By The Numbers

I n early February, Agriculture and Agri-Food Canada (AAFC) released its Farm Income Forecast for 2003, the first projection of financial performance for 2003. The numbers are very disturbing, signaling an industry in serious trouble, and also indicating problems inherent in the new Canadian Agriculture Income Stabilization Program (CAISP) as a mechanism to provide support. For Canada as a whole, receipts from the sale of crops were down $1.168 billion or down 8% from 2002; receipts from the sale of livestock were down $2.103 billion or down 12%. Combined total market receipts were down $3.271 billion or down 10%. Compared to the average for the period 1998-2002, crop receipts in 2003 were down 3%, livestock receipts down 4%, and total market receipts down 3%. Expenses, however, were up $955 million or up 3% from 2002 and up a whopping 12% from the average for the period 1998-2002. Net farm cash income exclusive of government program payments fell from $3.774 billion in 2002 to - $452 million in 2003. That's right, negative $452 million! It gets worse. After allowing for depreciation charges, income-in-kind, and changes in on-farm inventory, total net income exclusive of government program payments for Canadian agriculture as a whole was - $2.156 billion in 2002 and plummeted to a dismal - $2.502 billion in 2003! The average for the entire period 1998 - 2002 was - $532 million. That's right, exclusive of government program payments, total net income for all of Canadian agriculture for each of 2003, 2002, and the average for the entire period 1998 - 2002 is a negative number. Exclusive of government program payments, Canadian agriculture as a whole lost $2.5 billion in one year. Exclusive of government program payments, Canadian agriculture as a whole lost $4.656 billion in the last two years. The Agricultural Policy Framework fixes Federal support to Canadian agriculture under the Business Risk Management pillar at $5.5 billion, but spreads that over five years. Inclusion of Provincial matching dollars (assuming all Provinces make the required 40% match) brings support across Canada to $9.2 billion over five years or $1.84 billion per year. Obviously, if the last two years (2002 and 2003) are any indication, the APF would seem to be under-funded which is what we have been saying from the beginning. Even including record government program payments of $4.951 billion in 2003, Realized Net Income was a - $13.4 million, which as AAFC itself says "in 2003, (RNI) for Canada is forecast to decline by 100% which will result in negative income at the national level for the first time in history." But here is where some problems with the new CAISP come to light. Record government program payments of $4.951 billion in 2003 included some payments that will not be present in future years and are not to be included in producer reference margins for the years 1998 - 2002, which are the historical five years for calculating reference margins to begin the CAISP. Of that $4.951 billion paid out in 2003, $795 million was producer withdrawals from Fund 2 (governments' fund), $446 million was Federal Transition Funding, and $402 million was payment from the Canadian Farm Income Program. From these three programs alone, $1.643 billion in support payments to Canadian agriculture in 2003 disappears in future years. None of these payments will be made in the future because the programs disappear and all will be subtracted when determining CAISP reference margins. So too will the Provincial Transition Funding payments and Market Revenue Insurance program payments (among others) in Ontario. In other words, CAISP stabilizes Canadian agriculture at levels of the last five years in which average annual total net income was a negative $532 million exclusive of government program payments. And in the new world, all government program payments, except Crop Insurance, are excluded (with the aberation of BSE-related payments in 2003, which AAFC says totaled $448 million and will count as eligible revenue for 2003). Almost anticipating this "underfunding" criticism, when releasing its Farm Income Forecast for 2003, AAFC said "large payments under CAISP for the program year 2003 will be paid in 2004 as well as the payments under the BSE Cull Animal Program announced on November 21st. In addition, there is $4 billion in NISA accounts which will be available for withdrawal in 2004 as the program winds down." For the record, $2.053 billion of that $4 billion in NISA accounts is the producers' own money. Only half of the total $4 billion NISA account balance so often quoted by bureaucrats and politicians is government contribution and that has accumulated over a decade. Why is this important? The APF agreements require a review of all elements of the APF in Year 3 (i.e. late in 2005). However, that review will have no producer input and is mandated to balance spending over the five years of the program so that the five-year Federal $5.5 billion funding envelope is not exceeded. If spending in the early years of the APF looks to exceed the $5.5 billion envelope, the review process is mandated to tweak program details so that annual spending is reduced for Years 4 and 5 so that the envelope is not exceeded. From the foregoing analysis of AAFC's own income forecasts and comments, it is obvious that CAISP spending in the initial years (ie. 2003 and 2004) will be larger than expected and likely to create pressure for program reworking in order to reduce expenditures in outlying years. By the numbers, the APF is underfunded and has been from the start.

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