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PLAIN ECONOMIC SENSE
For release May 24, 1999
Column 379
The Canadian Farm Policy Safety Net
By Mark A. Edelman
Extension Public Policy Economist
Iowa State University Extension to Communities
Sometimes an interesting look at another nation's farm
policy can provide a fresh perspective on your own. Canada
has been wrestling with many of the same farm policy
pressures faced by U.S. agriculture. At the same time,
Canada has more variable weather and about 14 percent as
many farmers. So for a rough comparison of national costs,
one can multiply Canada's numbers by seven.
Canada currently has a three-pronged farm safety net policy. First, Canada has a fairly well developed private sector crop insurance system similar to ours. It also is underwritten by the government. In Canada, however, the government costs are split about evenly between the national and provincial governments. According to the March 1999 Agriculture Canada Data Book, the national government spent $384 million on crop insurance for 1997-98.
Second, Canada initiated a Net Income Stabilization Account (NISA) program in 1991 as a farm level risk management tool for farmers. The NISA program is a voluntary self help program for Canadian farmers funded by farmer contributions and matching incentives by the government. NISA was developed as a partial replacement for the more costly Gross Revenue Insurance Program (GRIP) which has since been phased out in Canada. NISA is a whole farm safety net concept that works for any agricultural enterprise or mix of enterprises, including specialty or alternative crops and livestock enterprises for which insurance products may not be readily available.
In October 1998, the average Net Income Stabilization Account balance was $16,614 per NISA participant. A farmer's NISA balances grow over time and may be withdrawn when (1) the farmer's current year gross margin falls below the annual average from the previous five years or (2) when the farmer's current year net income from all sources falls below a threshold level, which currently is $10,000 for an individual or $20,000 for a family. To fund the farmer's matching incentives, the national government expended $238 million in 1998, while provincial governments added another $100 million.
Third, Canada also recently implemented a new national Agricultural Income Disaster Assistance (AIDA) program. AIDA is a two-year program designed to provide funding for Canadian agricultural producers to cushion extreme income reductions beyond their control. Funded 60 percent by the federal government and 40 percent by provincial governments, AIDA is open to anyone in Canada who files income tax returns as a farmer, and whose gross margin has dropped below 70 percent of his or her average gross margin over the previous three years. For beginning farmers, a special calculation is used to determine eligibility.
Do Canadian farmers favor one approach over the other? In 1998, a national survey using a representative sample of 2,113 Canadian farmers was commissioned by the Canadian Department of Agriculture known as Agriculture and Agri Food Canada. Survey respondents indicated that 56 percent of eligible producers say they "always" or "whenever possible" make contributions to NISA, while 26 percent have "never" made a contribution.
For comparison, 65 percent of the eligible Canadian farmers use crop insurance regularly (54 percent indicate "always," 12 percent indicate "often"). This means that 35 percent of those who are eligible do not use crop insurance regularly.
In the final analysis, the Canadian NISA program appears to be complementary to the Canadian crop insurance system. While crop insurance represents a farm operating cost, the NISA contributions represent savings and investments that add to farm equity and asset growth while diversifying the farmers risks and providing an individualized farm income safety net. Annual contributions by government accumulate in the farmer's own account and earns interest. Unlike one criticism of U.S. farm policy, Canadian farmers don't receive high payments in high income years because withdrawals are only made in low income years. Yet at the same time, government expenditures remain relatively stable and predictable from one year to the next. In addition, the annual NISA expenditures "buy down" the need for ad hoc disaster assistance programs.
Edelman is a professor of economics and an extension public policy specialist at Iowa State University.
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