Market Revenue Insurance - How the Program Works

MARKET REVENUE INSURANCE
How the Program Works
by Terry Daynard, OCPA Executive Vice-President

The Ontario Market Revenue Insurance (MRI) program was introduced in 1991 as part of the national Gross Revenue Insurance (GRIP) program. Nearly a decade has passed since then, and many new farmers have joined. It’s time for a refresher on how MRI operates.

Unlike grain income stabilization programs which preceded MRI (which were based on amounts of grain during a given crop marketing year) the MRI support formula is based on the average amounts of grain produced per acre over a period of several years. Specifically, the amount of eligible crop (i.e., number of bushels or tonnes) is the product of 85 per cent x historic average farm crop yield x acres planted in the current crop year.

“Historic average farm crop yield” is as defined in crop insurance terms. It means:

The “underwritten” farm yield, for new farmers or participants, generally based on factors such as area average yields, farm soil type, local drainage and farm yield records where such exist; or
A combination of underwritten and actual farm yields, where farmers have been enroled in market revenue and/or crop insurance for one to four previous years (for each year of participation, the weighting for actual yields increases by one-fifth while weighting for underwritten yields decreases by a fifth); or
Actual farm yield records where the farmer has participated in crop insurance and/or market revenue insurance for five or more previous years (a maximum of 10 previous years is used in calculating “base” farm yields.)

Historic average yields are adjusted for two other factors. First is a yield-trend adjustment factor which is used to adjust previous yields upwards by the extent to which average Ontario yields have increased with time (typically, about 1-1.5 per cent per year). Another is a buffering factor which dampens the effects of exceptionally low or high yields on long-term averages. Yields which are 30 per cent more or less than the long-term averages are adjusted up or down by two-thirds of the difference between the actual yield and the 30 per cent buffer limit. For example, with an average farm yield of 125 bu /ac, a zero yield (crop failure) is adjusted upwards by the formula, 2/3 x 125 bu/ac x (100 per cent - 30 per cent), to 58.4 bu/ac.

The price support level under MRI is:

Eighty-five per cent of the 15-year historic average Ontario price for each insured crop commodity, adjusted for changes in the weighted-average cash costs of production, as measured or estimated by Statistics Canada’s Farm Input Price Index (FIPI) for Crop Production for Eastern Canada.

Ontario average corn price data are based on Ontario Corn Producers’ Association checkoff records, and on Statistics Canada survey data for years before the checkoff began. There is also a three-year delay in choosing the 15-year base period. For example, for the 1999/2000 MRI program, the years 1982/83 through 1996/97 are used in calculating the historic average base price. These prices are adjusted for changes in the FIPI and an estimate is made of the projected FIPI for the current crop year. Historic average prices for corn and FIPI values are shown in the accompanying table. The support price is then calculated as:

85 per cent x 15-year ‘FIPI-adjusted’ Ontario average price x Projected FIPI for current year.

The FIPI for crop production for Eastern Canada is based on a relatively complex weighted-averaging formula which includes measured or projected changes in various cash input costs including the cost of seed, pesticide,
fertilizer, fuel, operating interest, equipment repairs, telephone, labour, custom work, electricity and property taxes. The same FIPI is used for all crops.

MRI payments in a given crop year are calculated as:

66.7 per cent x (Ontario crop-year average price - MRI support price) x Bushels (tonnes) of eligible crop.

The two-thirds (66.7 per cent) factor reflects a historic process by which producers have paid one-third of premium costs. (In this case, the one-third is deducted from payouts.) However, this deduction is under review because of the absence of premium costs or deductions for other income support programs such as U.S. Loan Deficiency Payments and the Canadian Agricultural Income Disaster Assistance (AIDA) program.

Consideration is also being given to the appropriateness of the 85 per cent factor used in MRI calculations, given the much higher level of public support being provided for competing U.S. farmers.