RISK MANAGEMENT PROGRAM
By Brian Doidge, OCPA General Manager

Government studies, using a very large continuous data set that tracked 5,347 individual farms from 1996 to 2003, confirm that CATS production and reference margins declined sharply for 96.6% of Ontario grain and oilseed farms. In fact, for 2/3 of the farms in the analysis, production margins declined by 34.5%, and reference margins declined 24%. Declining margins mean that CAIS, which merely stabilizes producers at historic margins, cannot meet the needs of Ontario grain and oilseed farmers.

The basic problem is that grain and oilseed commodities are negatively impacted by U.S. subsidies artificially stimulating expanded U.S. production, artificially depressing prices here in Ontario, artificially depressing margins for farmers in Ontario. The problem is artificially low prices for specific commodities. Whole farm stabilization programs like CAIS cannot address the problem; only commodity specific support programs triggered by low prices address the problem.

U.S. support programs are commodity specific and triggered by price. Quebec's ASRA program is commodity specific and triggered by price. Market Revenue Insurance (MRI) was commodity specific and triggered by price. What is needed is a replacement program for MRI that works with CAIS and yet is commodity specific and triggered by price. With that in mind, the seven Ontario grain and oilseed commodity groups developed the Risk Management Program (RMP) as a replacement for MRI.

Program in Brief
The Risk Management Program is a commodity specific support program that potentially triggers payments twice a year whenever "opportunity" prices for a six-month period drop below the selected support price per commodity.

• The average of provincial new crop forward contract offers for delivery to local primary elevators at harvest is the opportunity price for the first six-month period prior to harvest;
• The average of provincial spot (old crop) price offers for delivery to local primary elevators is the opportunity price for the last six-month period following harvest.

• A producer must complete an RMP enrollment application annually;
• Deadline for applying is November 30 for fall-planted crops;
• Deadline for applying is March 31 for spring-planted crops;
• To be eligible to participate in the RMP for any crop, a producer must also be enrolled in Crop Insurance (CI) for the same crop and be enrolled in CAIS;
• On the RMP enrollment application, the producer chooses 1 of 4 support price options per commodity;
• Payment of premium per commodity based on individual long-term average yields is due with the final planted acreage report;
• There is a minimum annual RMP premium of $500 per applicant due with RMP application;
• Non-enrollment in any one year and/or non-payment of premium in any year is penalized by the producer not being eligible for that specific program year plus the subsequent 2 years (ie. out for 3 years);
• All payment eligible crops must be enrolled in CI and in the RMP.

• Payments are made based on the individual producer's long-term average yield as reported to Agricorp;
• Payments are made based on the individual's actual acreage planted to the specific commodity in the program year as reported to Agricorp;
• Payments when triggered for the first six-month period are made based on 50% of total projected production (using AFY) per commodity;
• Payments when triggered for the second six-month period are made based on the other 50% of total projected production (using AFY) per commodity.

The individual's average yield of the previous 10 years (after trending and/or buffering if applicable) is the individual's long-term average yield per commodity to be used in calculation of program payments.

RMP payments received by an individual producer count as a CAIS payment in the equivalent CAIS program year. The participant will receive and retain RMP payments when triggered regardless of whether a CAIS payment is eventually triggered in the equivalent program year or not.

If a CAIS payment is eventually triggered in the program year that is higher than the RMP payment already received, the producer will receive the incremental amount triggered under CAIS as well (ie. RMP payment + incremental CAIS = total CAIS payment). For clarity, there are five triggered payment scenarios:

• No RMP payment + no CAIS payment = no payment at all
• No RMP payment + CAIS payment = CAIS payment
• RMP payment + no CAIS payment = RMP payment
• RMP payment > CAIS payment = RMP payment
• RMP payment < CAIS payment = RMP + incremental CAIS

The participant will receive and retain the higher of the two payments. Savings to CAIS program expenditures generated by RMP payments (ie. RMP/CAIS "offsets") must be deposited by government into the Agricorp fund supporting this RMP program.

Premium surcharges apply for producers who do not complete a defined series of marketing and financial management courses within a proscribed period of time.

Payments triggered under this program are capped at $325,000 per enrolled entity per program year with a maximum of 3 entities (ie. total payment cap is $975,000 relating to one enterprise).

• Premium rebates will apply if a program participant "caps" out (ie. the ratio of capped payment versus triggered payment will be used to calculate the premium rebate).

Support prices are indexed annually using the previous year's Farm Input Price Index.

Support Prices
The following Table compares RMP's support prices with support prices for the old MRI (2004), ASRA (2004), and with cost of production.

MRI support prices are listed as they were for the 2004 crop at both the 90% level (ie. 90% of the Indexed Moving Average Price or IMAP) and 100% level.

ASRA support prices are based on cost of production. However, when using ASRA for comparisons, we need to convert Quebec support per acre per crop (ie. support price times yield) into Ontario equivalents by dividing total Quebec support per acre by the average of individual yields in Ontario. The result is that the "ASRA in Ontario" support price for corn and winter wheat drops as shown, while the support price for soybeans increases relative to the value in Quebec.

Cost of production estimates are from a study completed in 2001 using OMAF tax-filer data, MRI data, Crop Insurance data, and NISA data.

Comparison of Premium Costs
Producers will assess the RMP program by comparing premium costs with those in Quebec. The following Table gives that comparison using support per acre (since yields are different).

Note: Quebec ASRA support levels have been converted using Ontario yields in order to simplify comparisons.

The RMP method of calculating premiums (i.e. 30% of the difference between the support price and the long-term average price) appears to result in premium costs that are less than the premium cost in Quebec for equivalent support per acre. For example, Quebec's ASRA program, which is based on cost of production, provides $539.56/acre in support for corn at a premium cost of $0.40/bushel using Ontario's long-term average yield of 126.22 bu/acre. With our higher yields, the RMP provides equivalent support (in other words using Quebec's cost of production but our yields) for $0.25/bu at a support price of $4.25, which is roughly equivalent to Quebec's support of $4.28 using our yields. The RMP generates equivalent support per acre for less cost to the producer.

Cost to Government
The average total net cost to government for the years 2000/01 through 2004/05 had RMP been operational would have been $342.5 million assuming all participants select the highest price support option (range $454.6 million - $194.1 million). The total premium paid (assuming all participants select the highest price support option for all commodities) is $99.188 million annually.

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