Saving billions is tempting for penny-pinching feds

AGRISTABILITY A return to normal prices could mean big payouts under the current formula


Reading Time: 3 minutes

It has gone in cycles over the past 50 years, but it appears the battle lines are again being drawn between the federal government and the agriculture industry over farm support programs. The latest began when federal officials claimed the AgriStability program is too rich. Essentially this support program kicks in when a producer’s income falls below 85 per cent of the previous five-year average income. That level seemed to satisfy the federal and provincial governments in the past, but that was then and this is now.

Now the federal Conservative government is on a deficit-reduction crusade and is looking for soft targets that won’t attract a lot of public or media attention. Clearly the agriculture sector comes to mind when the latter two are a political consideration. After all city voters and the urban media don’t care much about the fate of a few farmers who have shown a predilection to vote Conservative anyway.

To come up with their anticipated program savings, it seems federal number crunchers determined that if the AgriStability support level was reduced to say 50 per cent, the program would likely never pay out and could save as much as $2.2 billion. It was finally recommended that the program be reduced to 70 per cent, that would still result in a saving of $1.2 billion.

Clearly, making billion-dollar savings is just too tempting for any government. Besides on the crop production side, grain and oilseed prices have seen a steady increase and could see new highs as a result of the American drought. That makes growers complacent about any changes to the program today, although they may wish they had paid more attention if future prices and markets hit the skids.

Large liability

What also worries government program administrators is that a few years of consistently high commodity prices raises the overall payout threshold for future years especially if future market prices collapse. Payouts could end up being many more billions than the present program levels. What causes one to ponder is why those who created the program didn’t anticipate that possibility. Actually it’s part of long-established pattern where government program planners in faraway Ottawa office towers are determined to base programs on price averages that will never change. They consistently never plan for prices that may significantly rise or fall on short notice, a reality that is becoming more common. They do throw out the highest and lowest figures in the average, but that doesn’t work that well in a consistent decreasing market price situation spread over a few years.

The livestock industry was the best example of that over the past few years. Hogs showed a persistent price depression for several years in a row. Support programs could not adjust to that quickly enough and producers received little support even in the direst of times. Some payments were triggered, but only after tinkering with the formula.

The same happened to cattle producers in past drought situations. Even when the formula does kick in, the feds only seem to get in motion after producer groups hammer on them to activate the program.

History may repeat itself with cow-calf prices expected to drop considerably as feedlots squeeze them due to high feed grain prices. At the recommended 70 per cent or lower trigger rate, those producers will probably not see much of a payment any time soon.

What also worries bureaucrats is the possible future image of some crop farmers receiving million-dollar government cheques if the trigger stayed at 85 per cent and grain prices collapsed. Such payments have occurred with past programs, and the reality is that there are more mega-farming operations of many thousands of acres and millions in bushels and cash flow.

The classic example was when the Alberta government made multimillion-dollar payments to some feedlot operators and big packers during the BSE crisis. The urban media was outraged. As fair as such payments were, making million-dollar-plus payments to mere farmers is still something the urban public and media can’t comprehend. Such folks have been raised on the image of farming being akin to “Old MacDonald’s Farm” not large-scale corporate commercial agriculture. You can expect that in future programs, caps will be put on large payments to big operators, just for image purposes.

AgriStability may continue in some form, but it seems whenever support programs begin to work as planned and may actually begin to pay out consistently, they are somehow deemed to be too rich (remember Tripartite and NISA). What is consistent is that in the 50-year history of national support programs, political interference occurs sooner or later.

About the author

Comments

explore

Stories from our other publications