• Safety Nets Update
  
• Lindane Seed Treatments
  
• APF - the ‘Other’ Pillars
  
• OCPA Meets with Ontario’s Commissioner of Alternative Energy
  
• WTO Negotiations
  
• GGC Update
  
• Effectiveness of Proposed Programs
  
• Affordability of the Proposed Programs
  
• Trade Concerns With the Proposed Programs
  
• Corn Prices - February 13, 2003
  

Safety Nets Update
Provincial Ministers of Agriculture met with Federal Minister of Agriculture and Agri-Food Lyle Vanclief at the end of January to review progress on the Agricultural Policy Framework (APF). A subsequent communique outlined key areas of agreement (with the notable exception of Quebec):

• Ministers have agreed, in principle, to the concept of a 3-tiered new NISA program.
• Ministers have agreed that new programs will be implemented April 1, 2003.
• Ministers have agreed there will be a significant transition period.

At the meeting, Minister Vanclief repeated his position that it is not possible to delay implementation of the new programs without putting access to federal funding in jeopardy. More explicitly, the Federal Minister indicated that money will be lost if provinces do not sign on to the APF (Ontario already has) and do not sign implementation agreements by March 31, 2003 (Ontario has not...yet). As Laurent Pellerin of Quebec’s UPA summarized in an eloquent editorial in La terre de chez nous February 6, this ‘bulldozer approach’ of the federal government is unreasonable to the provinces and especially to farmers.

Agriculture & Agri-Food Canada (AAFC) warnings that funding will be withdrawn if the deal isn’t completed by March 31 constitute an unreasonable approach to negotiation and have created a great deal of frustration among Canadian farmers, who are simply asking for the details.

OCPA is encouraged by an important new clause within the communique and apparent agreement. Funding is retroactive to April 1, 2003 should final signing of the implementation agreement occur after that date. Our sense of encouragement stems not from support for the APF as proposed (we are not supportive of what little we can see and assess), but from the fact that this clause (negotiated into the communique by Ontario) gives all parties time to more properly assess the agreement. And time is needed. As many farm organizations have stated, delaying APF implementation for a year is not only politically advisable, it is essential. OCPA does not support signing the APF under threat of funding withdrawal.

At a February 7 meeting of the National Safety Nets Advisory Committee, AAFC officials presented the same information given to Ministers the previous week. Essentially, what is proposed is a ‘whole-farm integrated stabilization and disaster mitigation program, with larger government role for disaster.’ All program submissions by farmers will be on an accrual accounting basis. Many details remain to be worked out, but the following is a brief outline of the proposal to date.

• 3 tiers of coverage when annual production margin falls below the average of the last 5 years with the high and low years dropped (Olympic average):
- where annual production margin is within 95%-85% of the farm’s average, governments pay 50% of losses on triggering
- where annual production margin is within 85%-70% of the farm’s average, governments pay 70% of losses on triggering
- where annual production margin is under 70% of the farm’s average, governments pay 85% of losses on triggering.

It is worthy of note that there are actually 4 tiers here: where annual production margin is within 95%-100% of the farm’s average, governments pay 0% and a producer absorbs 100% of the loss.

• Producers can decide their level of coverage to protect against a specific percentage drop in their annual production margin below their Olympic average. To access the desired level of protection, but only up to 95%, the producer would place on account the required share of matching funds. However, the minimum deposit required is equivalent to coverage at the 70% loss level (disaster level). Affordability is a key concern:
- at full coverage (i.e., 95%), $3-$4 billion in after-tax farm money will be required to be on deposit across Canada
- this level of deposit is similar to the current NISA account balance, but the size of this NISA balance was one of the key concerns that prompted governments to initiate change.

AAFC claims to have addressed this issue by requiring farmers to put up only 1/3 of the deposit required to cover the disaster portion in the first year. But this 1/3 must be increased to 100% by the end of 3 years, and farmers will require 100% of the deposit on account to access any funds in the event that the program triggers a payment.

• Production margin will be used both to calculate deposit requirements and trigger payments. Production margin is the difference between gross revenue (farm sales, crop insurance payments received, and custom work income) minus direct production input costs (feed, seed, fertilizer, hired labour, etc.; exclusive of ‘discretionary’ expenses such as family labour, machinery repairs, machinery licences, machinery insurance, etc.). Production margin is roughly double the gross margin used by the existing NISA (as a percentage of sales).

- both levels of government claim this larger margin will virtually eliminate the existing situation where negative margins are not covered because virtually no farm will have a negative production margin. (Not surprising since many legitimate expenses are being excluded.)

OCPA has serious concerns about the production margin concept as proposed:• Machinery repairs, insurances and licenses are not something a corn producer can ignore. They are essential for the efficient operation of any grain and oilseed enterprise. Under the production margin concept, governments regard these expenses as open to abuse by farmers, especially in cash accounting. Governments are concerned about the possibility of farmers being able to choose to make unnecessary expenditures, or to move expenditures from one reporting year to the next, and thereby trigger a payment.

• Because the production margin is approximately twice as large as gross margin, a much larger drop in revenue is required to trigger a payment. This fact is recognized by government itself, “the larger the margin is, as a percentage of sales, the greater the decline in sales needed to trigger a disaster payment.” The new NISA will be harder to trigger. It will be especially harder to trigger a disaster component payment (i.e., when annual production margin falls below 70% of the reference margin, the area where government portion of payments is the largest).

• Production margin provides far more support to business situations where revenue declines are sudden, sharp and severe followed by significant, sharp recoveries. This is NOT the situation in the grain and oilseed sector where the problem is one of sustained, substantial, long-term erosion of revenue and net income as a result of U.S. ag policy. In our case, production margin will work against increased support for grain and oilseed farms.

However, OCPA maintains there is one over-riding shortcoming of the new NISA as proposed. There is absolutely nothing in the new program to address the chronic, long-term, detrimental impact on price and income caused by foreign ag policy interference in the grain and oilseed sector. In the existing suite of safety net programs in Ontario, that role was at least partially filled by Market Revenue Insurance. This damage caused by artificially depressed prices has been offset to some extent in each of the last three crop years (OCPA is counting Transition Year 2 as applying to the 2002/03 crop) by additional federal and provincial funding of roughly $1 billion annually. This additional funding disappears under the APF as proposed. Annual funding for support programs in Canada under the APF will be reduced by about 37%. No matter how the new NISA is formulated, without the same level of funding as in each of the previous 3 years, support cannot possibly measure up.

Minister Vanclief categorically states, and by implication any provincial Minister who signs an implementation agreement agrees, that no federal money will flow to companion programs (such as Market Revenue) after the APF transition period. Minister Vanclief has on many occasions stated that the purpose of programs under the Business Risk Management pillar of the APF is to provide income stabilization, not income support. Does this mean it is your problem if your income is stabilized at zero for reasons beyond your ability to counteract? OCPA argues otherwise. The impact of trade policy is a federal responsibility, and it cannot continue to be ignored.

Lindane Seed Treatments
Unfortunately, there is little progress to report on this issue.

OCPA contacted PMRA numerous times in January to expedite a response to our December 5 letter which warned PMRA officials of the impending shortage of seed treatments for control of wireworm (see Dec. newsletter for a synopsis), and requested an extension of the manufacturers’ deadline so that enough DLC and DLPlus seed treatment for corn could be produced to supply the need for 2003. OCPA did not ask for extensions on deadlines for retail sales of these products or withdrawal from use by farmers (Dec. 2003 and Dec 2004, respectively), as it is clear these phase-out deadlines are non-negotiable. (We did emphasize that alternative products must be available, and expressed concern that these alternatives are likely to be much more costly and are also likely to be applied on larger acreages since treatment must be done at the seed corn processing plant, rather than via a drillbox application.)

In the final week of January, PMRA issued a response indicating:
• the needs of users were considered in setting the phase-out schedule for lindane
• the schedule was established in consultation with the registrants (manufacturers)
• Gaucho has been registered as a seed treatment for corn (the registration is for seed corn and sweet corn, not for field corn, an error which has been pointed out to PMRA)
• PMRA expects at least one other seed treatment to be registered by the end of the lindane phase-out period (i.e., Dec. 2004).

None of this addresses the problem faced by Ontario corn growers – that there are insufficient lindane seed treatments available to treat the normal amount of corn in 2003, and that no reasonable alternatives are available. (Force insecticide is registered for control of wireworm, but few farmers have the equipment for application of in-furrow insecticide.) Even if Gaucho received registration immediately, it is too late to get supplies in place and seed treated at the processing plants for the 2003 season, since much of the seed has already been bagged and shipped.

OCPA hastily convened a conference call with the manufacturers, who assured us that getting lindane imported, formulated, packaged and distributed in time for planting was possible, though challenging given the short time allotment.
OMAF reiterated the dilemma for corn growers to PMRA, and has since sent a letter outlining the issues and the need for an extension for manufacturing for the 2003 supplies.

PMRA’s Acting Chief Registrar has since assured OCPA staff that PMRA better understands our problem now, and recognizes that there is no alternative control product available. Although the Chief Registrar committed to asking Dr. Claire Franklin, PMRA Executive Director, to reconsider our request for an extension, he warned that a favourable decision might not be forthcoming. The phase-out deadlines apply to a broad array of lindane products across a number of crops, and extension for one might be interpreted as precedent for extension for others. (OCPA reiterated that this rationale does not negate the fact that corn growers will be without a viable control option for wireworm in 2003 under present conditions.)

As of mid-February, there has been no further word from PMRA.

APF - the ‘Other’ Pillars
As the April 1 implementation date for the APF (Agricultural Policy Framework) approaches, little consultation has occurred with Ontario farm groups on the non-Business Risk Management APF pillars, i.e., environment, science and innovation (research), food safety and renewal. (A very general outline of these pillars was provided in the January newsletter.)
A meeting for Ontario farm leaders was hosted by senior OMAF staff in late January, but this was primarily to update leaders on the status of plans and negotiations between the provincial and federal governments on the non-BRM pillars, rather than an opportunity for meaningful input from the farm groups. A number of programs, some existing and ongoing, others new, were suggested as the foundation for each of these other pillars.

Without the opportunity to fully discuss the proposals or their details, it is difficult to assess whether the programs under consideration will meet the needs or priorities of farmers as well as the two governments. It is also unclear whether the shared federal and provincial funding arrangement being negotiated will result in substantial increases in support for some existing programs and to what extent new programs (i.e., implementation of nutrient management regulations) may be supported under the federal/provincial agreement.

Clearly, we have more questions than answers at this time. And consultation time is running out quickly, as there is considerable pressure to have programs agreed on by April 1, the date on which the APF officially begins. Farmers need a voice at the table to ensure that the programs being funded under the APF are needed and advantageous.

OCPA Meets with Ontario’s Commissioner of Alternative Energy
On February 12, OCPA representatives met with Steven Gilchrist, Ontario’s newly appointed Commissioner of Alternative Energy. The purpose was to discuss opportunities for ethanol and other renewable biofuels to contribute to Ontario’s objectives for expanded use of renewable, alternative automotive fuels, reduced air pollution and mitigation of global warming concerns, while at the same time stimulating economic development, particularly in rural areas and small communities.

A portion of the brief to Mr. Gilchrist outlined facts that will be familiar to most Ontario Corn Producer readers:
• ethanol is a renewable, pollution and greenhouse gas reducing automotive fuel that has a positive energy balance on a full life cycle basis
• demand for this environmentally beneficial fuel is expanding (up 350% over the past four years)
• ethanol will provide significant advancement toward meeting the Kyoto climate change targets
• ethanol manufacturing plants provide substantial boosts in local economic activity, during both construction and ongoing operation, with significant spinoff benefits within the surrounding region
• higher demand, and therefore increased prices, for grain feedstocks bring benefits to the local farm economy
• currently, Ontario imports more than 100 million litres per year of ethanol in addition to the 173 million already produced in Ontario
• it makes far greater sense to establish the needed ethanol manufacturing capacity in Ontario, thereby capturing the associated economic and rural development benefits here, rather than importing ethanol and letting some other jurisdiction reap the benefits.
The main focus of the presentation brief and meeting with Mr. Gilchrist, however, was on several measures (as outlined below) that should be incorporated into an Ontario Renewable Fuels Policy, to build an Ontario business climate more conducive to entrepreneurial investment.
• Provide tax incentives, including continuing the current exemption for ethanol from the provincial gasoline (road) tax, as well as establishing additional incentives comparable to those proposed for encouraging alternative or renewable electricity generation, i.e., 10-year corporate income and 10-year property tax holidays for new ethanol (biofuels) manufacturing facilities; capital tax exemption and full corporate tax write-offs in the year of acquisition for purchase of assets used for manufacturing of ethanol (biofuels); full retail sales tax rebate for building materials used in ethanol (biofuels) manufacturing facilities.
• Continue to make the Ethanol Manufacturers’ Agreements available to each new ethanol manufacturing facility in Ontario on an individualized basis.
• Implement an economic development zones (tax incentive zones) program in conjunction with regional/municipal governments in rural Ontario, with strong emphasis on agri-food related developments, such as ethanol, biodiesel or biorefinery processing facilities.
• Develop a program to establish new venture capital (i.e., ‘agriculturally-sponsored’ funds, similar in concept to current labour-sponsored venture capital investment funds) for rural development ventures (such as ethanol, biorefineries, biodiesel, etc.), with preferential access for locally owned/operated facilities such as farmer or locally owned corporations/ cooperatives. Support for establishing refuelling stations for E-85 would be another example of where such funds could be put to good use.
• Expand support of research and development for ethanol, focusing on unique challenges/opportunities for the Ontario-based ethanol sector. Since the benefits of ethanol (biofuels, biochemicals, bioproducts) go far beyond agriculture, contributions from the environment, energy, economic development, rural affairs, and science and technology ministries should supplement the ethanol R&D fund currently under development by OMAF.

WTO Negotiations
In a mid-February meeting in Tokyo, trade and agricultural ministers from 25 countries met to discuss the state of WTO Doha Round negotiations. Facing a March 31 deadline to reach agreement on a blueprint for agricultural talks, Agriculture Committee chief Stuart Harbinson issued a draft reform plan that was an amalgam of proposals from WTO participants in order to prod discussions. The positions of various participants, especially the U.S., the EU, the Cairns groups of exporting nations (Canada is a Cairns member on some issues but not all), and the developing nations, are miles apart. Harbinson’s report was meant to choose areas of common ground and stimulate negotiations while not representing one position or another. The net result has been that the report has been vigorously attacked by all.

Of primary interest to OCPA are recommendations on the reform of domestic support. Harbinson suggests that ‘green box’ subsidies (i.e., those viewed as non-trade-distorting) should be maintained, with payments based on a fixed base period, but with strict limitations on additions and increased disciplines on usage. The EU wants to greatly expand the definition of green subsidies to include payments to farmers for environmental, animal welfare, rural development, food safety and traceability initiatives. ‘Blue box’ subsidies (i.e., partially trade-distorting support based on production-limiting programs used primarily by the EU) could be continued, but are capped and will be reduced by 50% over 5 years. The ‘amber box’ of trade-distorting subsidies (total Aggregate Measure of Support payments) would be decreased by 60% over 5 years for developed countries, and AMS for any one line item would be capped at the average for the product for the period 1999-2001.

Of interest is that ‘green box’ criteria are modified:
• government support to offset income loss is permissible only for losses exceeding 30% of average gross income (or equivalent net income) using an Olympic 3-year average (last 5 years minus high and low)
• government payments cannot restore producer income to more than 70% of the reference income in the averaging period
• government payments relate to whole-farm income, not to type or volume of production, or to prices, or to factors of production
• government crop insurance programs are restricted to 70% coverage (i.e., only to losses exceeding 30% of average production).

Of interest to OCPA is that the new NISA and Production Insurance programs as proposed under the federal government’s APF would not appear to qualify as ‘green’, but rather would be viewed as ‘amber’. Therefore, support under these new APF programs could not exceed 40% of present levels. Moreover, in

GGC Update
Business risk management and international trade negotiations have dominated recent efforts for the Grain Growers of Canada (GGC). Both issues face a March 31 deadline, when new business risk management proposals are to be in place and development is complete for ‘modalities’ - methods by which export subsidies, tariff barriers and domestic support will be reduced.

There are still unresolved questions surrounding the effectiveness, affordability and trade acceptability of the new programs. It is important to note as well that the APF still includes no mechanism for mitigating the impact of foreign interference in the market.

Effectiveness of Proposed Programs
Farmers' endorsement of new business risk management programs requires that such programs provide comparable, or superior, support compared to the existing income safety net package. Proposals to date have not met this criterion.
GGC has real concerns that the coverage of the new programs will be inadequate for grains and oilseed producers. For example, current proposals would not cover losses from 100% to 95%. Over time, this will result in a significant erosion of coverage for the grains and oilseed sector.

Our industry has experienced a steady decline in prices. What happens if the grains and oilseed sector sees a 5% decline for five years in a row? Under current proposals, growers would receive no assistance from the new programs, yet at the end of five years they would have faced an almost 25% decline in income.

The insensitivity of the trigger in the new program is also of concern. The proposed production margin will make it more difficult to trigger the stabilization component. This is especially worrisome to the grains and oilseed sector, which has been impacted by continual declines in world prices.

Costs that will be excluded from the production margin calculation (e.g., machinery repairs) may also make it more difficult to trigger disaster assistance.

The combined impact could lead to significant reductions in coverage for grains and oilseed farmers. Farmers remain concerned that they will be paying more for reduced coverage.

Affordability of the Proposed Programs
The proposals that have been put forward by governments will require significant increases in after-tax contributions by farmers. If new programs are unaffordable, they will be ineffective.

Under current proposals, the total deposit required for full coverage is about $3 billion (in after-tax dollars).

Federal and provincial officials have proposed that, initially, farmers would be required to put up only 1/3 of the minimum deposit required. This proposal is welcomed. However, the total deposit would still be required after three years, and the minimum deposit would leave 30% of potential losses uncovered. This option would delay farmers’ costs, but it would not reduce them.

Many farmers may be unable to participate fully, or even in part, if such concerns remain unaddressed.

Trade Concerns With the Proposed Programs
Federal and provincial officials have indicated trade concerns have been addressed within the current proposals. GGC has serious reservations regarding the explanations offered.

Officials have indicated that they will be able to report part of the new NISA program as ‘green’ and part as ‘amber’. Whether components of a single program can be reported in such a split fashion has never been clarified at the WTO.
The question of what happens if Canada's new reporting method is successfully challenged has not been addressed. Given what is at stake for farmers, GGC questions the advisability of risking such a challenge.

Officials have also stated that the new NISA program will survive a countervail challenge by the U.S. We remain concerned that formally combining the stabilization and disaster components will simply create a bigger target for those in the U.S. who would benefit from impeding Canadian exports.

Furthermore, we are not assured that the new programs will survive a key U.S. countervail test, i.e., ‘Do the programs disproportionately deliver more money to one sector over another?’ For example, would the proposed new NISA program have survived the specificity test during the recent downturns in the hog industry?

What would be the impact on Canadian agricultural trade if a countervail challenge were made? What changes to the new program would be necessary if such a challenge was lost? These questions must be answered before we proceed with new programs.

The above figures are based on levies received by OCPA for commercial sales.