Business risk management programs under review

The Canadian federal, provincial, and territorial governments recently enacted a new 5-year agricultural policy framework, the Canadian Agricultural Partnership. While the framework contained few changes to existing policies, the governments also committed to a full review of Canadian business risk management (BRM) programs. In this article, I provide an overview of the existing suite of BRM programs and summarize the BRM program review. I conclude by making recommendations for future policy frameworks.     

The Potential for Cross‐Compliance in Canadian Agricultural Policy: Linking Environmental Goals with Business Risk Management Programs

Environmental cross‐compliance links agricultural program payments to producer commitments to achieve agri‐environmental policy goals. The objective of this study is to determine the feasibility of using cross‐compliance to achieve environmental goals in a Canadian policy context. While Canadian policy makers have flirted with cross‐compliance, with the exception of phosphorus regulations for Quebec hog farms, they have never adopted this approach. The potential for effective cross‐compliance depends on producer participation, producer compliance with regulations, environmental performance, and overall welfare implications. This study reviews the application of cross‐compliance in the United States and EU with regard to the potential application to Canadian agriculture. Policy options are considered which link current business risk management (BRM) programs to alternative environmental regulations (wildlife habitat preservation, nutrient management plans, and beneficial management practices for nutrient management). In general, individual Canadian agricultural support program do not provide sufficient incentives for farmers to participate in cross‐compliance. However, if support programs are combined, it is better to link programs that redistribute income with environmental programs than to link agriculture programs that already address specific market failures.     

Resilience test of the North American food system

This article assesses the resilience of the North American food system in the context of the coronavirus pandemic in the immediate, medium, and long run. Focus is on the United States. The immediate consequence is substantial disruption of agricultural markets and falling prices, but systemic breakdown of the system is unlikely. Existing farm programs and emergency legislation will support U.S. farmers. Medium term, supply is likely to be strong, while pandemic-related disruptions in the developing world remain uncertain. Long term, the path forward under the fragility the pandemic has underscored is stronger international institutions and cooperation.     

A Partial Adjustment Model of Federal Direct Payments in Canadian Agriculture

Delays in direct payments to Canadian farmers reduce the income loss protection that is provided by federal income stabilization and related programs. This issue is examined using Statistics Canada federal direct payment and net farm income data from 1981 to 2010. An estimate of the reduced protection against farm income loss that can be attributed to payment delays is obtained using a simple partial adjustment model, first with and then without the assumption of a constant rate of adjustment over time. The results point to a highly significant reduction in program effectiveness that can be attributed to delays in direct payments. There is no evidence to support the common belief that payment delays have significantly increased since the introduction of the Canadian Agricultural Income Stabilization program in 2003.     

Canadian Agricultural Programs and Policy in Transition

Canada does not have an agricultural policy, rather it has agricultural programs. The history of price and income stabilization programs is discussed along with supply management. Programs for the grains and oilseeds sectors have witnessed major changes while supply management has not. Canadian agricultural policy falls under the responsibility of both federal and provincial governments. As a result, farmers in Alberta, for example, receive far greater assistance than farmers in Saskatchewan. Under the new Canadian farm program (CAIS) large payments have been made to Canadian farmers even though many of the farmers who applied for CAIS payments received none. Le Canada ne possède pas de politique agricole, mais plutôt des programmes agricoles. Le présent article porte sur l'histoire du programme de stabilisation du revenu, du programme de stabilisation des prix et de la gestion de l'offre. Contrairement à la gestion de l'offre, les programmes destinés aux secteurs des céréales et des oléagineux ont subi des modifications importantes. La politique agricole canadienne relève des gouvernements fédéral et provinciaux. Par conséquent, les agriculteurs de l'Alberta, par exemple, reçoivent une aide supérieure à celle accordée aux agriculteurs de la Saskatchewan. Dans le cadre du nouveau Programme canadien de stabilisation du revenu agricole (PCSRA), certains producteurs ont reçu des paiements importants alors que de nombreux autres producteurs ayant fait une demande n'ont rien reçu.     

Uncertain monitoring and modeling in a watershed nonpoint pollution program

Performance-based programs governing land use rely on environmental measurement, prediction, and assessment. Yet complex, nonlinear social and environmental change can lead to uncertainties in quantification and forecasting and create challenges for operationalizing programs. This research examines the roles that environmental monitoring and modeling uncertainty play in experimental land and water governance through an analysis of a regulatory water quality program in Wisconsin, USA. The case demonstrates how uncertainties in measurement and prediction of pollution runoff shape program design and participant perceptions. We draw on interviews, a survey, participant observation, and policy document analysis to illustrate how regulators and participants (including municipalities, sewerage treatment plants, farmers and nonprofit organizations) perceive and react to uncertainty. Because current and future water quality data are based largely on model estimates, but regulatory compliance will likely be based on measured in-stream outcomes, participants must evaluate potential risks of involvement. Stakeholders have relied on partnership building and legal modifications such as extended compliance timelines to reduce the risks associated with uncertainty. Experimentation under uncertainty led to sustained stakeholder dialogue, and an iterative process of deciding how monitoring and modeling should be used to track and prove program progress.     

Agriculture's Likely Role in Meeting Canada's Kyoto Commitments*

Voluntary adoption of beneficial management practices will be the primary means by which farmers cut net greenhouse gas (GHG) emissions. The offset system will not be a major driver due to (a) the relatively low prices likely to be offered by large final emitters facing an emission cap, (b) discounts applied to those prices for temporary sequestration, (c) the transaction costs and risk premiums associated with signing carbon contracts, and (d) the low elasticity of supply of CO₂ abatement. Although Canadian farmers are likely to participate to only a limited extent in the carbon‐offset market, many will find it profitable to adopt one or more of the BMPs for reducing net GHG emissions. Canadian agriculture is likely to contribute significantly to net emission reductions by voluntarily sequestering carbon due to the adoption of zero till in the last decade, and possibly by cutting fertilizer levels in the next decade. The contribution will be mainly a response to meeting personal economic objectives rather than being induced by direct incentives through the offset program.     

Heterogeneous Demand and Supply for an Insurance‐linked Credit Product in Kenya: A Stated Choice Experiment Approach

We employ a discrete choice experiment to elicit demand and supply side preferences for insurance‐linked credit, a promising market‐based tool for managing agricultural weather risks and providing access to credit for farmers. We estimate preference heterogeneity using primary data from smallholder farmers and managers of lenders/insurers combined with household socio‐economic survey data in Kenya. We analyse the choice data using maximum simulated likelihood and Hierarchical Bayes estimation of a mixed logit model. Although there are some similarities, we find that there is conflicting demand and supply side preferences for credit terms, collateral requirements, and loan use flexibility. We also analyse willingness to buy and willingness to offer for farmers and suppliers, respectively, for the risk premium for different attributes and their levels. Identifying the preferred attributes and levels for both farmers and financial institutions can guide optimal packaging of insurance and credit providing market participation and adoption motivation for insurance‐bundled credit product.     

Targeting,bias, and expected impact of complex innovations on developing‐country agriculture: evidence from Malawi

Agronomic analyses of new technologies are often conducted under carefully controlled research station programs or trials managed by self‐selected farmers. Oftentimes, the technologies are then scaled up with minimal evaluation under real‐world conditions. Yet, the interim step between agronomic trials and large‐scale promotion is crucial to generate evidence on the social and economic impact of technologies that is both internally valid and generalizable. The article focuses on a participatory action research program in Malawi designed to test and identify scalable technology options to intensify the smallholder sector and contribute to poverty reduction and food and nutrition security. We examine the socioeconomic characteristics of farmers testing technologies and find evidence of systematic targeting of better‐endowed farmers. After controlling for observable differences using matching and a doubly robust estimator, we find evidence of early positive effects on maize yield and harvest value, although placebo tests suggest possible selection on unobservables. We note that attention should be given to program design and household characterization to better define and improve targeting criteria, technology selection, and external validity.     

Are preserved farms actively engaged in agriculture and conservation?

This study addresses the question of whether farms enrolled in land preservation programs are actively engaged in agricultural or conservation activities. Data are drawn from an original survey administered to preserved farm owners in the states of New Jersey, Maryland, and Delaware in 2011. “Actively engaged” is defined as investment in conservation projects, buildings, equipment, or irrigation since the land was preserved. Affirmative answers to the survey's investment questions range from a low of 19% for irrigation to a high of 69% for equipment. Special attention was paid to differences between lifestyle farmers and small and large commercial farmers, which are classified using the USDA typology developed in 2000. Regression analysis estimates differences in investment behavior across these groups as well as farm tenure categories, controlling for farm size, program/state location, and demographic variables. Only owners who employ tenants or managers exclusively on their land were found to invest significantly less than the largest professional farmers, and they did so across all four types of investment.This study's findings support preservation goals articulated by legislators and program administrators, because (1) agricultural and land stewardship investments appear to be widespread on preserved farms, partly due to administrators’ preference for larger parcels, (2) there is no evidence that “hobby farmers” are disproportionately attracted to farmland preservation programs – in fact the opposite seems to be true – while those that exist in our sample behave similarly to the largest commercial farmers, (3) although tenant farming is associated in the sample with lower rates of investment, it is less common on preserved farms than on all farms in the three study states. The matter of land tenure, highlighted in this as in other studies, has not yet become a primary focus of either farm-behavioral research or state agricultural policy.     

Demand for area crop insurance among litchi producers in northern Vietnam

This study examines the need for crop insurance for litchi production in northern Vietnam and how farmers might participate in such a program. Hypothetical insurance programs were developed which proposed all‐risk coverage based on area yields. This coverage was offered to farmers to determine both their interest in the program and how insurance features and farmer characteristics affected their decision to buy insurance. Farmers were also surveyed regarding their production practices, price and yield expectations, and financial and personal characteristics. Even before considering other program costs and government budget constraints, there is not a strong case for establishing a crop insurance program here. Results indicate that while farmer participation would be significant, crop insurance is not needed to achieve policy goals like raising farmer income or guaranteeing subsistence levels of income. Crop insurance is not needed to promote litchi production, which is already expanding rapidly due to its high profitability relative to other farm enterprises. In their choice of coverages, farmers preferred higher yield guarantee levels and lower indemnity prices. Estimated premiums were quite low when expressed as a percent of expected revenue, and farmers were not responsive to changes in premiums. Econometric analysis indicated that high income farmers were more likely to participate, but other farmer characteristics seemed to matter little. Anecdotal evidence suggested that farmers believed the expected area yields used to set insurance coverage levels were too low. Because litchi productivity varies significantly by tree age and the litchi planted area is expanding rapidly, determining appropriate values for expected area yields and insurance coverage levels appeared to be the biggest challenge in program design. It is hypothesized that additional farmer education about the relationship between area and farm yields and other aspects of area insurance could improve such a program's operation. Published by Elsevier Science B.V.     

Addressing the paradox – the divergence between smallholders’ preference and actual adoption of agricultural innovations

Experiences in smallholder contexts indicate frequent mismatches between technologies introduced and needs of farmers who must make complex decisions in reallocating their limited resources under highly risky ecological and market contexts. This study proposes a cost- and time-effective, easy-to-implement approach to identify farmers’ priorities and critical intervention areas, and presents its application in guiding an agroforestry strategy in Rwanda. It was found that different tree species have distinctive enabling vs. constraining conditions under different agroecological contexts in the perspective of smallholder farmers. Tree species preferred by farmers were not necessarily widely adopted if multitudes of conditions were not enabling. The essential conditions for sustainable adoption include: quality materials/inputs are available; technologies are compatible with existing local farming systems; they are resilient to climate risks/resistant to pests-diseases; management is not complicated; and, there is guaranteed access to markets. The results show that there will not be a silver bullet national strategy to scale up agroforestry. Instead a matrix kind of strategies -to promote enabling conditions and address constraining conditions for priority species in specific agroecologies- will be required. The proposed concept should be further refined for wider agricultural technology transfer debates to break the myths of low uptakes by smallholders.     

EU agri-environmental programs and the "restaurant table effect"

The share of agricultural area enrolled in EU agri-environmental programs varies significantly between EU member states. These national differences are explained, based on a model that reflects both, that these programs internalize externalities and the political economy. We identify six factors that affect the extent to which agri-environmental programs are implemented: environmental benefits, opportunity costs of participation, budgetary pressure, the share of program expenditures financed by the EU, the political weight attributed to farmers at the national, and the political influence of each country at the EU level. In addition, we demonstrate that, if the policy decision-making process is noncooperative at the EU level, countries that contribute less to the EU budget will ceteris paribus implement more programs. Using data of four years and feasible generalized least square methods, we are able to confirm our theoretical results including a noncooperative behavior of EU member states.     

Stop and Go Agricultural Policies with a Land Market

This article studies the design of farm policy in the presence of asymmetric information about farmers' productivity, a government objective to insure farmers a minimum "parity" income, an endogenous land rent, and diminishing returns on alternative (nonprogram crop) land uses. In this setting, acreage set asides are never part of an optimal farm policy, although compensated acreage limits are. When there are new farmer entrants who cannot be excluded from farm programs, optimal policy takes the form of a pure voluntary acreage limitation—or "buyout"—program in which high-cost producers participate and low-cost producers do not.     

Friend or Foe?— Farmer Perceptions of Biotechnologh1

This paper is the result of survey investigation the attitudes of Western Canadian farmers toward two biotechonological products, ENFIX-L and PB-50. Farmers were asked to rate both the importance and the performance of 21 attributes of the products. Soil depletion was found to be an important concern to many farmers. personal and environmental risks were less of a concern. Overall, it was found that the non-biotech-nological aspects of a product would prevail in purchasing decisions.     

Acreage Response to Whole Farm Income Stabilisation Programmes

This article investigates whether Canadian whole farm programmes, which fall under the WTO category of Green Box subsidies, are truly production neutral. Theory suggests that with non‐constant risk aversion, risky decisions can be influenced by both the level of expected wealth (i.e. the wealth effect) and the variability of wealth (i.e. the insurance effect). Unlike previous approaches, this article is able to extend a framework developed by Chavas and Holt to formally incorporate the insurance effect into the acreage allocation decisions. By applying the theoretical model to acreage data in the Canadian Prairies, the results reveal that the whole farm income stabilisation programmes had large impacts on acreage choices through wealth and insurance effects. From a WTO perspective, the results underline the inherent difficulty in designing programmes that will reduce the risk faced by farmers without altering behaviour.     

Evaluating the use of an environmental assurance program to address pollution from United States cropland

Voluntary market-based programs have been proposed as cost-effective means to reduce environmental impacts associated with agriculture. This study examines a relatively new program in Michigan USA, the Michigan Agriculture Environmental Assurance Program (MAEAP), and explores how it might serve to reduce nutrient pollution associated with intensive corn production. Interviews with corn farmers were used to explore reasons for program participation, the extent of management changes, and opinions regarding program effectiveness. Results indicate that most farmers enrolled in the program had already satisfied the majority of the requirements, therefore few changes were made that would result in environmental improvements. Interviews also revealed that in almost all cases, corn farmers were unable to market their products as MAEAP verified. Participation was largely driven by goals to avoid law enforcement and minor financial benefits through insurance discounts. Farmers indicated that a lack of monitoring and enforcement reduced the perceived effectiveness of the program. Most farmers favored direct payments through government conservation programs over MAEAP. This case illustrates the limitations of voluntary and market-based programs to address agri-environmental problems and supports the use of multiple policy approaches.     

A new president in the White House: implications for Canadian agricultural trade

Canadian agricultural trade has experienced several volatile periods over the past 15 years. The Great Recession (2007–2009), the 2015–2016 global trade slowdown, unilateral policy actions by the United States against key trade allies and the multilateral system more generally, and the impacts of the Covid‐19 pandemic are among the most significant events during this period. Given the close integration of Canadian and US agricultural markets, the recent US election is likely to again impact the relative competitiveness of Canadian agricultural exports. While many observers suggest President‐elect Joe Biden will return to normal times regarding multilateral cooperation with key allies and international institutions such as the World Trade Organization, the new administration is likely to face headwinds given the significant fraying of ties with key trading partners and allies due to disruptive actions taken by his predecessor. This article provides an overview of potential implications of a Biden administration for Canada's agricultural trade. We start by reviewing recent trade shock events affecting Canada's agricultural trade with a particular focus on trade actions taken by the United States. Relevant components of the President‐elect Biden's platform, considerations affecting the implementation of this platform, and the implications of this for Canadian agricultural trade are considered.     

Abstracts of Award-Winning Theses

Costa Rica has long been a leader among developing countries in the design of and experimentation with innovative environmental programs. Since 1997, Costa Rica's "Pagos de Servicios Ambientales" (Payments for Environmental Services) Program has provided payments to more than 4,400 farmers and forest owners for reforestation, forest conservation, and sustainable forest management activities. The econometric analysis of a survey of farmers and forest owners, including both PSA participants and nonparticipants, shows that farm size, human capital and household economic factors, and information variables significantly influence participation in PSA program alternatives. Large farmers and forest owners are disproportionately represented among program participants.     

Coping with Crisis Risk in European Agriculture

Coping with Crisis Risk in European Agriculture
This article summarizes the major findings of an international workshop on coping with crisis risk in European agriculture. The workshop took place as part of an EU sixth framework project entitled: Income stabilisation: Design and economic impact of risk management tools for European agriculture. The meeting focused on ex ante crisis risk, which is defined as a foreseeable and predictable risk that potentially hits many farms at the same time. More specifically, the workshop focused on technology risks - such as food safety and livestock epidemic risks - and weather risks. State of the art discussions pointed towards little attention being paid to crisis risk management in EU agriculture and the incompleteness of risk management instruments available. Proposed solutions, although not entirely agreed upon by all workshop participants, envision some form of public–private partnership. For technology risks, which are rather'manageable' by individual farmers, partnerships are recommended to be a mix of regulation, risk mitigation and non-subsidised market instruments with a clear focus on incentives for risk prevention. For weather risks, these partnerships include financial aspects whereby governments offer free cover for the catastrophic part of losses. The Income Stabilisation project will integrate workshop recommendations with wider research project activities and will eventually advise on prospective risk management instruments for various farm types and regions throughout the European Union.