We've been asked to present our views today on the business risk management programs that currently exist and to offer our thoughts on how to improve these programs in Growing Forward 2. Potato farming is a very high-risk business. This crop, like many other crops, is highly influenced by weather in terms of both yield and quality, and the market is influenced by supply and demand on a global basis.
In New Brunswick, we export the majority of our crop to the United States. Therefore, currency fluctuations and the health of the U.S. economy greatly influence our market. Potato production is a very capital-intensive business, too. Currently, our cost of production is approximately $3000 per acre. So we incur risk on many fronts. Our producers do use, and definitely need, the business risk management programs that are currently in place. I will attempt to address each program.
AgriInvest is utilized by most of our producers in the province. The current balance is approximately $7.5 million for the entire province, not just potato growers. As an organization, we don’t really know how actively this program is being used, and have not heard many complaints from our producers. It should be safe to say they are reasonably satisfied, because when they are not, we usually hear about it.
On AgriInsurance, approximately 65% of our acres are insured under the Canada-New Brunswick crop insurance program. This program has been an integral component in managing production risk for our growers, and we view it to be the front line of defence. In four of the past five years, we have experienced significant production problems in the Saint John river valley. The 2011 crop was the hardest hit. The planting season was delayed by cool, wet weather. A serious hailstorm hit parts of the valley in mid-July, affecting approximately 5000 acres. Rainfall was double the normal amounts. This excessive rainfall, which was upwards of 90 centimetres in some areas, caused problems such as soil erosion, terrace and waterway damage, and widespread late blight—which resulted in increased costs and reduced yields—and many other disease problems, which have resulted in storage breakdowns and a greatly reduced amount of potatoes to sell. We are estimating that the decline in the farm gate sales from this crop, plus the increased cost of production because of the problems, to be in the range of $60 million.
The result of successive years of below average yields is that premiums increase due to high payouts, while insured yield declines. Our crop insurance program is running a deficit. We realize that this program must be actuarially sound, but it is becoming uncomfortably evident that extreme weather events are much more frequent than they have been in the past. The effect on our premiums and our coverage is devastating. An extreme but very real example is where an entire crop is left unharvested because of disease. This automatically causes a 10% decline in that farmer’s coverage for the next 10 years. That very quickly reduces the effectiveness of crop insurance as a viable risk management tool for that farmer. This concern is similar when a farm experiences subsequent years of low production, and the value of the program diminishes.
We must have higher participation in crop insurance. It is the only safety net program that directly addresses in a timely manner a loss caused by production problems on a farm, so we must find a way to protect a farmer’s production at a reasonable level. It is imperative that adequate coverage is provided at a reasonable cost. I would even say that the premium level is secondary to the coverage level. The worst-case scenario is when the premiums are increasing while the coverage is decreasing. That is what is we're facing now. The result will be that fewer producers use the program and will end up assuming more risk themselves. This will put more strain on the other programs in the BRM suite, such as AgriStability and AgriRecovery, neither of which can address the risk as directly or in as timely a way as crop insurance.
I acknowledge that I have raised more problems here than solutions, but I believe that if we can agree on the importance of this fundamental pillar of risk management, we can find a solution that will better protect our producers.
On AgriStability, in talking with producers, accountants, and bureaucrats, I believe most would agree that the AgriStability program is generally meeting its objectives. It was not designed to support a sector or a producer suffering a prolonged period of unprofitability. It certainly doesn’t do that. With the advantage of several years of data, it has been suggested that a longer period be used to determine the reference margin. A five-year timeframe, particularly in these volatile times, may be a bit tight. Perhaps a seven-year period would provide more stability and better reflect the true performance of the operation.
The major criticism of the program is not of its design, but of its delivery. The delay in processing claims is often excessive. As an example, when a farm operation has a non-calendar year-end, it can be up to two years between the production year when the loss was incurred to when the claim is finalized. The fact that the Canada-New Brunswick AgriStability program is administered in Winnipeg does not help the situation. In light of the changes happening across Canada with the administration of this program, we strongly encourage the establishment of a maritime provinces administration centre. We have discussed this with our minister, and urge your committee to look into this option as well. We feel the program could be delivered more effectively and more efficiently on a regional basis.
Another common criticism of AgriStability is that it is very complex and most often requires the services of accountants when filing the returns. But I can't offer a better solution if we want a comprehensive, farm-specific income stabilization program. I feel that most farmers and accountants now have a good understanding of the program, and we will be better served by making the required adjustments to improve the delivery and design of this program than by replacing it.
In New Brunswick, we had an AgriRecovery program for the 2009 potato crop to assist with the cost of properly disposing of the part of our crop that broke down in storage as a result of a very wet and cold harvest season. The first challenge with this program, like others, was to understand how it's structured. Another concern is the time required to get an application approved and implemented. I realize this program must be developed and scrutinized very closely to verify the need and to avoid abuse; but as all parties involved with the process better understand the guidelines, I do expect the time required can be reduced. In the past, it's often close to a year after a disaster occurs before dollars actually flow to help address those losses.
In New Brunswick, we are again in the process of making another AgriRecovery application as a result of the disastrous situation our growers are facing with this 2011 crop. Although we've been working on this file since July, it is optimistic to expect to have a signed agreement by March 2012. I cannot criticize anyone or any department in particular for this, because I know first-hand that many people have devoted, and still are devoting, a lot of time and effort toward a favourable agreement. But we must find a way to streamline this process so neither the producers nor the system is paralyzed for so long.
As for the advance payment program, Potatoes New Brunswick administers this program for our producers. Currently, about 140 of our 186 producers participate, and we feel it works quite well. Our policy is to offer only the $100,000 interest-free portion, and our staff are very pleased with how the program is administered from Ottawa. Like any program, the need for some flexibility is important. Due to the situation we are in this year, we have made a request to the federal administration for a stay of default to help our producers get through this year without unduly pressuring their creditworthiness. We are expecting a response quite soon.
In summary, I feel that the existing programs have worked fairly well in attempting to manage business risk in our sector. Efforts to improve the delivery of all BRM programs must continue, with particular emphasis on more regional administration and improved processing times. Maintaining reasonable reference margins in AgriStability and insurance production levels in AgriInsurance is imperative if we are to adequately manage our risk.
I want to stress again that, as extreme weather events are becoming more frequent, and as costs continue to escalate, AgriInsurance must be modified and supported to adequately mitigate the increased risk. I believe this program will require more funding from both producers and governments. If this program does its job, the demands on other programs will decline, and the dollars will flow to where the need is greatest in a more timely manner, and with less chance of waste.
The potato industry in New Brunswick is vitally important to our economy. It’s the source of over $1.3 billion worth of economic activity in a province and region of Canada that desperately needs more development. The stability offered by the BRM programs over the past two federal-provincial-territorial agreements has been crucial to our survival and success. We look forward to working with our government partners to improve these programs and our industry.
Thank you very much for the opportunity. I would welcome any questions later on from your committee.