Crop Insurance to help all farmers

[TOM4CWB]

Present crop insurance programs are inadequate to sustain agriculture in many areas of Western Canada. A more dollars per acre coverage would eliminate all other government emergency and ad hoc programs for grain and oilseed farmers.

At present all crop insurnace programs in Western Canada are operating with a farmer premium surplus and have done so for the past few years, (or so my information has it). These stats would lead me to believe that we could increase are per acreage coverage by 80% to 100% over our present coverage with vary little increase in our premiums. Over a period of 20 years I believe it would be in a surplus far more times than it would be in a deficit situation. An if governments had to add to the insurance fund it would be far less money than they are spending today and it would be WTO friendly.

Now the big problem with $160 or $170 per acre coverage is that farmers will farm the system unless you put some checks into prevent this from happening. My theory is you take your direct imput cost (that is your fertilizer, chemical and seed cost) and increase it by 80% to 100% to arrive at your coverage per acre. Example $80 worth of direct input cost would give you $144 to $160 per acreage coverage.

Now coverage can not be collected by a farmer without producing direct input cost receipts and submitting to a production measurment.

Indirect Cost ( such as machinery, fuel and other farm overhead cost) will not be considered because it will vary considerably from farm manager to farm manager.

Compare it to unemployment insurance, it is sustainable but it will not make you any money.

The federal and provincial govenments are looking to change our coverage on crop insurance maybe we should be discusing it to some length in this thread to plant the seed for a better and a more economical sustainable farming industry in Western Canada.

Please comment and add any suggestions you may have... The Kernel

[charliep]

An interesting idea. Just a couple of questions.

Would you use regional averages or would each individual be able to use their own variable costs as defined in your thread?

Would premiums be allowed to vary according to payout experience? Using a car insurance example, a high risk driver pays more than a low risk one. Would different regions pay different premium levels based on risk of payout?

How would payouts be made? Similar to now based on 70 % yield coverage and either a crop insurance price or variable price option level?

Crop insurance has traditionally been based on yield only (keeping in mind that the price used in the variable price options vary based on market outlook). Should crop insurance or some other program offer a price component as well?

I look forward to discussion around this issue.

[dfarms11]

I like this idea as well. As for your reply, if I have this correct, crop insurance will remain exactly the same as it is today. With one exeption, a farmers current per acre coverge would go up equally with the amount of $ spent on seed, chem,and fert plus another say 50%of those costs. Actually, thinking about it, without that extra 50%, having to submit your s,f,c costs alone would stop farmers from "milking" the system thereby reducing premiums. That alone would enable one to take a higher premium level.

[Steve]

I started a crop insurance topic on Farm management on Jan. 18 and my comments are there. Maybe I put it on the wrong thread

[Steve]

Steve I'am very sorry I didn't see your entry on the other thread. I guess you might guess who I'am now due to our talk the other day.

Charliep: Each indiviual would have his own premium level set by his direct input cost(seed fert. and chem.) plus his percentage increase say 80%to 100%

This insurance would be on a price or dollar value per acre rather than by yield. If grain and oilseeds are worthless than the yield makes no differents your going broke anyway.

Premiums would all remain the same per dollar of insurance. Say at a rate of $5 for $80 worth of coverage and maybe extenting that to $10 for $160 of coverage per acre for crop and hail.
High risk areas should be taken into consideration over a period of time say 10 years and at this time if a certain regional area of the country is not showing a profitable or sustainable return in a 10 year period. It should be subject to a review by the government and farmers in that particular area. The review should cover the sustainablity of grain and oilseed farming in that area. If the area is to be a high risk cropping area attempts should be made over the next 10 years to diversify it into other farming practices such as livestock or game farming or what ever.( or as Steve put it in another thread lets not try and make a dead horse standup). Now this sort of diversifacation should be done probably in the name of enviromental responsiblity.

If you don't have crop insurance then there is no other government assistance for you period. I believe over a period of time this would be sustainable. The government would be spending far less on agriculture. Farmers could not abuse it as you get what you pay for. An different regions of the country could be given assistance or financial encourgement to diversify in to other areas of agriculture that would be more suited to their area.

Charliep could you get someone or a pencil pusher with crop insurance to provide us with some more detail on the fincial surplus or dificits that we have had in the past in our present crop insurance program. Charlie Mayor's crop insurance meeting last spring started me think more about what our crop insurance program should be doing for us.

Steve add some more of your thoughs here please. Anyone else please feel free to comment. The Kernel.

[TOM4CWB]

Steve,

Crop Insurance principals, to remain trade neutral are supposed to reflect market value of the crops being produced, not the cost of producing the specific crop itself.

As this years prices become avaliable, you will find on the major crops a 20-40% increase in coverage levels from what was announced last year.

This should help cover costs better, if coverage levels don't drop too much.

Since crop insurance operates on a one year delay, this years drought effect will delay reduction in coverage until 2003.

Charlies recomendations are being taken seriously, and Shirley McClellan our Ag Minister is trying to find money in these tight fiscal times(see other thread about 50% cuts in other ag departments)

How do we signal farmers who need to change cropping management practices, that the tax payer cannot subsidise for a long extended period, and damage the environment by encouraging these farming practices that are not sustainable to boot?

I understand about $300 million was paid out by crop insurance in Alberta 2001. this will draw the reserve down some 50 million.

As crop insurance is funded over 60% by the province and the feds, the taxpayer does have a large responsibility to insure the program does not distort production.

Crop inputs are now checked, if higher producing farms don't spend on inputs as they did in the past, they can be assesed uninsured cause coverage reduction in coverages.

We are looking at rainfall insurance, for instance paying for 4" coverage in June and 4" coverage in July, for a certain premium cost. If the rainfall didn't occur, a payment would be triggered.

Many options could help the program, but they are all going to increase premiums significantly, would you pay 3 times as much for the coverage you are asking for?

[bob4choice]

I agree that input costs should be accounted for. My input costs for my yellow peas this year for seed, inoculant, herbicide and fertilizer were $52 not including any seeding, application, harvesting and other overhead costs. My crop insurance guarantee at 70% coverage was only $64. Part of the reason for low coverage is the way they decide on a price. I had the variable (market) price option, but SK Crop Insurance in their wisdom uses feed pea prices for the price. I haven't grown feed grade peas yet and wouldn't be growing them for the feed market. Another problem with their pricing, is the fact that the price can't rise more than 25% above the spring (April)price..

Also when they set the price for CWB grains and use the spring PRO's, it is plainly unfair, given the chronic policy of the CWB to low ball all PRO's early in the year. For example they came up with $4.30 for durum wheat when the expected price now is about $6.00 and last years price was also about $6.00?
Farming practices could be considered also. i.e. Straight cutting should be recognized for recovering a higher percentage of the crop than swathing

I think there are problems with the experience issue. It works fine if you stay with the same crops all the time. But it's not fair for those that switch to other crops when it makes sense for their farm. There should be some transferring of the experience premium. I believe most farmers are quite capable of growing another crop and don't need many years of experience with each new crop. The agronomics are widely available for any insurable crop.

The premiums might also reflect more of the risk or lack of. With the technology they have now, they could possibly measure moisture levels up to the middle of June and adjust premiums and yield coverage up or down. This could be an option available.

[Steve]

I will try to explain the two part crop insurance system in more detail.

We need a cap on the input cost because it is very hard to estimate a number that would accommodate all farmers, but like I said on another thread $110.00 per acre for the actual input cost is reasonable. ( this amount has to be backed up by receipts if a claim is made.)

A $10.00 per acre insurance premium would be paid by all participating farmers and adjusted according to individual claims. This would work like auto insurance you prove you had it and lost it, then the insurance reimburses you for your loss only. ( the crop insurance has to verify your production.) This first part is totally subsidized by the Governments.

We have to realize that the world is trying to lower and eventually drop all subsidies, so our crop insurance plans should accommodate those ideas, and it doesn’t becomes another dead horse.
Now if this first part of the subsidized crop insurance is built up to a point that we no longer need government support, this could be a big plus to help rectify subsidy problems.

The second part you insure for the short fall of production based on your own three year or longer production average.( just a dollar value is too open for abuse because some farmers will milk the insurance ) The crop insurance will confirm the production same as part one.

The crop insurance would set the crop prices yearly on a scale value as an option to the producer.

The short fall insurance should be administered and financed by the government at a cost to the farmers, and the premium to be established on a average over five years, taking into account number of claims. ( it could start at 5% of coverage and then be revised based on performance )

The farmer would have the option to insure any percentage of his short fall up to his established yield.

This insurance plan is not mandatory but is an option to all farm managers

We should retain the Nesa program and maybe increase it to 4% of gross sales and call it unemployment insurance. This program I believe is subsidy friendly.

[Steve]

Whoa everybody this is getting complex again. Lets keep it as simple as possible.. Everybody go back in this thread and read dfarms11 comments which explains my thoughts short and sweet.

Thanks dfarms11. The Kernel.

[Steve]

Kernel

You are a typical farmer don’t care where the money comes from, but give me more because I want to farm.

We need a reasonable long crop insurance plan so there is some future in farming.

Regards Steve.

[Steve]

If farmers keep asking for bailouts they'll sound like real entrepreneurs like the privatized Air Canada which went private with no debt because the taxpayers of Canada assumed it. Steve, I think you have to rethink one of your basic assumptions which is that countries are trying to reduce and eliminate subsidies. The Americans will never eliminate their payments and start every farm bill consideration assuming there has to be help for the farmer. I can tell you from my travels in Europe that the governments there will support their farmers in perpetuity because keeping farmers on the land is a social issue not an agricultural issue. They started the latest WTO round by stating that other nations should not assume farm payments will be reduced or eliminated; essentially saying, "Forget it."

Having said that, I will further say that Canadian farmers (with the exception of the politically favoured supply managed sectors) should expect little if any help because Canada is not able to do anything with such a small economy. In our operation, which is mixed grain and livestock, we operate on the assumption that we will receive nothing so that anything we do get is a bonus and gives us a competitive advantage. To get back to my opening remark don't be so hasty to jump on farmers who would like to be treated like Air Canada. That company spent all fall complaining about unfair competition from subsidized foreign airlines. It sounds like the same argument farmers have been making and one industry is probably no more deserving of help than the other.

Don

[Steve]

Steve: Did you gather that I was asking for a hand out. I hope no one else thought that. All that I'am saying is that our present insurance at $80 coverage is running at a surplus most of the time. I think that a $160 coverage per acre could also be sustainable if we apply the input receipt theory.

Your typical farmer is a good manager an needs over $150 per acre before he starts to make some money. Lets create an insurance program that could sustain this return in times of crop failures.

You can't remove government from our business but we can make it a lot cheaper for them to keep sticking their nose into it.

I don't want a gravy train, I want a sustainable program that young farmers can take to the bank. I don't think what I'am suggesting would raise land prices or land rent and would definitely not create surpluses in anyone grain because it is commodity neutral. It protects on price and yield against the real value of your direct inputs.

The Kernel

[charliep]

I apologize for an off the wall question but I thought I could pass along a head scrathcer for me.

Someone in a business directly involved in providing products/services to the agricultural sector (not a farmer). This individual is very concerned about the coming year and in particular the dry conditions going into spring.

He was asking about things that his business could do to cover this risk. The specific question was about private sector things/other risk management iniatives he could take on his own versus government.

I realize that your answer may be look after the farm community income and this will look after agri-business problems. Any other thoughts on alternatives I could provide this individual.

[dfarms11]

Steve you are missing the point! Today's crop ins. does nothing for the typical farmer these days except give you a hail ins. policy. The only farmers that benifit from it now are the ones who milk it or get a hail caim.

What we are saying is put farmer accountability into the program so they can't milk it dry. To me that is the main reason the premiums are so high and coverage so low.

I know farmers personally, who just slap a crop in, or should I say $5 /acre of seed only, and collect their profits from crop ins.

With accountability on our part I believe we could have better rates on premiums and a little better protection.

[TOM4CWB]

charlie,

On the risk management issue,

1. How much drought premium do you believe is actually in the market now?

If a full blown drought occurs, would the purchase of Call options WCE create a risk offset for a drought?

If a wet spring were to occur on the other hand, would Put options help offset poorer prices that would follow as the drought premium disappeared from the market?

Canadian Dollar Options, would these be beneficial for reducing currency risk? (see thread on currency)

Would a astute business decision be to give discounts to farmers who have valid risk management strategies, or conversely charge higher prices to farmers who do not have risk managment issues under control?

It is clear to me that we are in a currency deflationary period, how did people in the 1930's or 1960's deal with these issues?

Next is to try to get the federal government back under control, Ottawa seems totally out to lunch fiscally speaking!

The Canadian Dollar will continue its slide if real leadership does not take hold of management matters!

A nation without a vision will..., and Canada is as close to the cliff as Argentina was 5 years ago!