An analysis of Canadian business risk management programs and potential program enhancements

Abstract

Agriculture is an important industry in Manitoba. The Canadian government recognizes the risk associated with Manitoban and Canadian farms through income support programs known as Business Risk Management Programs. In recent years, the Business Risk Management Programs (BRM) have undergone changes and many producers believe that the programs are less effective. Canadian agricultural producers have issues with the timeliness, predictability, responsiveness, and clarity of the margin insurance component of the BRM, known as AgriStability (AAFC, 2017). The announcement of the most recent federal-provincial-territorial agricultural policy framework, the Canadian Agricultural Partnership, included a commitment to review the BRM suite of programs during the upcoming framework period. The goal of the review is to analyze and develop solutions to the issues identified with the BRM programs, while considering maintaining cost neutrality of program changes and respecting Canada’s obligations to its trading partners. The purpose of this study is to propose a program enhancement and new program and to measure the value to producers of the enhancement and the new program, relative to participation in the current programs and no program use. Monte Carlo simulation is used to simulate a distribution of outcomes for a farm under each of the program scenarios. This study also measures the value of the timeliness of payments to determine the benefit. Ultimately, the proposed cost of production insurance program provides the most value to producers. However, issues with the structure of the model make it unfeasible in practice. It favours the commodities with higher cost structures and the program may result in production distortions that would provide the opportunities for Canada’s trading partners to file complaints.