Agricultural Programs

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  1. Objectives of the Agricultural Policy Framework (APF)
    • protect producers' incomes from the vagaries of weather, pests, and global markets
    • encourage risk mitigation strategies for emerging risk areas
    • support growth, diversification, increased value-added activity in Canadian agriculture
  2. 2 federal-provincial programs under APF
    • Production Insurance (PI): manage production risks inherent to the industry
    • Canadian Agricultural Income Stabilization (CAIS): mitigate unforeseen income disruptions as well as promote long-term income stability
  3. Programs differences:
    • losses covered: PI covers uncontrollable production losses; it does not cover market price drops, fuel price increase, or other input costs
    • CAIS takes these factors into account at the farm enterprise level
    • under CAIS, PI payments are treated as farm income, and included in reference margin
  4. Production Insurance
    PI minimizes income losses caused by natural hazards like drought, flood, wind, frost, excessive rain/heat, snow, as well as uncontrollable disease, insect infestations, wildlife damage
  5. Federal vs provincial
    • constitutionally, insurance is a provincial responsibility
    • provincial government agencies act as the insurer, delivering the plans to producers
    • program is cost-shared among the government of Canada, government, producers
    • governments contribute 2/3 to ensure it's universally available and affordable
  6. Other coverages offered:
    • quality loss protection
    • reseeding benefits: e.g. crop destroyed early in the season
    • unseeded acreage benefits: e.g. excessive moisture during planting
    • emergency work benefit: costs incurred to mitigate further damages
    • perennial plant protection
    • spot-loss peril protection for events such as hail causing damages readily discernible
    • compensation to crops and livestock caused by wildlife
  7. Program design:
    • participation is voluntary, however once a commodity is selected, all production of that commodity must be insured
    • must buy insurance either before a commodity is planted or before any damage is possible
    • production guarantee is generally established for each commodity based on area or normal or expected yield per unit, relative to previous production history
    • historical average can be adjusted to accommodate latest trends, technological advances, buffering of abnormal yields
    • government requires periodic independent actuarial certifications of all provincial methodologies used to establish protection levels to ensure they are reflective of the value of the commodity or the productive capability
  8. Levels of coverage
    • coverage ranges from 50% to 90% of normal or expected yield (70-80% most popular)
    • deductibles ensure that producers are always responsible for the first loss
    • premiums are calculated on a provincial basis for each crop
    • larger provinces calculate premium rates for smaller areas of homogeneous risk
    • premium is based on the long-term risk of crop losses (15 to 25 years)
  9. Types of PI plans
    • individual yield program: indemnify when total production of a crop is less than total production guarantee for the entire farm (low yields can be offset by other fields); cheaper because low yields in some fields can be offset by high yields in others.
    • area-based or collective protection: average production is determined for a designated area. All producers in the area (irrespective of actual production) are compensated when the harvested yield for the area is below the production guarantee
    • not based on yields: based on long-term loss level of the commodity
  10. Cost-sharing arrangements
    • federal covers 60% for cat loss, 36% for COMP production, 20% for high cost production
    • total government participation is about 62% of total premium costs
    • both government levels are also responsible for all administrative costs (60:40)
  11. Role of Government of Canada
    • approve provincial program proposals
    • contribute a portion of the total premium and administrative costs
    • develop national standards for maximum levels of coverage and benefits level
    • provide reinsurance to provinces participating (AB, SK, MB, NB, NS)
  12. Role of Provincial Government
    • pay a significant portion of the premiums and administrative costs
    • design and develop insurance plans
    • promote and sell PI programs
    • underwrite PI policies, setting of yields, determine premium rates, collect premiums
    • adjust and verify crop losses to determine claim amounts to be paid
    • provide an appeal process for producers
    • bear responsibility for deficit via loans or reinsurance
  13. Role of Canadian Producers
    • participate in the PI program by paying a portion of total premium costs
    • comply with insurance contract requirements
    • manage their crops in a normal manner
    • suggest program revisions to administrators
  14. Role of Private Insurance Companies
    • not involved in the delivery, but some do:
    •    offer spot-loss hail and fire insurance for crops
    •    offer protection for greenhouse crops
    •    offer livestock mortality insurance
    • some reinsurance companies provide reinsurance to provincial PI administrations
  15. Program performance
    • over 350 PI plans are available for more than 100 different crops
    • 50% of producers representing 65 to 70% of total crop acreage in Canada are insured
    • 10 most frequently insured crops represent about 85% of the insurance program
    • nationally, cumulative-loss-to-revenue ratio after 2003 is 0.99 (break-even)
Card Set:
Agricultural Programs
2014-04-12 20:15:33
Misc Govt Programs
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