions and high commodity prices led to significant growth in market revenues and profitability, particularly since 2013. Specifically:

While the Canadian agriculture and agri-food sector has performed very well in recent years, there is a continued need for the BRM programming as many of the risks that can threaten the viability of a farm operation or commodity group are ongoing or cyclical and beyond producers’ control. These risks include:

Private sector and producer-led tools and support mechanisms are insufficient in managing these risks. No private insurers or other institutions are currently involved in the delivery of multi-peril production insurance in Canada. Only a few private insurance products for livestock/animal diseases have been developed due to a lack of significant demand for coverage on the part of producers and an overall lack of industry capacity for developing these tools. To address this, the AgriRisk Initiatives Program supports the research and development, as well as the capacity building, of private risk management products and services for the sector.

The appropriate role of the BRM programming is to protect producers against market volatility and disasters and to encourage producers and the private sector to develop tools and strategies to manage normal business risk. This is in line with best practices identified by the Organisation for Economic Co-operation and Development (OECD) and trends in government agricultural support in the United States, Australia and the European Union.

AgriInsurance, AgriStability and AgriInvest are aligned with federal roles and responsibilities legislated in FIPA. The Wildlife Compensation Program is somewhat aligned with federal responsibilities as there is a weak policy rationale for providing compensation for damages caused by non-federally protected species. AgriInvest and the Wildlife Compensation Program are less aligned with GF2 priorities and BRM principles due to their design as entitlement programs that primarily cover or compensate for normal business risks. There is evidence that some AgriInsurance products also cover some normal business risk. A 2011 OECD review of the AgriInsurance program in Canada found that crop insurance policies with deductibles of 10 percent trigger indemnities when yields are reduced below 90 percent of historical averages once every three years for the median farmer in Canada. The OECD review states that, at this frequency, these policies can be considered to cover frequently occurring losses due to normal variations in production.

Performance (effectiveness)

The evaluation findings and conclusions with regard to the effectiveness of each of the four programs evaluated are as follows:

Performance (efficiency and economy)

The evaluation findings and conclusions with regard to the economy and efficiency in which the four programs are delivered are as follows:

Recommendations

The key issues and recommendations resulting from the evaluation findings are as follows:

AgriInsurance

Wildlife Compensation Program

AgriStability

AgriInvest

1.0 Introduction

The Office of Audit and Evaluation (OAE) conducted an evaluation of AgriStability, AgriInvest, AgriInsurance and Wildlife Compensation Programs. These programs are offered under the Business Risk Management (BRM) suite of programs as part of Growing Forward 2 (GF2), AAFC’s five-year (2013/14-2017/18) Federal/Provincial/Territorial (FPT) Multilateral Framework Agreement for Canada's agricultural and agri-food sector. The evaluation fulfills a requirement and commitment under AAFC’s Five-Year Departmental Evaluation Plan and the Financial Administration Act. With the GF2 policy framework expiring at the end of 2017/18, the results are intended to inform planning for the next phase of policy and program development under the next multilateral framework agreement for agriculture, Next Policy Framework (NPF), after GF2 ends.

As the four programs have common BRM objectives and are designed with numerous linkages to provide a complementary suite of programming, the programs were evaluated together. Other BRM programs were subject to separate evaluations but are included in the BRM suite of programming:

1.1 Evaluation scope

The evaluation was conducted in accordance with the Treasury Board Policy on Results (2016). As per the Directive on Results, the evaluation assessed the relevance and performance of the following programs: AgriStability, AgriInvest, AgriInsurance and the Wildlife Compensation Program. Specifically, the evaluation examined the following: continued need for the programs; alignment with government priorities, departmental strategic outcomes, and federal roles and responsibilities; achievement of intended outcomes; and the extent to which the programs demonstrate efficiency and economy.

The evaluation was national in scope and covered the period from 2013/14 to 2015/16. Data collection started in January 2016 and concluded in July 2016. It focused on understanding the effects of the changes made to the programs for GF2, both in terms of the programs meeting their objectives and also their administrative efficiency and economy. Some other objectives of the evaluation were to determine what have been the short and long-term economic outcomes associated with these programs, and how they have contributed to the adaptability of the agricultural sector.

1.2 Evaluation approach

The evaluation was conducted by the AAFC Office of Audit and Evaluation (OAE). It employed a summative, non-experimental design and incorporated both primary and secondary data. Multiple lines of evidence were used to address evaluation issues and questions that were developed in collaboration with program managers.

1.3 Methodology

The evaluation consisted of the following lines of evidence:

1.4 Methodological considerations

The considerations or limitations to note for this evaluation are as follows:

Due to the nature of the program administration and timing of program payments, the most recent AgriStability data available for most indicators was for the 2013 program year, which limited the assessment to only one year of data regarding the changes made as a result of GF2. One year of data is not sufficient to undertake a comprehensive assessment of the impact of the changes made in GF2 to the AgriStability program.

2.0 Profile of the programs

2.1 Background

Growing Forward 2 (GF2) is the current FPT agricultural policy framework from 2013/14 to 2017/18. Under GF2, governments agreed to work together to achieve three strategic outcomes:

The BRM suite of programs is intended to support GF2 strategic outcomes by helping farmers manage risk due to severe market volatility and disaster situations. The objectives of GF2 reflect a shift towards encouraging producers to manage more normal business risks with government support being targeted more towards severe and catastrophic losses. A market-oriented focus on adaptability and competitiveness is a new addition to intended outcomes under this framework. The BRM program suite end outcomes have been updated to reflect the objectives of competitiveness and adaptability.

GF2 includes four core BRM programs:

Other BRM programs outside the core suite include the Wildlife Compensation Program, AgriRisk Initiative Program, loan guarantees under the Canadian Agricultural Loans Act, the Advance Payments Program (APP) delivered under the authority of the Agricultural Marketing Programs Act and the supply-management of a number of commodities (for example, dairy, poultry and eggs).

AgriStability and AgriInvest were implemented in 2007 to replace the Canadian Agricultural Income Stabilization (CAIS) program, which operated from 2003/04 to 2006/07 under the predecessor to Growing Forward (GF), the Agricultural Policy Framework. AgriStability and AgriInvest are governed under the provisions of Section 4(1) of the Farm Income Protection Act (FIPA), which authorizes the Minister to establish programming with the provinces to stabilize net income.

Federal support for production insurance was first formalized by the Crop Insurance Act (1959). AgriInsurance was subsequently legislated under Section 4 of FIPA, which authorizes the Minister to enter into an agreement with one or more provinces for the establishment of a crop insurance program.

The Wildlife Compensation Program, a separate program from AgriInsurance, compensates producers for losses caused by wildlife either because producers are restricted from taking direct action against wildlife as a result of federal government regulation or because there are no effective mitigation and prevention measures available to eliminate the losses. Both crops and livestock are eligible for protection under the program. Because the predecessor Waterfowl Program was included in the provinces’ crop insurance agreements under FIPA in 1991, the Program is legislated under Section 4 of FIPA. Producers are not required to participate in AgriInsurance to be eligible for the Wildlife Compensation Program and are not required to pay premiums or administration fees.

Annex B provides more details on all four programs.

3.0 Evaluation findings

3.1 Relevance

The following section outlines the key findings and conclusions resulting from the evaluation related to the relevance of, and continued need for the four programs.

3.1.1 Continued need for the programs

While the Canadian agriculture and agri-food sector has performed very well in recent years, there is a continued need for the BRM programs to help producers manage risks associated with severe market volatility and disaster situations. Many of the risks that can threaten the viability of a farm operation or commodity group are ongoing or cyclical and beyond producers’ control. On their own, private sector and producer-led tools and support mechanisms are not broad enough to manage these risks.

Current state of the agricultural sector

Over the past five years, the Canadian agriculture sector has enjoyed strong market conditions and high commodity prices, partly due to positive macroeconomic factors including the depreciation of the Canadian dollar vis-à-vis the United States dollar, which has significantly improved the competitiveness of Canadian agricultural commodities in international markets.Footnote 6 Total farm market receipts have increased by over 80 percent from $31.5 billion in 2004 to $57.6 billion in 2015. The most significant gains occurred in grains and oilseeds production, which experienced a 163 percent growth in revenues from $7.6 billion in 2004 to $20.1 billion in 2015 (Table 1). Likewise, pulse and special crop production has experienced double digit growth in five of the past 10 years.

Table 1 : Total agricultural sales revenues by commodity group ($ billions)
Year Grains and Oilseeds Cattle Hog Fruit, Vegetable and Potato Supply Managed Commodities Greenhouse Nursery and Floriculture
2004 $7.9 $6.4 $4.7 $2.2 $8.1 $2.7
2005 $7.3 $8.2 $4.6 $2.2 $8.6 $2.9
2006 $7.9 $9.1 $4.2 $2.4 $8.8 $3.3
2007 $10.9 $9.0 $4.1 $2.6 $9.4 $3.3
2008 $14.8 $9.2 $3.8 $2.8 $10.2 $3.3
2009 $15.4 $8.4 $3.6 $2.9 $10.6 $3.3
2010 $14.4 $8.5 $3.8 $3.0 $10.6 $3.5
2011 $17.4 $9.8 $4.5 $3.2 $11.1 $3.7
2012 $21.0 $10.4 $4.3 $3.4 $11.7 $3.7
2013 $23.0 $10.1 $4.4 $3.6 $12.0 $4.0
2014 $21.4 $13.5 $5.0 $3.5 $12.0 $4.0
% Change 171% 111% 6% 59% 48% 48%
Source: Statistics Canada CANSIM Table 002-0044 Agricultural Taxation Data (unadjusted)

Gains in revenues have contributed to record levels of profitability of farmers. Net Cash Income (NCI), a measure of the aggregate profitability of the agriculture sector, reached a record of $15.2 billion in 2015, the highest level in real terms since the 1970s (Figure 1). Producers were protected by the rapidly depreciating Canadian dollar but this situation is not expected to continue over the short term. Net cash income is forecast to decline by two percent in 2016 and by another seven percent in 2017, led by an expected drop in commodity prices.

Figure 1: Canadian agricultural net cash income, historical and forecast by yearFootnote 7
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Figure 1 illustrates the historical trends for net cash income in $billions both in general and in 2002 prices for the years 1976 to 2016.

1971 1976 1980 1984 1988 1992 1996 2000 2004 2008 2012 2016
Net  Cash Income 8.02 12.46 11.08 9.54 9.12 6.73 6.81 6.72 6.62 7.41 10.23 12.28
Net  Cash Income (2002 prices) 1.68 3.87 4.87 5.78 6.49 5.65 6.05 6.41 6.93 8.48 12.56 15.76

Source: AAFC (2016). 2016 Canadian Agricultural Outlook, Chart 3a.

Total Net Operating IncomeFootnote 8 (NOI), a measure of the profit or loss of an average farm operation, more than doubled from $5.8 billion in 2004 to $15.2 billion in 2015. The average NOI per producer grew by just over 170 percent from $28,784 in 2004 to $78,795 in 2015 and is forecasted to decline to a record high of $77,923 in 2016 and to $73,486 in 2017.Footnote 9

Net Operating Income as a percentage of total operating revenues, a measure of a farm operation’s profitability ratio, grew from 14 percent in 2004 to 18 percent in 2015 as market revenues increased faster than operating expenses. As illustrated in Figure 2, profitability ratios were highest among grains and oilseeds, supply managed commodities and fruit, vegetable and potato producers and lowest for cattle and hog producers.

Figure 2: Profitability ratios by major commodity group, 2004 to 2014
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Figure 2 illustrates the operating profit margins by major commodity from 2004 to 2014

Year Grains and Oilseeds Cattle Hogs Fruit, Vegetable and Potato Supply Managed Commodities Greenhouse Nursery and Floriculture Total
2004 17.3% 7.9% 9.0% 12.4% 18.9% 8.9% 13.7%
2005 15.4% 6.8% 11.5% 14.2% 20.9% 9.2% 13.4%
2006 17.1% 4.8% 6.2% 15.3% 19.4% 10.0% 12.6%
2007 20.5% 5.4% 6.5% 15.4% 19.1% 8.4% 13.8%
2008 24.3% 6.2% 2.3% 14.3% 17.9% 8.7% 15.1%
2009 24.6% 5.0% 2.8% 14.1% 17.8% 10.8% 15.5%
2010 23.7% 5.3% 5.5% 14.3% 20.7% 110% 16.1%
2011 27.9% 4.9% 5.4% 14.9% 21.0% 9.6% 17.6%
2012 27.1% 5.7% 6.2% 15.1% 20.0% 9.0% 18.0%
2013 26.4% 4.4% 6.0% 15.3% 19.8% 11.9% 17.8%
2014 23.9% 7.3% 11.9% 15.4% 20.6% 12.2% 17.9%

Source: Statistics Canada Agricultural Taxation Data Canadian Socio-economic Information Management Table 002 0044

As a result of recent increased revenues and profitability, farm financial measures have been positive. Balance sheets are strong with net worth increasing year over year. In 2015, the average Canadian farm is forecasted to have $3.2 million in assets and $580 thousand in debt, for an overall net worth of $2.3 million.Footnote 10 The average net worth of a Canadian farm is forecasted to increase to $2.7 million in 2016 (Figure 3).Footnote 11

Figure 3: Average assets, liabilities and net worth of Canadian farms by year
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Figure 3 illustrates the trend in average assets, liabilities and net worth of Canadian farms in millions of dollars per year for the years 2004 to 2016

2004 2006 2008 2010 2012 2014 2016
Assets 1,283,878 1,517,909 1,773,501 2,073,377 2,806,584 3,413,185 3,585,876
Net Worth 1,005,704 1,224,009 1,423,532 1,681,253 2,293,605 2,809,426 2,963,230
Liabilities −278,174 −293,900 −349,964 −392,124 −512,975 −603,759 −622,646

Source: AAFC (2016). 2016 Canadian Agricultural Outlook, Chart 6a.

Farmers have access to capital to meet short-term financial obligations and make investments in their farming operations. For example, in 2014/15, Farm Credit Canada approved 47,178 new loans with an average loan value of $178,825 and the Canadian Agricultural Loans Act Program approved 1,569 new loans.Footnote 12 According to the interest coverage ratio, a measure of how many times a farm could pay its current interest payment with its available earnings, the average Canadian farm operation is capable of paying its interest payments 11 times over.Footnote 13 The 2013 Farm Financial Survey reported that 83 percent of farms with revenues of $250,000 or greater, responsible for 88 percent of all agricultural sales, were under no financial stress (Figure 4).Footnote 14

Figure 4: Financial stress levels of farms with revenues greater than $250,000, 2013
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Figure 4 illustrates the financial stress levels of farms with revenues greater than $250,000 in 2013

Cash Flow Categories Less than 50% 50% to 75% Greater than 75% All equity
Less than $30,000 3% or 4% of total agricultural sales (significant financial stress) 4% or 3% of total agricultural sales (significant financial stress) 7% or 4% of total agricultural sales (moderate financial stress) 14% or 10% of total agricultural sales
$30,000 to $60,000 1% or 1% of  total agricultural sales (significant financial stress) 2% or 1% of total agricultural sales (moderate financial stress) 3% or 2% of total agricultural sales (no financial stress) 6% or 4% of total agricultural sales
Greater than $60,000 6% or 11% of total agricultural sales (no financial stress) 18% or 21% of total agricultural sales (no financial stress) 56% or 42% of total agricultural sales (no financial stress) 80% or 74% of total agricultural sales
All Cash Flow 10% or 15% of total agricultural sales 24% or 25% of total agricultural sales 66% or 48% of total agricultural sales 100% or 88% of total agricultural sales

Source: AAFC (2016). Overview of Farm Financial Situation in Canada (2013 Farm Financial Survey, AAFC calculations)

Ongoing and cyclical risks facing the agriculture sector

Despite the strong performance of the Canadian agriculture sector in recent years, the sector continues to face a wide range of production, marketing and business risks:

Many of these price and market risks are cyclical in nature and the production risks associated with weather, diseases and pests are ongoing. For example, the 2016 BRM Survey findings show that during the next five years, two-thirds of surveyed producers expect to face risks associated with weather (63%), almost one half expect risks due to rising input prices (48%), and approximately one third anticipate risks associated with changing government policies and programs (33%), currency fluctuations (32%), decreasing output prices (28%) and market disruptions (26%). Nearly a quarter anticipate risks due to disease or pests (21%) and 10 percent expect credit risks.

The findings of the literature review and interviews with some key informants also suggest factors such as climate change, increased trade and export dependence, border closures, greater competition from developing export countries, and increased specialization may intensify the risks faced by producers in coming years.

Inadequacy of private and producer-led tools and supports

Available private sector and producer-led tools and support mechanisms are insufficient on their own to help producers manage the above listed risks and to remain competitive nationally and internationally:

3.1.2 Role of the Business Risk Management programming

Due to the inadequacy of private sector and producer-led tools and support mechanisms, there is a continued need for the BRM programs to help producers manage exceptional risks associated with severe market volatility and disaster situations. Positive market conditions, record profitability and structural transformations resulting in the dominance of the sector by larger, more sophisticated farms have all significantly contributed to greater capacity among producers for managing normal business risk. The appropriate role of the BRM programming is to provide disaster level support and encourage producers and the private sector to develop tools and strategies to manage normal business risk. This is in line with best practices identified by the Organisation for Economic Co-operation and Development (OECD).

Evidence of producers’ capacity to manage normal business risks

The capacity of Canadian agricultural producers to manage normal business risks (such as, small or frequently occurring losses due to normal variations in production, prices and weather) has increased significantly. This is due in part to recent positive market conditions and record profitability that have prevailed for much of the past decade. As described previously, the recent economic state of the Canadian agriculture and agri-food sector is very positive. Producers, on average, are enjoying robust balance sheets and high profitability, have access to capital to meet short-term financial obligations and to make on-farm investments, and are not experiencing financial stress. As a result, there has been less need for BRM programming to assist producers in managing small, frequently occurring losses.

Structural transformations have also led to the domination of the Canadian agriculture and agri-food sector by larger, more sophisticated farms with greater capacity for managing normal business risk:

Large farms have a greater capacity for managing normal business risks. Farms with revenues of $500,000 or more have considerably higher net incomes than smaller farms (Figure 5). The average net market income (such as, before program payments) of farms with revenues of $1 million or more was about $393,000 compared to an average net income of $30,000 for farms with revenues between $100,000 and $249,999.

Figure 5: Net market incomes of Canadian farms by revenue class, 2014
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Figure 5 illustrates the net market incomes of Canadian farms by revenue class in 2014

Revenue Class Average Net Program Payments Average Net Market Income % of total operating Revenue
All Farms $7,000 $64,000 N/A
$10,000 to $99,999 $1,000 $2,000 5%
$100,000 to $249,999 $4,000 $30,000 7%
$250,000 to $499,999 $7,000 $74,000 12%
$500,000 to $999,999 $12,000 $128,000 17%
$1,000,000 and more $48,000 $393,000 59%

Source: AAFC (2015). Farm Financial Conditions and Government Assistance Data Book 2014

Large farms are also more consistently profitable. For most commodities, farms need to reach at least $250,000 in sales to have a high probability of being profitable (Figure 6).

Figure 6: Percentage of break-even farms by revenues, including program payments, 2009 to 2013
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Figure 6 illustrates the percentage of farms in each major sector that break even by revenue class, including program payments, for the years 2009-2013.

Less than $10,000 $10,000 to $99,999 $100,000 to $249,999 $250,000 to $499,999 $500,000 to $999,999 $1,000,000 and Over
Dairy 84% 95% 98% 97% 96%
Grains 40% 72% 88% 93% 94% 96%
Poultry 16% 51% 82% 92% 96% 93%
Cattle 35% 57% 78% 80% 74% 67%
Hogs 53% 74% 79% 80% 72%

Source: Statistics Canada Census of Agriculture and AAFC Canadian Agriculture Dynamic Micro-Simulation Model (CADMS)

Large farms with revenues over $500,000 are also responsible for the majority of capital investments and are more likely to have the expertise and dedicated resources required to make use of private sector risk management tools such as futures, forward contracts and marketing contracts.

As larger farms are characterized by greater use of more sophisticated risk management technologies and practices, increased access to capital investment for risk mitigation measures, increased specialization and higher and more consistent profitability, the increasing domination of the sector by large farms has further reduced the need for the BRM programming to support coverage of normal business risks.

Appropriate role of Business Risk Management programming

The appropriate role of the BRM programming is to provide disaster level support and encourage producers and the private sector to develop tools and strategies to manage normal business risk. The role of BRM programming is to also encourage producers to adopt best practices and take actions to manage risk.

A 2011 Organisation for Economic Co-operation and Development (OECD) report examining the role of governments in agricultural risk managementFootnote 18 suggested government support should focus on infrequent but catastrophic events such as severe and widespread weather events or the outbreak of a highly damaging disease that affect many or all farmers over a wide area and will usually be beyond farmers’ or markets’ capacity to cope. According to the report, clearly defined coverage levels and procedures, and roles and responsibilities between government and producers are needed to manage pressures for ad hoc support and avoid creating moral hazard where producers fail to take precautions or risk mitigation efforts in the belief that government assistance will provide sufficient coverage or will step in following a loss. Best practices for governments identified by the OECD include facilitating good start up conditions for the development of market-based tools and supports, taking a holistic approach to risk management by assessing all risks and their relationship to one another, and not providing support for normal business risk beyond encouraging and educating producers to assess and develop their own risk management strategies.

The transition from covering normal business risks to targeting support towards disaster risk coverage is in line with trends in government agricultural support in other developed economies. The 2015 OECD Agricultural and Monitoring ReportFootnote 19 revealed that the relative cost of agricultural support, as a percentage of total gross domestic product (GDP), has declined in Canada as well as in other comparable jurisdictions (for example, the United States, Australia and the European Union); however, Canada’s support for producers, as a percentage of gross farm receipts, remains higher than that of Australia. These findings were corroborated by a 2014 comparison undertaken by the BRM working group in support of GF2, which found that Canada’s producer support is similar to the United States and that European Union (EU) reforms are narrowing the gap with Canada (Figure 7).Footnote 20

Figure 7: Agricultural producer support estimates, selected countries by year
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Figure 7 compares the producer support estimates as percentage of gross farm recipients for Canada, United States, the European Union and Australia by year for the years 1995 to 2015:

1995 1997 1999 2001 2003 2005 2007 2009 2011 2013 2015
Canada 18.8 13.76 17.11 15.61 24.19 21.18 16.43 17.2 14.88 10.13 9.4
European Union 34.95 32.34 38.49 30.28 33.78 30.76 23.24 23.35 18.19 20.06 18.92
United States 9.74 13.13 24.73 21.43 14.74 15.04 9.67 10.1 8.01 6.9 9.44
Australia 6.43 4.58 3.86 3.5 3.66 3.64 4.83 3.09 3.12 2.06 1.34

Source: AAFC (2016), Business Risk Management: Considerations for the Next Policy Framework, Slide 4. 2015 numbers are forecast

3.1.3 Alignment with federal roles and responsibilities, Agriculture and Agri-Food Canada and Growing Forward 2 priorities and Business Risk Management principles

AgriInsurance, AgriStability and AgriInvest are aligned with federal roles and responsibilities legislated in the FIPA. The Wildlife Compensation Program is somewhat aligned with federal responsibilities, as there is a weak policy rationale for providing compensation for non-federally protected species. AgriInvest and the Wildlife Compensation Program are less aligned with GF2 priorities and BRM principles due to their design as entitlement programs that primarily cover or compensate for normal business risks. Some AgriInsurance products covering some normal risk are less aligned with GF2 strategic priorities and the appropriate role of BRM programming.

Alignment with federal roles and responsibilities

AgriInsurance, AgriStability and AgriInvest are aligned with federal roles and responsibilities. The programs are legislated under Section 4 of FIPA, which authorizes the Minister to enter into an agreement with one or more provinces for the establishment of a crop insurance program and to establish programming with the provinces for the protection of producers’ income.Footnote 21

Section 4 of FIPA outlines three core BRM principles:

  1. Compatibility with Canada’s international obligations (compliance to trade commitments and minimizing countervail risk);
  2. Not unduly distorting production or marketing decisions (minimizing moral hazard); and
  3. Providing equitable treatment across commodities and regions.Footnote 22

The Wildlife Compensation Program is only somewhat aligned with federal roles and responsibilities. Because the predecessor Waterfowl Program was included in the provinces’ crop insurance agreements in 1991, the Wildlife Compensation Program was originally legislated under Section 4 of FIPA.Footnote 23 In subsequent iterations of the agricultural risk frameworks, the Program has been administered as a compensation companion program under the Production Insurance program base in most provinces.

The Wildlife Compensation Program is aligned with federal roles and responsibilities to compensate producers for losses resulting from damage caused by waterfowl species protected under the Migratory Birds Convention Act and the Canada Wildlife Act. Québec is the only province to use the program to compensate for legislated species. There is no federal responsibility or policy rationale for the compensation provided to producers in other provinces for spot losses resulting from species other than the waterfowl species protected under federal legislation.

Alignment with Agriculture and Agri-Food Canada and Growing Forward 2 strategic outcomes, priorities and objectives

The four BRM programs support the strategic outcomes of AAFC and the GF2 policy framework for a competitive and innovative sector that contributes to society’s priorities and is proactive in managing risk.Footnote 24,Footnote 25 The programs are also aligned with key policy outcomes of GF2, which include a greater ability for producers to stabilize their enterprise income through a wide range of financial tools and effective coordinated responses to disasters, should they occur.

From GF to GF2, the objectives of the agricultural framework were revised to target government support to more severe and catastrophic losses and encourage producers to manage more normal business risks.Footnote 26 This shift in priorities was reflected in reforms to AgriStability and AgriInvest:

No changes were made to AgriInsurance or the Wildlife Compensation Program under GF2:

As no other changes were made to the design of AgriInvest as an entitlement program that primarily covers or compensates producers for normal business risks, the program is less aligned with GF2 priorities and objectives. Elements of the program’s design are also less aligned with BRM principles. For example, because AgriInvest matching contributions are based on one percent of a producer’s ANS, program benefits are related to sales revenues rather than income loss or need for funding.

The Wildlife Compensation Program is designed as an entitlement program providing compensation primarily for normal business risks, and is consequently less aligned with GF2 priorities and objectives and BRM principles. The program is different than AgriInsurance because producers do not pay premiums to participate in the Wildlife Compensation Program while they pay annual premiums to participate in AgriInsurance. As a result, producers do not contribute to the costs of the Wildlife Compensation Program.

Additionally, the scope of the mitigation and prevention plans in place is not well documented. While all participating provinces can demonstrate some type of program or service to assist producers in reducing their agricultural losses, or a requirement that producers use available mitigation strategies to prevent losses, mitigation or prevention strategies for particular crops or wildlife are not tracked. Thus, it is not evident to what extent producers are required to demonstrate the use of prevention or risk mitigation strategies to prevent recurring losses. Requests from provincial governments for evidence regarding the types of prevention and mitigation efforts taken by producers to prevent recurring losses were not fulfilled during the evaluation.

While AgriInsurance does provide disaster level support in line with GF2 priorities and BRM principles, there is evidence that some AgriInsurance products cover some normal business risk. For example, according to a 2011 OECD thematic review of Canadian risk management, policies with deductibles of only 10 percent that trigger indemnities when yields are reduced below 90 percent of historical averages trigger once every three years for the median farmer in a Saskatchewan sample. As a consequence, these policies can be considered to cover frequently occurring losses due to normal variations in production. An internal review of AgriInsurance similarly concluded that government subsidies do cover some normal business risk, and suggested further investigation would be required to determine the extent. In the instances where AgriInsurance products are found to cover normal business risk, transferring greater responsibility to producers would better align the program with GF2 strategic priorities and the appropriate role of BRM programming.

3.1.4 Duplication and complementarity with other programs

The four programs are designed, in combination with other GF2 BRM programs, to cover different risk types, levels, frequencies of occurrence and intended end uses. Linkages exist between programs to ensure producers are not compensated multiple times for the same loss. Although there is no direct duplication or overlap of programming, similarly designed programs are offered in Ontario and Québec that function as additional coverage to that provided by AgriInsurance, AgriStability and AgriInvest.

Complementarity of Growing Forward 2 Business Risk Management programs

The design of the GF2 BRM suite of programs is comprehensive in addressing different risk types, levels, frequencies of occurrence and intended end uses. Of the four programs included in this evaluation:

Among the other programs in the GF2 BRM suite:

Linkages between the GF2 BRM programs exist to ensure there is no overlap or duplication of payments:

Complementarity with similar provincial programs

Although there is no direct overlap or duplication in programming, the following similarly designed provincial programs are available in Ontario and Québec that function as additional coverage provided by AgriInsurance, AgriStability and AgriInvest:

3.2 Performance – effectiveness

This section outlines the key findings and conclusions related to the achievement of the programs against their performance targets for effectiveness and intended program outcomes. Achievements of the programs against their performance targets related to efficiency are addressed in section 3.3.

3.2.1  AgriInsurance

AgriInsurance is very effective in mitigating the financial impact of production losses for producers of eligible commodities. Participation has remained very high during GF and GF2 and producers are satisfied with the program. While insurance products are widely available for most major commodities, they are not currently available for cattle and hogs, with the exception of forage insurance for cattle producers, which has low participation. AgriInsurance premiums paid by the federal and provincial governments more than doubled between 2007/08 and 2013/14 due to an increase in the value of agricultural production insured.

Achievement of intended outputs and outcomes

Participation in AgriInsurance has remained very high and stable during GF and GF2. While the number of participants declined 13 percent between 2007/08 and 2015/16 as a result of consolidation and increasing average farm size, the number of acres insured increased 11 percent during the same period (Figure 8).

Figure 8: Number of farms and acres insured through AgriInsurance by year
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Figure 8 illustrates the number of farms and acres ensured by AgriInsurance by year from 2004/05 to 2014/15

Year Number of Farms Insured Number of Acres Insured
2004/05 93,441 66,472,052
2005/06 90,581 64,254,301
2006/07 86,308 61,166,680
2007/08 83,373 61,060,672
2008/09 83,534 64,636,746
2009/10 81,563 64,309,109
2010/11 80,016 65,475,054
2011/12 78,893 66,761,485
2012/13 77,901 69,792,566
2013/14 76,742 69,658,076
2014/15 74,144 68,584,786

Source: AgriInsurance program database [Production Insurance Statistical System (PINSS)]

Producers are satisfied with the program overall. On a scale of one to fiveFootnote 29, participants who completed the 2016 BRM survey rated AgriInsurance as timely (3.8), responsive (3.6), predictable in terms of the benefits to be received (3.6) and clear or easily understood (3.8).

As outlined in Table 2, AgriInsurance is meeting most of its performance targets.

Table 2: AgriInsurance effectiveness performance indicators, targets and results
Performance Indicator Target 2013/14 Actual 2014/15 Actual
Effectiveness of self-sustainability methods over time (indemnity/premiums) - multi-year moving average Between 0.95 & 1.05 0.88 0.85
Government share of total AgriInsurance premiums 60% 60.7% 60.7%
Value of agricultural products eligible for insurance compared to the market value of all agricultural products >=85% 85% 87%
Value of insured crop production compared to total value
Performance Indicator Target 2013/14 Actual 2014/15 Actual
All eligible products (excluding forage) >=75% 76% 76%
Forage >=20% 16% 16%
Source: AgriInsurance Performance Measurement Strategy Data

The value of agricultural products eligible for insurance compared to the market value of all agricultural products gradually increased during GF and GF2 and has exceeded the performance target of 85 percent in both 2013/14 (88%) and 2014/15 (87%).

Coverage remains very high with the exception of forage insurance. The value of insured production compared to the total production value of all crops excluding forage was 76 percent in 2013/14 and 2014/15, slightly exceeding the performance target of 75 percent. The value of forage insured compared to the total value of forage production was 16 percent in 2013/14 and 2014/15, falling short of the target of 20 percent. The average coverage level of the production insured by AgriInsurance has remained at approximately 75 percent from 2007/08 to 2014/15.

Interviews with representatives from the federal and provincial governments and industry associations suggest low forage uptake has occurred because most cattle producers prefer to manage their feed risks on-farm rather than obtaining forage insurance. Examples of on-farm risk mitigation options utilized by cattle producers include overproduction and the build-up of reserves; growth of annual crops (for example, greenfeed) to substitute for hay and pasture; purchase of feed from neighbours; and management of herd size relative to feed production.

AgriInsurance indemnities paid to producers have had a significant effect in mitigating the financial impact of production losses for producers of eligible commodities. As shown in Figure 9, the number of claims has fluctuated considerably from a high of 93,536 in 2004/05 to a low of 46,976 in 2013/14. The annual indemnities paid to producers have also fluctuated considerably, ranging from a low of $445.7 million in 2006/07 to a peak of $1,337.6 million in 2012/13. The recent spike in indemnities is attributed to the significant increases in commodity prices. So far during GF2 (2013/14 and 2014/15), a total of 107,811 AgriInsurance claims have resulted in $1.6 billion in indemnities paid.

Figure 9: AgriInsurance claims and indemnities by year
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Figure 9 compares the number of claims per year and the value of indemnities in millions for AgriInsurance by year from 2004 /05 to 2014/15

Year Number of Claims Indemnities in Millions
2004/05 93,536 $850.70
2005/06 68,489 586.9
2006/07 62,269 445.7
2007/08 75,919 644.6
2008/09 56,219 615.8
2009/10 72,330 928.4
2010/11 67,334 1,125.40
2011/12 67,472 1,261.50
2012/13 64,919 1,337.60
2013/14 46,976 641.9
2014/15 60,835 1,007.70

Source: AgriInsurance program database (PINSS)

According to the results of the 2016 BRM Producer Survey, a majority (79%) of participants that received AgriInsurance payments between 2013 and 2015 indicated that the payments helped them recover their production losses at least to a moderate extent or better. Producers were most likely to indicate that the primary benefits of the program are the ability to manage production losses (27%), protect input cost investment (19%), protect against risks (19%), and stabilize farm income (12%). All key informants interviewed rated AgriInsurance as having a significant to very significant impact in mitigating the financial impact of production losses (an average rating of 4.3 out of 5), citing the wide range of available insurance products and coverage levels available to producers.

Some progress has been made to not only implement a previous evaluation recommendation for AAFC to continue working with industry to develop livestock insurance plans where appropriate, but also to explore and report back to senior management on the viability of alternatives outside of AgriInsurance. Using AgriRisk, price insurance for cattle and hogs has been provided through a pilot of the Western Livestock Price Insurance Program (WLPIP). The WLPIP is not considered production insurance nor under the AgriInsurance umbrella, but it appears to be a good example of a producer paid insurance program as the premiums for the program are fully producer-paid and not subsidized by governments. Some uptake in WLPIP has occurred among cattle producers, but participation among hog producers has been minimal. Production insurance plans for hogs continue to be investigated by an industry and government hog mortality task team. However, a final design has yet to be developed and implemented.

The value of insured agricultural production doubled from $7.27 billion in 2004/05 to $14.87 billion in 2014/15 as a result of increases in commodity prices, an ongoing transition to higher value crops and increases in insured acreage. Consequently, total AgriInsurance premiums paid by the federal and provincial governments almost doubled from $565.7 million in 2007/08 to $924 million in 2014/15 (Figure 10). The total federal and provincial government share of premiums declined to $706.4 million in 2015/16.

Figure 10: AgriInsurance claims and indemnities by year
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Figure 10 illustrates the total federal and provincial value of AgriInsurance Premiums by year  from 2007-08 to 2015/16.

Year All Government Premiums
2007/08 $565.70
2008/09 $813.40
2009/10 $820.50
2010/11 $767.00
2011/12 $897.30
2012/13 $1,055.00
2013/14 $1,187.70
2014/15 $941.30
2015/16 $706.40

Source: AgriInsurance Performance Measurement Strategy Data
Note: 2015/16 is based on forecast information.

3.2.2 Wildlife Compensation Program

The Wildlife Compensation Program is effective in providing financial assistance for production losses due to wildlife damage of crops and predation of livestock. There is insufficient evidence on whether producers who receive compensation make efforts to prevent a recurrence. The Program has expanded beyond its original policy rationale to compensate for federally protected waterfowl species and has no direct linkages to AgriInsurance outside of Québec.

Achievement of intended outputs and outcomes

During the first two years of GF2 (2013/14 and 2014/15), there were an average of 11,362 claims and the average total value of the claims was approximately $26 million (Figure 11). The average claim amount during these two years was about $2,300. The total compensation paid by the Wildlife Compensation Program during this period was about $20 million per year.

Figure 11: AgriInsurance claims and indemnities by year
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Figure 11 compares the claims per year and the total value of claims in millions for the Wildlife Compensation Program by year for 2010/11 to 2014/15.

Year Number of Claims Value of Claims ($ millions)
2010/11 15,530 $30.53
2011/12 11,089 $19.15
2012/13 13,953 $25.94
2013/14 11,464 $23.33
2014/15 11,260 $28.73

Source: Wildlife Compensation Program database

The extent of the financial assistance provided by the Program varies widely by province. As shown in Figure 12, Alberta, Manitoba and Saskatchewan accounted for more than three-quarters of the compensation paid by the Wildlife Compensation Program over the last five years.

Figure 12: Percentage of Wildlife Compensation paid by province, 2010/11 to 2014/15
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Figure 12 compares the percentage of wildlife compensation paid to producers by province for the years 2010/11 to 2014/15.

Province % of Total Compensation Paid
British Columbia 8.20%
Alberta 23.80%
Saskatchewan 41.80%
Manitoba 12.60%
Ontario 6.20%
Quebec 6.50%
New Brunswick 1.20%
Nova Scotia 0.50%

Source: Wildlife Compensation Program database

The wide range in the amount of compensation paid to producers by participating provinces is the result of differences in the types and prevalence of wildlife present, the crops and livestock produced in each province and significant differences in program design. Provinces have the authority to include any wildlife species, as long as they can demonstrate there is a provincial wildlife damage mitigation strategy in place. As a result, the number of eligible species varies from highly restrictive in Québec, where compensation is provided to crop producers exclusively for damages resulting from federally-protected waterfowl species, to highly inclusive in Saskatchewan, where compensation is available to crop producers for damages caused by over 15 animal species and to livestock producers for predation from any wild animal. Provinces establish their own program criteria for eligible commodities, inspection/appraisal fees, minimum claim values and maximum compensation values. Additionally, while the federal-provincial cost-shared portion compensates producers for up to 80 percent of their production losses incurred, Alberta, Saskatchewan, Manitoba and Ontario use provincial funding to offer additional compensation up to 90 or 100 percent of the loss, depending on the province.

There is insufficient evidence on whether producers who receive compensation make efforts to prevent a recurrence. While each province that delivers the Wildlife Compensation Program has a requirement for producers to adopt best practices and available mitigation strategies, the extent to which these requirements are enforced is unknown even though the number of claims since 2010/11 has declined from 15,530 to 11,260 in 2014/15. Some provincial government and producer representatives interviewed suggested there are no effective prevention or mitigation efforts for some wildlife losses.

Expansion of the program beyond its policy rationale

The Wildlife Compensation Program has expanded beyond its original policy rationale to only compensate for federally protected waterfowl species and has no direct linkages to AgriInsurance outside of Québec. Québec is the only province that exclusively compensates producers for damages resulting from federally protected species, as originally intended. Damages from other wildlife species are only compensated as insurable perils under AgriInsurance. In all other participating provinces, the Wildlife Compensation Program covers other non-federally protected wildlife species.

Some progress has been made to implement the previous evaluation recommendations that the FPT AgriInsurance Working Group review the policy rationale for the Wildlife Compensation Program including what constitutes the definition of "eligible wildlife" and assess the feasibility of incorporating the production risks related to wildlife into existing production crop insurance plans. A review of the Wildlife Compensation Program was undertaken by a special federal/provincial task force in 2011 that provided an in-depth examination of possible program changes. As no national consensus was reached in time for program changes to be incorporated under GF2, discussions of the recommended changes will continue to support changes for the Next Policy Framework.

As an option to merge the Wildlife Compensation Program with AgriInsurance would only be applicable as crop damage due to the lack of livestock insurance plans. This is possible, as demonstrated by the Program in Québec. Crop damages account for the vast majority of payments made to producers. Between 2010/11 and 2014/15, 82 percent of the total compensation paid to producers through the Wildlife Compensation Program was for damage to crops and 18 percent was for livestock (Figure 13).Footnote 30

Figure 13: Wildlife Compensation Program payments by loss type by year
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Figure 13 illustrates Wildlife Compensation Program Payments in millions by Loss type and year from 2010/11 to 2014/15.

Year Payments for crop damages Payments for livestock predation
2010/11 $22.60 $3.70
2011/12 $12.70 $4.00
2012/13 $18.10 $4.20
2013/14 $16.00 $3.70
2014/15 $19.60 $4.50

Source: Wildlife Compensation Program database

3.2.3 AgriStability

While AgriStability payments have been effective in mitigating the financial impacts of large short-term income losses, declining participation has limited the number of beneficiaries while the number and value of payments has been further reduced by the GF2 changes. The percentage of market revenues covered has not declined as significantly as the number of participants due to higher participation rates among large producers.

Achievement of intended outputs and outcomes

As outlined in Table 3, AgriStability is not meeting all of its performance targets related to program effectiveness.

Table 3: AgriStability effectiveness performance indicators, targets and results
Performance Indicator Target 2013 Actual 2014 Actual
Percentage of producers participating in the program 50% 37% 33%
Percentage of market revenues covered by the program 65% 63% 55%
Proportion of producers triggering AgriStability payments where Production Margin plus AgriStability payments returns them to 55% of their reference margin 75% 67% 75%
Source: AgriStability Performance Measurement Strategy Data, revised program data received September 29, 2016

The number of producers participating in AgriStability has consistently declined for the last seven years. The decline in AgriStability participation has exceeded the rate of decline in the number of farms in the industry, where smaller farms are exiting the industry or getting bought out by larger farms. During GF, the participation rate declined from 57 percent of producers in 2007 to 43 percent in 2012, missing the performance target of 55 percent. Under GF2, the participation rate further declined to 37 percent in 2013 and 33 percent in 2014, significantly below the performance target of 50 percent.

While the decline in participation has been consistent across all commodity groups (Figure 14), of particular note is the 25 percent decline in the participation rate of cattle producers from 59 to 34 percent, as AgriStability represents the primary source of disaster level coverage for livestock producers. The increase in market price of cattle from 2010 to 2015 may have impacted the decline in participation rate among cattle producers.Footnote 31 Participation rates were lowest among producers of supply managed commodities (27%) and cattle (34%) and highest among hog (75%) producers.

Figure 14: AgriStability participation rate by commodity group by year
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Figure 14 illustrates the AgriStability participation rate by major commodity group and year from 2007 to 2013.

Program Year Hog Fruit, vegetable and potato Grains and oilseeds Cattle Supply Managed Commodities Other
2007 88% 61% 73% 59% 45% 37%
2008 86% 58% 67% 53% 41% 33%
2009 78% 63% 67% 52% 37% 39%
2010 83% 69% 66% 47% 37% 42%
2011 86% 65% 61% 42% 34% 38%
2012 80% 58% 52% 36% 29% 31%
2013 75% 49% 48% 34% 27% 13%

Source: AgriStability program database

Evidence from the key informant interviews indicates declining participation in AgriStability is due to the program's complexity, lack of transparency or predictability, issues with the timeliness of payments, the strength of recent market conditions and commodity prices, and the GF2 program changes that reduced the number and value of the program payments. As indicated in Table 4, BRM survey participants rated AgriStability lowest (2.65 on a scale of 1 to 5) in terms of clarity, predictability, responsiveness and timeliness compared to AgriInsurance (3.67), AgriInvest (3.58) and the Advanced Payments Program (APP) (4.14).

Table 4: Producer's average ratings of BRM programs
Element AgriStability AgriInsurance AgriInvest APP Total
Timeliness of Benefits 2.79 3.77 3.65 4.16 3.59
Responsiveness of Program 2.56 3.55 3.47 4.12 3.43
Predictability of Benefits 2.58 3.61 3.58 4.17 3.49
Clarity of Program 2.70 3.76 3.62 4.11 3.55
Program Average 2.65 3.67 3.58 4.14 3.51
Source: Ference & Company (2016). 2016 BRM Producer Survey Findings

Most producers (70%) that participated in AgriStability between 2013 and 2015 did not know the percentage margin decline, relative to their reference margin necessary to trigger a benefit from the Program under GF2. Key informants indicated that producers are experiencing difficulties in understanding aspects of the AgriStability [for example, reference margin limit (RML)] and a substantial number rely on their accountants to complete their AgriStability application. Representatives of several provincial government administrations, in particular, have noted a lack of understanding of the program changes on the part of producers despite awareness-raising campaigns and concerns with the overall transparency of the AgriStability.Footnote 32

The percentage of market revenues covered by AgriStability has not declined as dramatically as the producer participation rate (Figure 15). During GF, the proportion of market revenues covered averaged 71 percent, missing the performance target of 75 percent. So far under GF2, the proportion of market revenues covered was 63 percent in 2013 and 55 percent in 2014, missing the target of 65 percent.Footnote 33

Figure 15: Proportion of farm market revenues covered by AgriStability compared to producer participation rate by year
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Figure 15 compares the proportion of farm market revenues covered by AgriStability  to producer participation in the program by  year from 2007-2014.

Year Proportion of Market Revenues Covered Producer Participation Rate
2007 75% 57%
2008 70% 53%
2009 73% 53%
2010 73% 52%
2011 68% 48%
2012 65% 43%
2013 63% 37%
2014 55% 33%

Source: AgriStability Performance Measurement Strategy Data, revised program data September 29, 2016

The more gradual decline in the proportion of market revenues covered by AgriStability is due to high participation rates among large producers. As shown in Table 5, there is a positive correlation between the size of a producer’s market revenues and the AgriStability participation rate. About one half (51%) of producers with revenues between $500,000 and $1 million and 56 percent of producers with revenues of $1 million or greater participated in the AgriStability in 2013. The decrease in participation rate and coverage of the AgriStability exposes the industry to more risk and increases the potential need for ad-hoc support.

Table 5: AgriStability participation rate by revenue class, 2013
Market Revenues Number of Participants Total Number of Producers in Canada Participation Rate
$10,000 - $24,999 4,576 33,095 14%
$25,000 - $49,999 6,772 28,135 24%
$50,000 - $99,999 9,419 27,350 34%
$100,000 - $249,999 14,843 32,595 46%
$250,000 - $499,999 11,593 23,190 50%
$500,000 - $999,999 9,126 17,830 51%
$1,000,000 and over 7,896 14,135 56%
Canada 64,225 176,330 36%
Source: AgriStability program database

The benefits paid to producers through AgriStability declined from $951 million in 2009 to $297 million in 2013, but are expected to increase from 2015 to 2016 (Figure 16). The percentage of program participants who were paid benefits similarly declined from 28 percent in 2009 to 13 percent in 2013. The primary reasons for the decline include strong market conditions and high commodity prices in recent years, and the impact of GF2 program changes which have reduced the number and value of payments in line with the transition to disaster or catastrophic level coverage, as intended.

Figure 16: AgriStability benefits paid to producers by year
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Figure 16 illustrates the relationship between the total value of AgriStability benefits paid in millions to producers and the number of producers who were paid benefits by year from 2007-2016.

Program Year Benefits Paid ($ millions) Number of Producers Paid Benefits
2007 $704.90 25,648
2008 $762.40 19,986
2009 $951.20 29,197
2010 $689.10 20,138
2011 $624.30 15,123
2012 $529.60 12,713
2013 $297.00 9,697
2014 $386.40 10,376
2015 $428.12 9,191
2016 $595.03 12,810

Source: AgriStability Performance Measurement Strategy Data
Note: 2014-2016 are estimates

The elimination of the tiered coverage has had the most significant impact in reducing AgriStability payments in 2013 (70% of the reduction), followed by the introduction of the RML factor (30%).Footnote 34 The RML was intended to reduce payments to profitable producers (such as, those with high reference margins compared to their allowable expenses). Evidence indicates that in 2013, an increased share of payments has been directed to producers who were unprofitable in the program year. However, some unprofitable farms have experienced larger reductions in payments in dollar terms.

For producers triggering AgriStability payments, the program margin compared to the reference margin during GF averaged 43 percent, and the program margin, including AgriStability payments compared to the reference margin averaged 72 percent. During 2013 under GF2, the program margin for producers triggering AgriStability payments compared to the reference margin declined to 33 percent and the program margin including AgriStability payments compared to the reference margin declined to 57 percent (Figure 17). The proportion of producers triggering a payment where the production margin plus the payment returned them to 55 percent of their reference margin was 67 percent in 2013, below the performance target of 75 percent.

Figure 17: AgriStability participants' program margin compared to reference margin
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Figure 17 compares AgriStability Participants’ program margins to the reference margin by tear from 2007-2013.

Program Year Program Margin Compared to Reference Margin Program Margin Including AgriStability Payments Compared to Reference Margin
2007 39% 71%
2008 26% 66%
2009 39% 71%
2010 47% 74%
2011 51% 76%
2012 54% 77%
2013 33% 57%

Source: AgriStability program database

A majority (64%) of BRM participants surveyed who received AgriStability payments between 2013 and 2015 reported that the payments helped them recover their income losses at least to a moderate extent (with 11% indicating to a great extent). The average producer rated the effectiveness of AgriStability assistance in recovering income losses as 2.8 on a 5-point scale. Surveyed participants most frequently identified the primary benefits of the program as the ability to manage income losses and to even out income flow (46%), the mitigation of impacts beyond their control (10%), and the provision of a safety net (7%).

Key informants rated AgriStability as having a considerable impact in mitigating the financial impact of large, short-term income losses (average rating of 3.4 out of 5). Several key informants explained that features of the program’s design, including the RML, Olympic reference margin, and 70 percent trigger, work to ensure it does not impede adaptability to market signals. However, the majority of respondents suggested the impact of the payments may be diminished as a result of declining participation and lower payouts resulting from the GF2 changes.

3.2.4 AgriInvest

AgriInvest is somewhat effective in affording producers greater flexibility with managing financial risks and increasing producers’ capacity to deal with income losses. Participation in the program is high and producers are setting aside funds. Because the program does not stipulate that the funds withdrawn must be used to offset income losses, it is difficult to ensure that these funds are being used to manage financial risks and offset losses.

Achievement of intended outputs and outcomes

As outlined in Table 6, AgriInvest is meeting most of its performance targets related to program effectiveness because participation and coverage of total market sales are high. During GF2, 73 percent of producers participated in 2013, and 75 percent participated in 2014, essentially meeting the performance target of 75 percent, on average.

Table 6: AgriInvest effectiveness performance indicators, targets and results
Performance Indicator Target 2013 Actual 2014 Actual
Percentage of producers participating in the program 75% 73% 75%
Percentage of allowable market sales covered by the program 85% 89% 88%
Government contributions as a percentage of maximum matchable contributions 85% 92% 91%
Percentage of AgriInvest producers triggering AgriStability payments and making withdrawals from AgriInvest account 60% 47% 42%
Source: AgriInvest Performance Measurement Strategy Data

In 2013 and 2014, 89 and 88 percent of allowable market sales were covered, outperforming the performance target of 85 percent. While the overall number of participants declined 11 percent from 143,577 in 2007 to 127,384 in 2014, this decline was primarily due to the reduction in the number of farms in Canada because the percentage of producers participating in AgriInvest has not changed substantially during this period (Figure 18).

Figure 18: AgriInvest participation and coverage of market sales by year Footnote 35
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Figure 18 compares the AgriInvest participation rate and coverage rate of market sales to the number of AgriInvest participants by year from 2007-2014.

Program Year Number of Participants % of Producers Participating % of Allowable Market Sales Covered
2007 143,577 76% 86%
2008 142,647 77% 90%
2009 140,672 78% 91%
2010 137,678 79% 89%
2011 136,529 82% 89%
2012 134,421 76% 94%
2013 127,989 73% 89%
2014 127,384 75% 88%

Source: AgriInvest Performance Measurement Strategy Data

As shown in Figure 19, the average annual AgriInvest contribution by producers was $2,828 and total contributions averaged $323 million per year during GF. During GF2, the average annual contribution declined to $2,490 and total contributions averaged $259 million per year. This decline is at least in part due to the reduction in payment rate (from 1.5 to 1% of ANS) and the allowable maximum contribution (from $22,500 to $15,000).

Figure 19: AgriInvest contributions by producers by year
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Figure 19 compares the average producer contribution to AgriInvest and the total value of contributions in millions by year from 2007 to 2014.

Program Year Total Contributions Average Contribution
2007 $287.00 $2,009
2008 $300.60 $2,642
2009 $312.00 $2,858
2010 $304.70 $2,816
2011 $346.30 $3,134
2012 $385.40 $3,509
2013 $265.10 $2,510
2014 $253.10 $2,469

Source: AgriInvest program database

Between 2007 and 2014, the proportion of producers making a deposit remained stable, ranging from 73 to 79 percent. The amount deposited as a percentage of the maximum allowable contribution has remained consistent at approximately 90 percent between 2007 and 2014. During GF2, government contributions as a percentage of maximum matchable contributions were 92 percent in 2013/14 and 91 percent in 2014/15, outperforming the performance target of 85 percent. AgriInvest account balances have grown to almost $2 billion in 2014/15. In recent years, the rate of increase in account balances has slowed due to an increase in withdrawals and reduced contributions due to GF2 program changes, such as the reduced payment rate and government maximum contribution (Figure 20).

Figure 20: AgriInvest total withdrawals, contributions and account balances by year
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Figure 20 illustrates the total value of withdrawals, contributions and account balances in millions for AgriInvest by year from 2010 to 2014.

Fiscal Year Total Contributions Total Withdrawals Account Balance
2010 $725.20 $218.40 729.9
2011 $682.80 $313.20 1,099.5
2012 717.2 $353.00 1,463.7
2013 791.2 $432.00 1,822.9
2014 574 $421.20 1,975.7

Source: AgriInvest program database

AgriInvest is somewhat meeting its intended intermediate outcome that producers have flexibility in managing financial risks and intended final outcome that producers have increased capacity to deal with income losses. The funds are being used for a variety of purposes. Participants who took part in the 2016 BRM Survey who made a withdrawal between 2013 and 2015 reported using the funds for cash flow (51%), farm related expenses (28%), to offset a decline in income (24%), to make on-farm investments (24%) or reduce debts (22%). Surveyed producers indicated that the main benefits of AgriInvest are the ability to manage income losses (40%), increase savings (36%), manage cash flow (35%), and make on-farm investments (21%).

Key informants rated AgriInvest as somewhat effective in improving producers’ flexibility in managing risks and enhancing their capacity to deal with income losses (an average rating of 2.9 on a scale of 1 to 5). Many key informants, including provincial government and industry representatives, indicated that with a limit of $15,000, the AgriInvest matching contribution is not large enough to support any significant risk management investment or address an income loss as intended, especially given the increasing dominance of the agriculture sector by large farms and the fact that the large majority of the $2 billion in AgriInvest account balances are held by very large producers.

As illustrated in Figure 21, between 2008 and 2013, over one half (58%) of AgriInvest contributions were made by producers with sales revenues greater than $500,000. Producers with less than $100,000 in revenues accounted for only eight percent of total contributions, which is generally representative of farm sizes in the industry.

Figure 21: AgriInvest Contributions by Revenue Class, 2008 to 2013
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Figure 21 illustrates AgriInvest contribution by revenue class for the years 2008-2013.

Revenue Class % of Total AgriInvest Contributions
Less than $24,999 0.80%
$25,000 to $49,999 2.20%
$50,000 to $99,999 5.10%
$100,000 to $249,999 15.00%
$250,000 to $499,999 18.80%
$500,000 or more 58.10%

Source: AgriInvest program database

AgriInvest program guidelines do not stipulate that producers experiencing an income loss must withdraw funds from their AgriInvest account. The percentage of AgriInvest participants triggering an AgriStability payment and making a withdrawal averaged 42 percent during GF and was 47 percent during 2013 and 42 percent in 2014, well below the performance target of 60 percent. Several key informants indicated that due to the lack of a trigger for AgriInvest, an income decline sometimes does not result in an AgriInvest withdrawal, and some withdrawals are made for purposes other than to address income declines.

As shown in Table 7, 62 percent of the 2013 AgriInvest withdrawals were made by producers with revenues of $500,000 or more. As farm financial data reflects, large farms were experiencing positive market conditions with high prices, high net incomes and record profitability in 2013, suggesting the majority of the funds withdrawn were not likely used to address income losses. Due to strong market conditions and high commodity prices in recent years, AgriInvest’s effectiveness in helping producers manage financial risks associated with small income losses has not truly been tested.Footnote 36

Table 7: AgriInvest withdrawals by revenue class in 2013
Number of Participants % of Total Participants Average AgriInvest Withdrawal % of Total Withdrawals
$1 million or more 8,850 7% $45,125 41%
$500K – 999K 11,332 9% $20,349 21%
$250K – 499K 16,492 13% $10,508 15%
Less than $250K 92,177 71% $3,225 23%
Source: AgriInvest Program Data

3.2.5 Collective impact of Business Risk Management programs

Although payments from government programs as a percentage of net income have declined as a result of high commodity prices in recent years, these payments continue to have a considerable impact on increasing producers’ net operating incomes.

Impact of the Business Risk Management programs on net operating income

Due to strong market conditions and high commodity prices, the total net market incomeFootnote 37 of farms in Canada has increased by 80 percent from approximately $5.5 billion in 2009 to $9.9 billion in 2014. As illustrated in Figure 23, this increase was offset by declining program payments from government programs and insurance proceeds such that total net operating income (NOI)Footnote 38 of all farms in Canada stabilized at approximately $12 billion from 2012 to 2014 (a 106% increase from $5.8 billion in 2014). Total payments from all government programs and insurance proceeds to producers declined from about $4.1 billion at the beginning of GF in 2007 to $2.1 billion in 2014.Footnote 39 Approximately three quarters of these payments were made by federal government programs. Private hail insurance accounted for about 10 percent of total payments to producers in 2014. The other payments to producers were from provincial government programs.

Figure 22: Impact of government program payments and insurance proceeds on the net operating income of all farms in Canada by year
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Figure 22 illustrates the impact of government program payments and insurance proceeds on net operating income of all farms in Canada by year from 2009 to 2014.

Years Net Market Income AgriInsurance Indemnities AgriStability Payments AgriInvest Withdrawals Others Net Operating Income
2009 $5,491,527,688 $852,841,326 $896,166,939 $513,954,923 $760,413,167 $8,514,904,043
2010 $5,422,472,137 $1,404,859,261 $910,379,270 $352,856,100 $701,292,096 $8,791,858,864
2011 $7,436,493,265 $1,427,623,027 $722,697,486 $438,406,743 $795,116,088 $10,820,336,609
2012 $8,706,567,742 $1,435,793,965 $696,048,464 $545,141,612 $604,226,248 $11,987,778,030
2013 $9,435,831,570 $1,309,104,636 $544,796,140 $541,884,855 $424,922,485 $12,256,539,687
2014 $9,867,152,282 $1,071,835,441 $448,399,791 $404,236,837 $244,334,666 $12,035,959,018
Grand Total $46,360,044,684 $7,502,057,656 $4,218,488,090 $2,796,481,071 $3,530,304,750 $64,407,376,251

Source: Statistics Canada CANSIM Table 002-0076

While government program payments and insurance proceeds have accounted for a much smaller percentage of overall NOI in recent years, these funds have continued to have a significant impact on the NOI of producers. In 2014, the average program payments and insurance proceeds of $12,886 resulted in an increase in average farm NOI from $58,625 to $71,511 (Figure 23).

Figure 23: Impact of program payments and insurance proceeds on average farm net operating income of all farms in Canada by year
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Figure 23 illustrates the impact of program payments and insurance proceeds on average farm net operating income of all farms in Canada by year from 2001 to 2014.

Year Net Operating Income Net Operating Income before  Payments and  Proceeds Payments and Proceeds as % of Net Operating Income
2001 $28,998 $15,693 45.88%
2002 $30,250 $16,507 45.43%
2003 $25,567 $7,007 72.59%
2004 $28,784 $8,986 68.78%
2005 $30,050 $7,320 75.64%
2006 $30,655 $7,789 74.59%
2007 $37,267 $16,844 54.80%
2008 $45,495 $25,402 44.17%
2009 $47,057 $30,349 35.51%
2010 $50,534 $31,167 38.32%
2011 $62,840 $43,188 31.27%
2012 $67,402 $48,953 27.37%
2013 $69,507 $53,511 23.01%
2014 $71,511 $58,625 18.02%
Average $44,708 $26,524 40.67%

Source: Statistics Canada CANSIM Table 002 0044

Due to the preponderance of small farms and the high proportion of total market revenues earned by large farms, an analysis of average farm NOI is not as useful as an assessment of the average NOI of farms with revenues over $250,000, because this latter analysis more accurately depicts an operation primarily engaged in farming. An analysis of the average NOI of farms with revenues of over $250,000 indicates that the NOI varies significantly from one commodity group to another, with cattle producers having the lowest average NOI in 2014 ($87,810) (Figure 24). During the period from 2010 to 2014, hog producers transitioned from among the lowest to the highest average NOI (such as, from $102,590 to $378,820).

The range for each commodity group in the following chart depicts the difference between the group’s net income before payments and their net operating income after receiving government program payments and insurance proceeds. The inner line with the percentage values depicts the share of NOI attributable to the government payments and insurance proceeds in that year. As indicated in Figure 24, government program payments and insurance proceeds as a proportion of NOI have been highest for hog and cattle producers during most of the period from 2010 to 2014. This assistance has still not been sufficient to increase the NOI after program payments of the average cattle farm to the level experienced by the other commodity groups.

Figure 24: Impact of government program payments and insurance proceeds on net income of producers with revenues of $250,000 or more by commodity group by year
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Figure 24 illustrates the impact of government program payments and insurance proceeds on the net income of producers with revenues of $250,000 or more by major commodity group by year from 2010 to 2014.

Year Supply Managed Grain and Oilseed Beef and Cattle Greenhouse, Nursery, and Floriculture Fruit, Potato and Vegetable Hog and Pig
2010 9% 36% 88% 26% 43% 179%
2011 7% 31% 84% 23% 39% 106%
2012 6% 27% 55% 22% 38% 111%
2013 5% 21% 60% 22% 39% 90%
2014 5% 20% 29% 21% 27% 19%

Source: Statistics Canada CANSIM Table 002 0044

Impact of the Business Risk Management programs on adaptability

Key informants reported that the BRM programs have not had a major impact in enhancing the adaptability of the agriculture sector, but the programs do not impede adaptation to market signals. When asked to rate the impact of the programs in enhancing adaptability on a scale of one to five where two is minimal and three is somewhat, the key informants provided an average rating of 2.7 for AgriStability, 2.8 for AgriInvest, 3.2 for AgriInsurance and 2.1 for the Wildlife Compensation Program. The majority of the key informants explained that the BRM suite does not impede innovation and provides producers sufficient time to adjust to market signals through financial assistance. The security provided through BRM programs could encourage producers to take risks with their commodities and grow higher value corps.

3.3 Performance - efficiency and economy

This section outlines the key findings and conclusions resulting from the evaluation related to the efficiency and economy of the four programs.

3.3.1 AgriInsurance

AgriInsurance is delivered efficiently and economically compared to other countries. However, increases in administrative costs, particularly in Alberta, combined with a decline in the number of insured contracts have resulted in a considerable increase in the administrative cost per contract over the last five years.

Comparison with other countries

AgriInsurance is being administered efficiently and economically compared to agricultural insurance schemes in most other countries. A 2008 World Bank study found that out of a sample of 29 countries, Canada's administrative costs at eight percent were second lowest in the world as measured by administrative costs as a percentage of premiums (Figure 25). Canada's administrative costs were considerably lower than other subsidized multi-peril crop insurance programs such as Brazil (36%), Mexico (30%), India (30%) and the U.S. (26%). Although a more recent survey has not been undertaken by the World Bank, Canada's administrative costs as a percentage of premiums have remained largely unchanged since 2008.Footnote 40

Achievement of efficiency targets

AgriInsurance is meeting all performance targets related to efficiency (Table 8).

Table 8: AgriInsurance efficiency performance indicators, targets and results
Performance Indicator Target 2013/14 Actual 2014/15 Actual
Admin costs as a % of total coverage Less than 2% 0.7% 0.7%
Admin costs as a % of total premiums Less than 12% 6% 8%
Admin costs per contract Less than $500 $444 $487
% of payments processed within 30 days 90% 90% 93%

Source: AgriInsurance Performance Measurement Strategy Data

There are some limitations with the current AgriInsurance performance indicators. The indicators for administrative expenses as a percentage of total coverage and administrative expenses as a percentage of total premiums are impacted by increased commodity prices. As a result, significant increases in commodity prices result in significant decreases in administrative costs as a percentage of total coverage and premiums, suggesting considerable gains in efficiency which is not the case for the AgriInsurance program. A constraint to the performance target of $500 or less for the administrative cost per contract is that it is static and needs to be adjusted regularly to account for inflation. Some examples of more appropriate performance indicators are administration cost per acre and administration cost per contract.

While AgriInsurance is achieving all performance targets for efficiency, the program's total administrative costs increased 15 percent or $15.9 million from 2010/11 to 2014/15 (Table 9). Approximately 87 percent or $13.9 million of this increase is due to a 52 percent increase in Alberta's administrative costs from 2010/11 to 2014/15. During the past five years, the number of insured contracts has decreased by six percent. The combined impact of an increase in administration costs and a decrease in the number of insurance contracts has resulted in a 23 percent increase in the cost per insurance contract from $397 in 2010/11 to $487 in 2014/15 (Table 9).

Table 9: AgriInsurance administration costs, 2010/11 to 2014/15
Category 2010/11 2011/12 2012/13 2013/14 2014/15
Federal Share $61.6M $65.3M $67.3M $68.0M $71.2M
Provincial Share $41.1M $43.5M $44.8M $45.3M $47.4M
Total AgriInsurance Administration Costs $102.7M $108.8M $112.1M $113.3M $118.6M
Administration Costs per Farm Insured $1,284 $1,379 $1,440 $1,476 $1,599
Number of Farms Insured 80,016 78,893 77,901 76,742 74,144
Number of Contracts 258,867 252,250 253,937 256,918 243,371
Administration Costs Per Contract $397 $431 $442 $441 $487
Source: AAFC Winnipeg Program Data

As indicated in Figure 25, Alberta's administrative cost per contract increased by 58 percent from $364 in 2010/11 to $575 in 2014/15. In comparison, the increase in administrative costs per contract among the four other provinces with the largest number of insured farms averaged nine percent. Ontario had the second highest administrative cost per contract at $542 in 2014/15. Both Alberta and Ontario exceeded the performance measurement target of $500 per contract during GF2.

Figure 25: AgriInsurance administrative cost per contract for the five largest provinces by year
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Figure 25 illustrates the administrative costs of AgriInsurance per contract for the five largest provinces by year from 2010/11 to 2014/15.

Year Alberta Saskatchewan Manitoba Ontario Quebec
2010/11 364 373 373 444 350
2011/12 466 400 380 464 354
2012/13 516 380 351 440 413
2013/14 510 349 341 502 406
2014/15 575 414 414 542 391

Source: AAFC Winnipeg Program Data

An analysis of administrative expenses indicates that Alberta's costs were higher than the four other provinces with the largest number of insured farms in a number of cost categories including processing operations, adjusting operations, system maintenance, and accommodations, as well as capital expenditures. Key informant interviews with federal and provincial government representatives indicated that higher salaries and salary bonuses in the last five years have contributed to higher administrative costs in Alberta than in comparable jurisdictions.

3.3.2 Wildlife Compensation Program

The administrative costs per claim of the Wildlife Compensation Program are high due to the cost of the on-farm inspection needed to comply with the federal requirement for evidence of loss. Due to the preponderance of small claims, the administration costs as a proportion of program funding are higher for the Wildlife Compensation Program than the other programs evaluated.

Program administrative costs

The Wildlife Compensation Program's total administrative costs declined from a high of approximately $6.0 million in 2010/11 to a low of $4.2 million in 2014/15. During this five-year period, an average of 12,695 claims per year was processed (Figure 26).

Figure 26: Wildlife Compensation Program administrative costs by year
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Figure 26 illustrates the relationship between the number of claims and the administration cost in $10,000

Variable 2010/11 2011/12 2012/13 2013/14 2014/15
Administration cost (in $10,000) $5,972 $4,936 $5,093 $5,486 $4,153
Number of claims 15,530 11,089 13,953 11,464 11,260

Between 2010/11 and 2014/15, the average administrative cost per claim was $405 for all participating provinces. The cost per claim was lowest in Ontario ($112) and Manitoba ($167) and highest in British Columbia ($3,204) (Figure 28).

Figure 27: Wildlife Compensation Program administrative cost per claim by province, 2010/11 to 2014/15
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Figure 27 illustrates the average number of claims per year and average administrative cost per claim for each province for 2010/11 to 2014/15

Province Average Number of Claims per Year Average Admin Cost per Claim
British Columbia 406 $3,204
Alberta 1,020 $542
Saskatchewan 4,885 $431
Manitoba 2,720 $167
Ontario 3,008 $112
Quebec 484 $734
New Brunswick 44 $248
Nova Scotia 128 $155

Source: AAFC Winnipeg Program Data

A major contributing factor to the comparatively high administrative cost per claim is the high proportion of small claims. Between 2010/11 and 2014/15, the average claim amount across all participating provinces was $2,204. Average claim amounts were highest in New Brunswick ($7,017), Alberta ($5,962) and British Columbia ($5,146) and lowest in Ontario ($529) and Nova Scotia ($999). Approximately 38 percent of all claims paid during the past five years were for less than $500 (Figure 28). For most of these claims, the $405 administrative cost was equal to or greater than the claim amount. Almost two-thirds (62%) of all claims paid between 2010/11 and 2014/15 were for less than $1,000.

Figure 28: Wildlife Compensation Program claims by claim size, 2010/11 to 2014/15
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Figure 28 illustrates the proportion of Wild life Compensation Program claim size as percentage of all claims for 2010/11 to 2014/15.

Claim Size % of all claims
Less than $200 9.20%
$200 – 499 29.20%
$500 – 999 23.80%
$1,000 – 1,999 16.20%
$2,000 - 4,999 12.50%
$5,000 – 9,999 5.20%
$10,000 – 14,999 1.70%
$15,000 and more 2.30%

Source: AAFC Winnipeg Program Data

The other major contributing factor to the Wildlife Compensation Program's high administrative costs per claim is the federal requirement that on-farm inspections be undertaken to verify the loss to prevent moral hazard. The need to conduct on-farm inspections to verify each loss drives up administrative costs. One of the primary reasons why British Columbia's average administrative cost per claim ($3,204) is so much higher than the other provinces is the greater amount spent on professional and special services which includes the contracting of Environmental Conservation Officers to conduct wildlife damage assessments.

The total administrative cost as a percentage of program funding is considerably higher for the Wildlife Compensation Program compared to the other programs evaluated. Between 2010/11 and 2014/15, the Wildlife Compensation Program's administrative costs as a proportion of total funding averaged 20 percent, compared to 15 percent for AgriStability, seven percent for AgriInsurance and five percent for AgriInvest (Figure 29).

Figure 29: Program comparison of administrative cost as a percentage of claim amount by year
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Figure 29 compares the administrative cost as a percentage of claim amount for AgriInvest, AgriInsurance, AgriStability, and the Wildlife Compensation Program.

AgriInsurance AgriStability AgriInvest Wildlife Compensation Program
2010/11 8.40% 14.70% 5.30% 19.60%
2011/12 7.50% 11.30% 5.40% 25.80%
2012/13 6.50% 13.00% 5.00% 19.60%
2013/14 5.80% 16.20% 4.40% 23.50%
2014/15 7.80% 20.90% 5.60% 14.40%

Source: AAFC Winnipeg Program Data

The federal and provincial government representatives interviewed suggested the Wildlife Compensation Program is as efficient as possible given its current design and the federal requirement for verification of loss. The suggestions provided by key informants to improve the Program's economy include adopting a minimum claim value, reducing the requirements for on-farm verification of loss for claims below a specific value threshold, disallowing multiple claims from the same producer for the same damages, and/or getting statutory declaration with spot inspections.

3.3.3 AgriStability

For the most part, AgriStability is delivered as efficiently and economically as possible, given the administrative complexity of the program. While there exist some opportunities to share best practices across jurisdictions, significant gains in efficiency would require modifications to reduce the administrative complexity and costs in line with the transition from an income stabilization program to a disaster assistance program.

Achievement of efficiency targets

As indicated below, AgriStability is currently meeting only one of three performance targets for efficiency (Table 10). The overall fiscal year administrative costs decreased five percent in 2013/14 and four percent in 2014/15, compared to their annual performance measurement target of no increase greater than inflation (+1.9% in 2013/14 and +1.6% in 2014/15).

Table 10: AgriStability efficiency performance indicators, targets and results
Performance Indicator Target 2013/14 Actual 2014/15 Actual
Overall fiscal year administrative costs increase/decrease No cost increase exceeding the inflation rate -5%
(average annual inflation rate of 1.9%)
-4%
(average annual inflation rate of 1.6%)
Fiscal year administrative cost per completed file Current year costs not exceed the previous 3 year average costs adjusted for inflation $1,057
(target of $926)
$1,036
(target of $963)
Percent of applications processed within the 75 day service standard 75% 68% N/A
Source: AgriStability Performance Measurement Strategy Data

As shown in Figure 30, the administrative costs of the AgriStability program have declined by 13 percent from $90.3 million in 2010/11 to $78.4 million in 2014/15. During this same period, there has been a 22 percent decline in the number of AgriStability applications processed annually. Due to the resulting losses of economies of scale, the administrative cost per completed file has increased by 11 percent from $918 in 2010/11 to $1,022 in 2014/15.

Figure 30: Program comparison of administrative cost as a percentage of claim amount by year
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Figure 30 illustrates the administrative costs for AgriStability by year from 2010/11 to 2014/15

Year Total admin costs in millions Cost per application
2010/11 $90.3 $918
2011/12 $87.9 $796
2012/13 $88.2 $986
2013/14 $82.3 $991
2014/15 $78.5 $1,022

Source: AgriStability Performance Measurement Strategy Data

Due to the transition from an income stabilization program to a disaster assistance program in GF2, the number and value of AgriStability payments to producers has been reduced in 2013 and will likely continue in subsequent years. However, the administrative costs to process the AgriStability applications have not been reduced sufficiently because similar program delivery processes are still being employed. The administration procedures have not been changed to reflect the transition from an income stabilization program to a disaster reduction program (such as, information is still being collected annually on producer income and expenses). Consequently, administrative costs as a percentage of the payments to producers have increased from by 42 percent from 15 percent in 2010/11 to 21 percent in 2014/15 (Figure 31).

Figure 31: Administrative Costs as a Percentage of AgriStability Payments by Year
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Figure 31 illustrates administrative costs as a percentage of AgriStability payments by year from 2010/11 to 2014/15

Year Administrative Costs Payments to producers Admin costs as a % of producer payments
2010/11 $90.34 $615.00 14.70%
2011/12 $87.89 $778.40 11.30%
2012/13 $88.16 $678.60 13.00%
2013/14 $82.34 $509.30 16.20%
2014/15 $78.45 $374.70 20.90%

Source: AgriStability Performance Measurement Strategy Data

While there exist some opportunities to share best practices across jurisdictions, such as the use of online form submissions and leveraging of information technology and other administrative costs with other programming, differences in efficiency across jurisdictions are largely the result of differences in economies of scale across the administrations. As shown in Figure 32, the highest administrative costs per application in 2014/15 were incurred by BC ($2,033), followed by AAFC Winnipeg ($1,731) and PEI ($1,577), due primarily to the low number of applications handled compared to other jurisdictions. Some other factors contributing to the higher than average costs of AAFC Winnipeg are challenges administering the program in jurisdictions with very different agricultural production (such as, Manitoba and the Maritimes), higher salaries than provincial counterparts, and declining volumes to share IT systems and other overhead costs. Québec, in comparison, incurred the lowest administrative costs per application ($409), primarily due to joint delivery with Québec's Assurance stabilisation des revenus agricoles thereby resulting in the sharing of administrative costs.

Figure 32: AgriStability administrative cost per application by jurisdiction, 2014
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Figure 32 compares the AgriStability administrative cost per application for different jurisdiction in 2014.

Province Administrative Cost per Application
Quebec $409
Saskatchewan $1,006
Ontario $1,095
Alberta $1,160
Prince Edward Island $1,577
AAFC $1,731
British Columbia $2,033

Source: AAFC Winnipeg Program Data

The previous evaluation recommended that AAFC work with the provinces and territories to determine the most appropriate, cost-efficient delivery model for AgriStability for the remaining four provinces and one territory in which AAFC delivers, including the consideration of non-AAFC delivery models. While an extensive analysis was undertaken of possible options, it was decided that the current delivery model is the most appropriate and cost efficient given the current program design.

Program documents and interviews with federal and provincial program administrators show that AgriStability's design, which includes the calculation of payments based on individual farm finances, requires a very extensive set of benchmarks and indicators that impedes the program's administrative efficiency, timeliness and transparency. As indicated in Figure 33, the administrative cost per farm of the AgriStability program is less than administrative cost per farm insured for the AgriInsurance program but greater than the administration cost per AgriInsurance contract processed (such as, farms typically have several insurance contracts). Due to the complexity of the AgriStability program, the administrative cost per farm of the AgriStability program is considerably higher than the AgriInvest and Wildlife Compensation Program. Any significant gains in the efficiency of the AgriStability program would require modifications to reduce the administrative complexity and costs in line with the transition from an income stabilization program to a disaster assistance program. The scope of the evaluation did not include an assessment of the program design options to streamline and transition AgriStability from an income stabilization program to a disaster reduction program. To do so, AAFC would need to undertake extensive consultations with the provinces since the provinces are responsible for delivering AgriStability in most regions and pay 40 percent of the cost of the program.

Figure 33: AgriStability administrative cost per application by jurisdiction, 2014
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Figure 33 compares the program administrative costs in millions per farm processed  for each program by year from 2010/11 to 2014/15.

Year AgriInsurance cost per farm AgriStability AgriInsurance cost per contract Wildlife Compensation Program AgriInvest
2010/11 1,284 918  $397 385 105
2011/12 1,379 796 $431 445 113
2012/13 1,440 986 $442 365 108
2013/14 1,476 991 $441 479 117
2014/15 1,599 1,022 $487 369 107

Source: AAFC Winnipeg Program Data
Note: AgriInsurance is program administration costs per contract and farm

3.3.4 AgriInvest

AgriInvest is delivered efficiently as a result of its simple design and highly streamlined and automated delivery. The program's cost-effectiveness, however, is impeded by the high proportion of participants that make very small contributions. Many of the AgriInvest deposits are too small to justify the administrative expenditure to process and pay the government contribution.

Achievement of efficiency targets

AgriInvest is delivered efficiently as a result of its simple design and highly streamlined and automated delivery. As shown in Table 11, the program is meeting all performance targets related to efficiency.

Table 11: AgriInvest efficiency performance indicators, targets and results
Performance Indicator Target 2013/14 Actual 2014/15 Actual
Fiscal year overall administration cost increase Cost increases will not exceed inflation rate on a national basis −2%
(average annual inflation rate of 1.9%)
−2%
(average annual inflation rate of 1.6%)
Fiscal year administration costs per completed file Current year costs will not exceed previous 3-year average costs adjusted for inflation $115
(target of $116)
$112
target of $115)
Percentage of applications processed within 45 days 80% 95% 94%
Source: AgriInvest Performance Measurement Strategy Data

The administrative costs of the AgriInvest program have declined by 17 percent from $19.3 million in 2010/11 to $16.1 million in 2014/15 (Figure 34). This was primarily due to an 18 percent decline in the number of participants from 183,862 in 2010/11 to 150,694 in 2014/15. The cost per application has remained fairly stable during this period.

Figure 34: AgriInvest applications and administration costs by year
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Figure 34 illustrates the number of applications and the administration costs for AgriInvest by year from 2010/11 to 2014/15.

Year Administrative Costs ($ millions) Administrative Cost per Application Number of AgriInvest Applications Processed
2010/11 $19.30 $105 83,862
2011/12 $18.27 $113 61,504
2012/13 $17.95 $108 65,934
2013/14 $17.39 $117 48,005
2014/15 $16.10 $107 50,694

Source: AAFC Winnipeg Program Data

AgriInvest administrative costs as a percentage of government contributions have also remained quite stable over the last five years, ranging from a low of 4.4 percent in 2013/14 to a high of 5.6 percent in 2014/15 (Figure 35). The slight increase shown from 2013/14 to 2014/15 is partly due to the GF2 reduction in the payment rate from 1.5 to one percent of ANS.

Figure 35: AgriInvest administrative costs as percentage of AgriInvest contributions by year
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Figure 35 illustrates the administrative costs for AgriInvest as a percentage of AgriInvest contributions by year.

Year Administration Costs ($ millions) AgriInvest Contributions Paid ($ millions) Administration Costs as a percentage of Contributions
2010/11 19.30 $362.60 5.30
2011/12 18.27 $341.40 5.40
2012/13 17.95 $358.60 5.00
2013/14 17.39 $395.60 4.40
2014/15 16.10 $287.00 5.60

Note: There is a one year lag in data as AAFC Winnipeg reports using Canadian Revenue Agency tax file data rather than program year data.

Source: AAFC Winnipeg Program Data

While the program administration is efficient, AgriInvest's economy is impeded by the high proportion of participants that make very small contributions, resulting in comparatively high administrative costs for limited program benefits. As shown in Table 12, contributions ranging from $75 to $1,000 accounted for about one half (47%) of the total number of contributions processed in 2014/15 while contributions less than $500 accounted for about 30 percent of total AgriInvest contributions.

Table 12: AgriInvest contributions by amount, 2014/15
Contribution Amount # of Contributions % of Contributions Total Contributions
($ millions)
% of Total Contributions Value
$75-$99 2,615 2.8% $0.2 0.1%
$100-$499 25,495 27.4% $7.0 2.8%
$500-$999 16,219 17.4% $11.7 4.6%
$1,000-$4,999 33,398 35.9% $78.3 31.2%
$5,000-$9,999 8,774 9.4% $61.5 24.5%
$10,000 and more 6,609 7.1% $92.6 36.8%
Total 93,109 100.0% $251.4 100.0%

Source: AgriInvest Program Data

Note: This table excludes contributions from Quebec.

As the average administrative cost to process an AgriInvest contribution was $107 in 2014/15, many of these AgriInvest deposits are too small to justify the administrative expenditure to process and pay the government contribution. The ratio of administrative costs to process an AgriInvest contribution compared to the average amount of an AgriInvest contribution was about 25 percent for the 44,328 contributions less than $1,000 and 41 percent for contributions less than $500 in 2014/15.

The current minimum contribution for AgriInvest is $75. As a comparison, a minimum contribution value of $1,000 has been used by a similar program in Australia (such as, Farm Management Deposit Scheme) to reduce administrative costs. Savings in administrative costs, therefore, could be obtained by increasing the minimum contribution to a level such as that used in Australia (such as, $1,000). However, the savings would not likely be proportional to the reduction in number of applications processed due to the fixed costs associated with the highly automated nature of application processing.

4.0 Conclusions and recommendations

4.1 Conclusions

Relevance

While the Canadian agriculture sector has performed very well in recent years, there is a continued need for the BRM programs to help producers manage risks associated with severe market volatility and disaster situations. Many of the risks that can threaten the viability of a farm operation or commodity group are ongoing or cyclical and are often beyond the control of the producers. Private sector and producer-led tools and support mechanisms are insufficient in managing those risks beyond the control of the producers.

The appropriate role of the BRM programming is to provide disaster level support and encourage producers and the private sector to develop tools and strategies to manage normal business risk. This is in line with best practices identified by the Organisation for Economic Co-operation and Development (OECD) and trends in government agricultural support in the United States, Australia and the European Union.

AgriInsurance, AgriStability and AgriInvest are aligned with federal roles and responsibilities legislated in the Farm Income Protection Act. The Wildlife Compensation Program is somewhat aligned with federal responsibilities, as there is a weak policy rationale for providing compensation for non-federally protected species. AgriInvest and the Wildlife Compensation Program are less aligned with GF2 priorities and BRM principles due to their design as entitlement programs that primarily cover or compensate for normal business risks. Some AgriInsurance products covering some normal risk are less aligned with GF2 strategic priorities and the appropriate role of BRM programming.

The four programs are designed, in combination with other GF2 BRM programs, to cover different risk types, levels, frequencies of occurrence and intended end uses. Linkages exist between programs to ensure producers are not compensated multiple times for the same loss. Although there is no direct duplication or overlap of programming, similarly designed programs are offered in Ontario and Québec that function as additional coverage provided by AgriInsurance, AgriStability and AgriInvest. 

Performance - effectiveness

AgriInsurance is very effective in mitigating the financial impact of production losses for producers of eligible commodities. Participation has remained very high during GF and GF2 and producers are very satisfied with the program. While insurance products are widely available for most major commodities, they are not currently available for cattle and hogs, with the exception of forage insurance for cattle producers. AgriInsurance premiums paid by the federal and provincial governments more than doubled between 2007/08 and 2013/14 due to an increase in the value of agricultural production insured, a move to higher value crops and an increase in the number of acres insured. 

The Wildlife Compensation Program is effective in providing financial assistance for production losses due to wildlife damage of crops and predation of livestock. There is insufficient evidence of whether producers who receive compensation make efforts to prevent a recurrence of losses. The program has expanded beyond its original policy rationale to compensate for federally protected waterfowl species and has no direct linkages to AgriInsurance outside of Québec.

While AgriStability payments have been effective in mitigating the financial impacts of large short-term income losses, declining participation has limited the number of beneficiaries and the number and value of payments has been further reduced by the GF2 changes. The percentage of market revenues covered has not declined as significantly as the number of participants due to higher participation rates among large producers. More years of program data are required to undertake a comprehensive assessment of the effectiveness of the program and the impact of the changes made in GF2 to the AgriStability program.

AgriInvest is somewhat effective in affording producers greater flexibility in managing financial risks and increasing producers' capacity to deal with income losses. Participation in the program is high and producers are setting aside funds. Since the program does not stipulate that the funds withdrawn must be used to offset income losses, it is difficult to ensure that these funds are being used to manage financial risks, deal with small income losses or make investments to reduce on-farm risks.

Although payments from government programs as a percentage of net income have declined as a result of high commodity prices in recent years, these payments continue to have a considerable impact on increasing producers' net operating incomes. The support provided by BRM programs has not significantly enhanced the adaptability of the agriculture sector but rather to give producers time to adjust to market signals.

Performance - efficiency and economy

AgriInsurance is delivered efficiently and economically compared to other countries. However, increases in administrative costs and combined with a decline in the number of insured contracts have resulted in a considerable increase in the administrative cost per contract from 2010/11 to 2014/15.

The administrative costs per claim of the Wildlife Compensation Program are high due to the cost of the on-farm inspection needed to comply with the federal requirement for evidence of loss. Due to the preponderance of small claims, the administration costs as a proportion of program funding are higher for the Wildlife Compensation Program than the other programs evaluated.

For the most part, AgriStability is delivered as efficiently and economically as possible, given the administrative complexity. While there exist some opportunities to share best practices across jurisdictions, significant gains in efficiency would require modifications to reduce the administrative complexity and costs in line with the transition from an income stabilization program to a program that covers more severe and catastrophic losses rather than normal business risks.

AgriInvest is delivered efficiently as a result of its simple design and highly streamlined and automated delivery. The program's economy, however, is impeded by the high proportion of participants that make very small contributions. Many of the AgriInvest deposits are too small to justify the administrative expenditure to process and pay the government contribution. Savings in administration costs could be obtained by increasing the minimum contribution.

4.2 Recommendations and management response and action plan

The key issues and recommendations resulting from the evaluation findings are as follows:

4.2.1  AgriInsurance

4.2.2  Wildlife Compensation Program

4.2.3  AgriStability

4.2.4  AgriInvest

Annex A. Business Risk Management programs map

AAFC’s business risk management process is outlined below.

Description of this image follows.
Description of above image
  • Event:
    • Significant event occurs (for example, sudden price decline, drought or flood)
  • Cause:
    • Financial impact
      • Price decline
      • Increased expenses
      • Production problem
  • Conditions:
    • Severe income declines
    • Is there a need for cash-flow assistance?
    • Extraordinary costs resulting from natural disaster not covered through existing programs
    • Does the producer need to transition to different production?
    • Could other mechanisms be put in place to manage this risk?
  • Responses:
    • AgriInvest (FPT)
      • Producer and government matching savings account to assist with income declines and make investments to manage farm risk
    • AgriStability (FPT)
      • Farm-specific, structurally adjusted, protection against severe margin declines (such as, >30%)
      • Can provide interim payment assistance, and Targeted Advance Payments to assist with short-term cash flow
    • AgriInsurance (FPT)
      • Protection against severe, infrequent production losses
    • Advance Payments Program (Fed.)
      • Provides repayable cash advances on agricultural commodities to assist with cash management and marketing
    • AgriRecovery
      • FPT framework to assess the impacts of natural disasters, and determine if additional assistance is required
    • AgriRisk Initiatives (Fed/FPT)
      • Assists in the development and implementation of new risk management tools
  • Expected Impacts:
    • AgriInvest (FPT)
      • Producers have funding and flexibility in managing risks
    • AgriStability (FPT)
      • Short-term large income losses are mitigated, while allowing adaptation to market signals
    • AgriInsurance (FPT)
      • Financial impacts of insured production losses are mitigated by indemnities paid out
    • Advance Payments Program (Fed.)
      • Producers have improved cash-flow to enable them to make better marketing decisions about their products
    • AgriRecovery
      • Producers have the capacity to cover the extraordinary costs necessary activities associated with recovery from a natural disaster
    • AgriRisk Initiatives (Fed/FPT)
      • Producers have the capacity to cover the extraordinary costs of necessary activities associated with recovery from a natural disaster
  • Other Risk Management Tools or Assistance
    • Compensation mechanisms from other government agencies (such as, CFIA compensation under Health of Animals Act or Plant Protection Act, Disaster Financial Assistance Arrangements)
    • Provincial risk management/assistance programs, analogues to CFIA programs or federal assistance mechanisms
    • Private insurance products

Annex B. Overview of programs

1.0 Overview of programs

1.1 AgriInsurance

AgriInsurance is a federal-provincial-producer cost-shared program designed to stabilize a producer's income by minimizing the economic effects of production losses caused by severe but uncontrollable natural hazards (for example, drought, flood, wind, frost, hail or snow) or losses resulting from diseases, insect infestations and wildlife. AgriInsurance is not designed to respond to changes in commodity prices or input costs.

The cost of the insurance premiums is partially offset by federal and provincial governments to ensure the affordability of coverage for producers. For the majority of the program, 60 percent of the total premiums are paid by the federal and provincial governments on a 60:40 basis as a cost-sharing arrangement of 36:24:40 between the federal government, provinces and producers.

At the individual policy level, there are three different coverage levels offered, each with a different federal-provincial-producer cost-sharing arrangement: Footnote 41

Participation in AgriInsurance is voluntary, however, once a commodity is selected, all production of that commodity must be insured by the producer. Producers must buy insurance before a commodity is planted and/or produced, or before any damage is possible. Producers select the commodities they wish to insure, the type of insurance plan, the coverage level, and the insurable value from the options available in their province.

The federal government offers re-insurance (deficit financing) funding to provinces. The re-insurance allows provinces to backstop a portion of the cost of the program in the event of a severe loss. Under these agreements, both parties agree to deposit a portion of their premium expenditures in their respective reinsurance accounts. Should indemnity payments in a year exceed accumulated premium reserves, these reinsurance accounts can be used to cover the outstanding amount. If there are not sufficient funds in these accounts, both governments advance the required funds to pay producers.

The provincial government is responsible for covering any outstanding indemnities up to 2.5 percent of the current year's liabilities (coverage). All remaining indemnities are shared on a 75:25 basis, with the federal reinsurance fund responsible for the larger share.Footnote 42

1.2 Wildlife Compensation Program

The Wildlife Compensation Program is a provincially delivered, but federal-provincial cost-shared program (split 60:40) that compensates producers for losses caused by wildlife, either because producers are restricted from taking direct action against wildlife as a result of federal government regulations or because there are no effective mitigation and prevention measures available to eliminate the losses. Both crops and livestock are eligible for compensation under the Program. The Program is not administered in Prince Edward Island or Newfoundland and Labrador.

In Québec, wildlife damage from federally protected species of waterfowl is not included as an insurable peril under AgriInsurance. In all other participating provinces, the type of wildlife species covered varies significantly and is designated in the Operational Document which forms part of the federal-provincial AgriInsurance agreements. Damages caused by any species can be included as long as the province can demonstrate that they have wildlife-damage mitigation strategies in place. The Wildlife Compensation Program compensates producers for up to 80 percent of their production losses incurred. Some provinces (such as, Alberta, Saskatchewan, Manitoba and Ontario) use provincial funding to offer additional non-cost shared compensation up to 90 percent or 100 percent of the losses, depending on the province. In some provinces, the Wildlife Compensation Program is administered by and in concert with the provincial authorities administering the AgriInsurance program, while in other provinces, the Program is administered by provincial government departments.

Producers are not required to participate in AgriInsurance to be eligible for the Wildlife Compensation Program and are not required to pay premiums or administration fees. Producers who experience damage caused by eligible wildlife may make a claim to the provincial authority administering the Program and an adjuster will assess the nature of the claim and determine whether it is eligible for compensation. Producers receiving compensation must make efforts to mitigate or prevent a reoccurrence of losses such as buying a guard dog, using noise makers and installing fences.

1.3 AgriStability

AgriStability is a margin-based program that provides support when producers experience large farm income losses caused by circumstances such as low prices, rising input costs and production losses. All producers who derive income from the primary production of agricultural commodities are eligible to participate. The intended outcome is that short term, large income losses are mitigated, while allowing producers to adapt to market signals.

Direct payments are issued when an eligible producer's program margin falls below 70 percent of their reference margin. A program margin is the producer's allowable income minus allowable expenses in a given year, with adjustments for changes in receivables, payments and inventory adjustments. The reference margin is calculated by averaging the program margins over the five preceding years after eliminating the highest and lowest values from the calculation (such as, taking the "Olympic average").

For margin declines of greater than 30 percent, a producer is eligible to receive an AgriStability payment covering 70 percent of the loss. To ensure the program does not compensate profitable producers for decreased profit while maintaining coverage for severe income losses, the lower of the Olympic average reference margin or the average of the producer's accrued expenses for the reference years is used as the reference margin in the payment calculation (referred to as a Reference Margin Limit or RML).Footnote 43 A producer experiencing a negative margin is eligible to receive a payment covering 70 percent of the loss. The maximum AgriStability payment a producer can receive is $3 million. To participate in AgriStability, producers pay an annual administrative fee of $55 and an annual program fee based on their unadjusted reference margin.

Interim payments and targeted advance payments

An interim payment allows eligible producers to access a portion of their AgriStability payment prior to the completion of their fiscal period in the Program Year. Interim payments are made based on the participant's projected AgriStability payment, as calculated at the time of the interim. To reduce the risk of overpayment, interim payments are normally issued at a rate not greater than 50 percent of the total estimated AgriStability payment.

Targeted Advance Payments (TAPs) are similar to interim payments, but are used only in circumstances of unusual events affecting specific groups of producers. If agreed to between the federal government and a province or territory, a TAP may be established for producers of a particular commodity or geographical region where an unusual production or market disruption has had a significant negative financial impact. The TAP is not designed to address individual farm situations. Producers who request both a TAP and an Interim Payment are eligible to receive the greater of the two payments, but not both.

1.4 AgriInvest

AgriInvest is a self-managed savings account for producers, supported by government, which provides coverage for small income declines and support for investments to mitigate risks or improve market income. AgriInvest is intended to contribute to the flexibility of the BRM program suite by providing producers with a secure, accessible, predictable, and bankable source of income assistance and to provide more flexibility to address income losses than margin-based stabilization programs.

Individuals or entities that derive income from the primary production of agricultural commodities, except those covered under supply management, are eligible to participate in AgriInvest. Producers of supply managed commodities who also produce allowable commodities may be eligible for AgriInvest based on any non-supply managed sales on of their farming operation.

Each year, producers deposit money into an AgriInvest account and receive matching government contributions. Under GF2, producers can deposit up to 100 percent of their allowable net sales (ANS) (up to a maximum of $1.5 million) into an AgriInvest account at a participating financial institution. Producers receive a matching contribution for the first one percent (up to a maximum of $15,000) from federal and provincial governments.

ANS is calculated as the gross sales of allowable commodities under the program, less purchases of allowable commodities. The total account balance, which includes matching deposits, government contributions and interest earned, is limited to 400 percent of ANS. Producers have unrestricted and free access to these funds to address income losses and/or to make an on-farm investment to mitigate business risks.

The AgriInvest account consists of two funds. Producer deposits are held in Fund 1. Matching government contributions and all interest paid on the account are held in Fund 2. Withdrawals are taken from Fund 2 first. Once Fund 2 has been depleted, the balance of the producers' withdrawal request is drawn from Fund 1 to the extent that funds are available. Amounts from Fund 2 are taxable upon withdrawal.

Since 2009, AgriInvest has been federally administered and accounts are held by financial institutions in all provinces except Québec. Once deposits are made by producers, financial institutions notify AAFC and matching contributions are credited to the producer account. In Québec, the program is delivered by La Financière agricole du Québec.

2.0 Program resources

As part of GF2, government contributions and costs to administer the programs are cost-shared between the federal and provincial governments on a 60:40 basis. Table 13 presents the federal government budgeted resources for each of the four programs for the fiscal years 2013/14 to 2017/18 and the actual program expenditures for 2013/14 and 2014/15. Over this five year period, the AgriStability budget totals $1.4 billion, the AgriInvest budget is $0.8 billion and the AgriInsurance budget is $3.2 billion, including the costs of the Wildlife Compensation Program. As the four programs are demand-driven, expenditures cannot be precisely forecasted and fluctuate from year to year. AgriStability payments fluctuate in accordance with program participation and industry conditions, increasing during sector downturns; AgriInvest payments are directly related to participation and farm revenues; AgriInsurance payments fluctuate based on commodity values and the number of acres insured; and Wildlife Compensation Program payments vary based on the number and value of claims.

Table 13: Agriculture and Agri-Food Canada program budget/expenditures, 2013/14 to 2017/18 ($ millions)
Year Budget/ Actual Expenditures AgriStability AgriInvest AgriInsurance Wildlife Compensation Program
2013/14 Budget $286.6 $156.3 $ 645.4 N/A
2013/14 Actual $205.5 $243.2 $739.6 $12.9
2013/14 Variance $(81.1) $86.9 $94.2 N/A
2014/15 Budget $278.9 $156.2 $645.3 N/A
2014/15 Actual $208.7 $181.7 $597.0 $16.6
2014/15 Variance ($70.2) $25.5 ($48.3) N/A
2015/16 Budget $277.9 $156.2 $645.3 N/A
2016/17 Budget $277.6 $156.0 $645.3 N/A
2017/18 Budget $277.6 $156.0 $645.3 N/A
Total Budget $1,398.6 $780.7 $3,226.6 N/A
Source: AAFC 2015-16 and 2016-2017 Report on Plans and Priorities, AAFC 2013-14 and 2014-15 Departmental Performance Report, Program Administrative Data

Table 14 shows the number of AAFC staff allocated for the delivery of each program.

Table 14: Agriculture and Agri-Food Canada full-time equivalents, 2014/15 to 2017/18
Program 2014/15 Budgeted 2014/15
Actual
Variance 2015/16 Budgeted 2016/17 Budgeted 2017/18 Budgeted
AgriStability 286 161 (125) 165 164 164
AgriInvest 20 125 105 150 125 125
AgriInsurance 17 19 2 19 20 20
Wildlife Compensation N/A N/A N/A N/A N/A N/A
Total 323 305 (18) 334 309 309
Source: AAFC 2014-15 Departmental Performance Report, AAFC 2015-2016 and 2016-17 Report on Plans and Priorities

Producer contributions to the program costs vary:

3.0 Governance

The governance structure for all BRM programs consists of federal/provincial/territorial working groups and committees, including the FPT BRM Policy Working Group and the FPT Administrators Working Group, as well as the National Program Advisory Committee (NPAC), which includes FPT and industry representatives. These groups examine BRM policy and program issues and, as requested, develop options to be brought forward to FPT Assistant Deputy Ministers (ADM), Deputy Ministers and Ministers committees. The NPAC provides advice through the FPT ADM Committee.Footnote 44

3.1 AgriInsurance

AgriInsurance is delivered provincially either by a Crown corporation or a branch of the provincial government agriculture department. There are currently ten provincial bodies in place across Canada to manage the administration of the AgriInsurance Program on behalf of the provinces:

AgriInsurance plans are developed and delivered by each province to meet the needs of producers. Each province is responsible for the design, implementation, delivery and administration of their insurance plans including setting premiums, claims adjustments and payments, and all administrative and planning tasks. Provinces submit insurance plan proposals that are reviewed and accepted by AAFC's Production Insurance and Risk Management Division if requirements are met. These new/modified plans are official once included in the province's Operational Document.

The federal government's role is to share premium and administration costs, provide reinsurance arrangements (deficit financing) to provincesFootnote 45 and oversight to ensure that the obligations under FIPA, GF2 and Canada Production Insurance Regulations are respected.

3.2 Wildlife Compensation Program

With the exception of Prince Edward Island, and Newfoundland and Labrador, where the program is not delivered, and Québec, where wildlife damage from protected species of waterfowl is included as a non-insurable peril under AgriInsurance, the Wildlife Compensation Program is provincially administered.

The federal government shares the administrative costs and program payments with participating provinces on a 60:40 basis, up to 80 percent of the value of the losses. The provincial governments' responsibilities include:

The design and delivery of the Wildlife Compensation Program varies by province. Some provinces delegate certain components of the administration of the program to their wildlife conservation departments or municipalities to take advantage of their specific expertise or efficiencies, whereas other provinces administer all aspects of the program internally. In some provinces, the Program is administered by and in concert with the provincial authorities administering AgriInsurance while in other provinces it is administered by provincial government departments.

3.3 AgriStability

AgriStability is federally administered for Manitoba; New Brunswick; Nova Scotia; and Newfoundland and Labrador. In British Columbia, Alberta, Saskatchewan, Ontario, Québec and Prince Edward Island, AgriStability is provincially administered and AAFC provides contributions to reimburse provinces for the federal portion of program costs. The program's devolution to the provinces began at the request of the provinces who wished to deliver AgriStability in conjunction with AgriInsurance to obtain operational efficiencies.

Responsibilities of the federal/provincial administrators in their respective areas of delivery include:

3.4 AgriInvest

AgriInvest has been delivered federally since 2009 through financial institution holding accounts, except in Québec, where La Financière Agricole administers the program and manages producer accounts directly (such as, accounts are not held at financial institutions as is the case in the rest of Canada). Program administration is undertaken within AAFC's Programs Branch by the Farm Incomes Programs Directorate, which is responsible for the following AgriInvest activities:

Annex C. List of documents and literature reviewed

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