Some 22 per cent of Canada’s farms are responsible for 78 per cent of farm operating income. Yet all farms are counted as equal under existing programs like AgriStability.
While total program payments make up as much as 50 per cent of operating income for farms that generate over $250,000 in gross sales, the number jumps to a whopping 97 per cent for those farms under $100,000.
So what? A new report from the George Morris Centre says that the provision for negative margin coverage inside AgriStability will let these smaller farms get government support on a continuing basis, even as they lose money year after year.
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Now, questions are growing about whether different farm categories should be looked at and supported differently, based on what they are and what they contribute to the agricultural economy.
It’s a question fraught with stereotypes and assumptions. Just think “hobby farm” and “corporate factory farm” to get a sense of the political hot buttons that can be pushed.
Even so, large versus small is an important distinction. In the report “The Business Risk Management Funding Debate in Canada: Understanding the Broader Context,” senior Morris centre research associate Al Mussel concludes large farms and small farms are entirely different and should be seen by government as different in terms of agricultural investment.
According to the report, available atwww.georgemorris.org, Ottawa spends 67 per cent of its $3.5-billion ag budget on risk management programs. The provinces spend 73 per cent of theirs. Yet despite this level of support — and significant increases in spending over the past 20 years — net farm income has remained flat overall.
The report suggests this is because small farms skew the numbers, making the entire sector appear unhealthy, with implications for attracting new entrants as well as negative public perception.
Many small farms aren’t of a scale to provide income enough for a family and so are largely based on off-farm income. The report implies that, for them, this is a lifestyle choice made by these producers. Farming is not their primary focus, nor their primary source of income.
In other words, government risk-management support isn’t helping these farms to become profitable because, well, the farmers just aren’t designed or managed to be profitable in the first place.
And, to carry it a step further, it may mean that Ottawa is diverting money that is needed to keep large farms sustainable through market and weather crises, and it is giving that money to small farms as an income transfer so small farmers can enjoy their lifestyle benefits.
It may be an oversimplification, but it is attracting attention.
Yet some analysts draw exactly the opposite conclusions. Alan Ker recently came from a 15-year background in U.S. crop insurance to become chair of the food, agriculture and resource economics department at University of Guelph. It’s a background that taught him one especially big lesson.
“Designing a program to handle risk and yet not provide some perverse incentive is exceedingly difficult,” says Ker.
That begs the question: Is AgriStability going to reshape Canadian agriculture in its own image? And if so, what will that image look like? Ker and colleague Rakhar Sarker have serious concerns. They fear, for instance, that AgriStability could put a damper on farm diversification.
And while some analysts think AgriStability will give an edge to small and part-time operations, Sarker believes the opposite. Large producers benefit more, he says.
“Small farms don’t benefit precisely because the program is designed to benefit based on volumes produced,” Sarker says.
“AgriStability does provide stability in terms of increasing income levels, so it is having some positive effect if you take all farms together,” Sarker says. “But when you look at farms of different sizes, you can see who is gaining and who is not gaining at all.”
The larger debate
David Sparling comes at the debate from a whole other angle. Farm size is important, he says, but we’re approaching the farm income debate as though every farm has the same goal regardless of size.
And that, Sparling says, simply isn’t true. “Government payments as a whole stabilize margins and support farm income,” says Sparling, professor at Richard Ivey School of Business at the University of Western Ontario.
“Do they provide stability? Yes,” he says. But then Sparling adds, “Do they change your long-term outlook on the farm? No.”
Sparling says we need to ask ourselves what we get for our agricultural investment. Over time, how much of that investment translates into agriculture being more competitive and more efficient?
Over half of Canadian farms have revenue of less than $100,000 per year. Sparling believes local food initiatives generate higher prices and may be a more effective way of supporting small farms. He uses the example of small farms growing vegetables or locally marketed meat. Big margins are needed to operate at a small scale. These farms supplement their revenues with off-farm income.
“We are never going to solve the farm income problem by putting more farm payments in,” Sparling says. “In the long term we need to look at new crops, research and market development as the solution for the income crisis in farming.”
The Morris Centre report says governments need to decide what they want to do. The report concludes Canada needs two types of programs; support to keep small farms viable, with funding dependent on those farms implementing “beneficial management practices that provide environmental goods and services”; and stabilization for commercial operations, contingent on loss, with the objective “to create stabilization protection for a commercial segment without the need to reduce funding for the public infrastructure that can ‘grow’ value added in the agri-food sector.”
Sparling’s research is cited in the Morris Centre report, and he is adamant about this last point. Government spending on agriculture has focused almost exclusively on risk management over the last few years to the detriment of local food initiatives to support small farms and rural communities, he says. At the same time government needs to focus more energy on helping large commercial operations go beyond raw commodity exports by investing in the next tier, i. e. processing and value added.
Meanwhile, the AgriStability debate seems far from over. Ontario’s farm sector is aggressively lobbying for a new stabilization program based on cost of production, not margin, in part because farm groups think a cost-of-production program would be fairer and more effective across the range of farm types.
The provincial Farm Minister Carol Mitchell is on side and is pushing for the idea to be part of the next federal-provincial agriculture policy framework to take effect in 2013.
So far, other provinces and the federal government have said no, and the idea seems to have little traction outside Ontario.
Some of the plan’s problems seem to be potential deal breakers. “The biggest problem is measuring cost of production,” says Guelph’s Ker. “It’s not easily done.” But there can be major trade issues too, and the lobby’s own study concludes provisions for sector-specific calculations and federal funding of regional cost-of-production stabilization could be countervailable.
Sparling, meanwhile, thinks the final solution must arise out of a national food strategy. “We’re exploring how we can shift policy and resources toward things that will really matter to the industry in the future, like food health and innovation and the environment.”
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Large farms and small farms are entirely different and should be seen by government as different in terms of agricultural investment
— Al Mussel