A Trade War Mitigation Program for Canadian Grain Farmers

Written by Ken Rosaasen, APAS Representative for Corman Park #344 and member of the APAS Economics and Trade Committee 

This article first appeared in Grainews.

All Canadian Grain Farmers have been hurt by the ‘Trump/China Trade War’. China has targeted Canadian canola and soybean exports, but trade action is affecting other commodities as well. Pulses have been impacted by the actions of India; durum by the actions of Italy; barley by the actions of Saudi Arabia. 

No one anticipated this trade war. Canada’s business risk management programs were not designed to address it. The federal government has stepped in to help other sectors, including dairy, deal with market losses caused by international trade agreements and the actions of foreign governments. Equivalent measures are required for Canadian grain farmers who do not have access to employment insurance or other commonly available social safety nets when facing the economic fallout of unfair trade practices. 

The prices set in US Commodity Exchanges serve as key price benchmarks for world markets in which Canadian products must compete. Farmers in the US receive a Market Facilitation Payment (MFP) as compensation during this trade war. Payment rates and other details were announced in August 2019. The acreage payments are generally in the range of $15 to $100 per acre in the corn/soybean/wheat areas of the US.

Questions have been raised about how a similar program could work for Canadian grain producers. The proposal below describes a Canadian program modelled on the US 2019 Market Facilitation Program and adjusted to ensure timely and proportional compensation to Canadian grain farmers for market loss based on the prevailing crops in their region and their soil productivity.

A Trade War Mitigation Program for Canadian Grain Producers

Trade in Canada is a federal responsibility. The current trade wars are affecting commodities across the country. The Proposed program would be national in scope and 100% federally funded.

Payment rates for Canadian farmers are based on the 2019 US MFP commodity rates for wheat, soybeans, corn, lentils, peas and other crops grown in Canada. The Government of Canada would cover 85% of the 2019 US MFP commodity payment rates in recognition that Canada did not initiate the trade war. The losses for canola will be assumed equal to the losses in US$/bushel on soybeans. Similarly, the losses for barley, a major feed grain in Canada, will be assumed equal to the losses in US$/bushel for corn.

Production is calculated as the 5-year average yield (bushels per acre) for eligible crops grown in each crop insurance “Risk Zone” in Canada. The basket of crops included in the payment is based on the proportion of each crop grown in the Risk Zone. Payments are further adjusted for soil class to account for productivity differences in each risk zone. E.g. In Saskatchewan if the payment is $40 per acre on an E soil, then the payment on a B soil would be more and on a G soil would be less.

Individual farm yields and individual management decisions do not affect program payments. Inputs and crop choice will continue to be made at the individual farm manager level without incorporating the program into decision-making. The program does not distort markets or influence cropping decisions.

Proposed Canadian Commodity Rates By Crop (One $C = US$0.75) In Dollars per Bushel

*Lentils at US$ 3.99/cwt multiplied by 0.6 as there are 60 pounds per bushel = US$ 2.39/bu. 
*Chickpeas at US$1.48/cwt multiplied by 0.6 as there are 60 pounds per bushel  = $0.89/bu.

Proposed Program and Price Impact Hypothetical Saskatchewan Example: Risk Zone with assumed “A” Class Soil yields

Step 1: For each crop in a Risk Zone, multiply 5 yr. average acres, 5 yr. average yields, and the payment rate for each eligible crop.

• Risk Zone “A” Wheat Impact: 132,000 acres X 41.5 bu/ac X $0.47 bu = $2,574,660
• Risk Zone “A” Canola Impact: 110,000 acres X 35 bu/ac X $2.31 bu = $8,932,000
• Risk Zone “A” Barley Impact: 22,500 acres X 59 bu/ac X $0.16 = $212,400
• Risk Zone “A” Lentil Impact: 16,000 acres X 22 bu/ac X $2.71/bu = $953,920
• Risk Zone “A” Pea Impact: 28,000 acres X 30 bu/ac X $0.52/bu = $436,800
• Risk Zone “A” Soybean Impact: 6,000 acres X 28 bu/ac X $2.32/bu = $389,760   

      Step 2: Sum all calculated values from Step 1

• $2,574,660 + $8,932,000 + $212,400 + $953,920 + $436,800 + 389,760 = $13,499,590  

Step 3: Sum all the calculated acres from Step 1

• 132,000 + 110,000 + 22,500 + 16,000 + 28,000 + 6000 = 314,500

Step 4: Calculate the Risk Zone payment rate per acre by dividing the result of Step 2 by the result of Step 3

• $13,499,590/ 314,500 = $42.92

Step 5: Adjust acre payment by productivity rating within Risk Zone

• 100% of acres Class A Soil (no change) = $42.92 

       Step 6: Other lower soil classes would have the payment adjusted downward based on the inherent productivity of that soil class

Other Program Parameters

• The Program would be implemented in a phased approach similar to the US. The first payment would be provided 90 days after the US MFP’s August announcement, and would cover 50% of the total eligible compensation. Subsequent payments would be made 60 days after each US MFP announcement. 
• In place of the fixed cap that is used in the US, a sliding scale could be used in Canada: 10% deductions could be applied to every $100,000 (E.g. producer receives full payment on first $100,000; $90,000 on second $100,000, $80,000 on third $100,000 etc.).
• Payments would be made on the 2019 seeded acres, payable to the crop insurance policy holder. Crop Insurance non-participants would submit 2019 acres for verification. Landlords and tenants would determine appropriate sharing arrangements at their discretion.
• Provincial crop insurance agencies would administer the program. Provinces would contribute their regular share of administration costs.
• Penalties for non-participation in AgriStability or Crop Insurance should not exceed 5%. For example, if a farmer were a non-participant in both Crop Insurance and AgriStability, s/he would receive a maximum 10% deduction. 
• Any Province that seeks higher compensation rates or different compensation rates by crop could utilize their provincial dollars to achieve the changes sought. 

Conclusion

Canadian dairy farmers are promised compensation over the next eight years for the ‘anticipated hurt’ from trade negotiations and trade rule changes.  Canadian steel and aluminum manufacturers also received government financing and direct support in response to US tariffs on Canadian exports. The Canadian grain industry is an export oriented, trade exposed sector.  The principle of compensating for the demonstrated hurt from trade should apply equally to Canadian grain farmers who create jobs and economic growth across Canada.