Index
Market Revenue Insurance (MRI)
Distribution of the residual $88 million in MRI funds (ie. after 2003 MRI payments of about $6 million) took place in late March. Payments were based on 2004 acreage per commodity reported by individual participants, individual long-term average yields, and Agriculture and Agri-Food Canada price projections for the 2004/05 crop year as of late January. Payments were calculated based on 90% of long-term average yield and 90% of the difference between the Indexed Moving Average Price and AAFC's price projections, but pro-rated to match the remaining MRI funds after distribution of the 2003 payments. Payment rates per commodity were as follows:
Corn $0.21834/bushel, Soybeans $0.52504/bu, Winter Wheat $0.09698/bu, Spring Wheat $0.08452/bu, Spring Grain $0.00294/lb, Canola $0.00824/lb, Coloured Beans $0.00933/lb. AGRICORP reports that 13,532 checks based on corn were distributed totaling $41.646 million.
It is worth noting that the original MRI fund of $94 million (before 2003 payments) consisted of about $27 million in residual producer premiums from the old GRIP days, about $44 million in federal government contributions, and the balance was provincial government contributions.
Replacement Program for Market Revenue Insurance
MRI was a commodity specific income support program that was triggered by decline in price. As such, it offset to some degree the injurious impact of U.S. farm subsidies concentrated in the grain and oilseed sector. A primary objective of the OCPA is to extend such commodity specific, price triggered, income support for as long as U.S. subsidies artificially depress prices received by Ontario producers.
However, the provincial government is not willing to continue to fund such a program by itself. OMAF insists that any replacement program for MRI must be a joint federal-provincial initiative meaning it must be adopted nationally. This means, according to OMAF, that a replacement program for MRI (whatever it may eventually look like) must either be incorporated into the Canadian Agricultural Income Stabilization Program (CAISP) or into Production Insurance (PI) under the APF/BRM Implementation Agreement signed by Ontario and Canada in December 2003.
The problem is that neither level of government wants such income support programs. Commodity specific programs triggered by price, such as MRI, are viewed by both levels of government as not in compliance with WTO, as production distorting (thus supposedly exposing Canadian agricultural sectors to countervail action), and as too costly and unpredictable (thus very hard for Treasury departments to budget). Both levels of government claim that such price triggered commodity specific income support programs are difficult to fit into the WTO's "green box" definition, about the only categorization of support for agriculture that governments in Canada appear willing to continue.
Given government reluctance as detailed above, getting a replacement program for MRI is going to be difficult whether it is part of CAISP or PI or a stand-alone program. Regardless, OCPA has been working with other grain and oilseed groups and with OMAF exploring options for a replacement program for MRI. OCPA's main objective is to use cost of production to determine the support price. We presented our ideas for replacing MRI including simply extending the old program with modifications on determination of support price (ie. cost of production). We continue to push for a commodity specific, triggered by price, cost of production based income support program because that is how both Quebec and the U.S. provide support for their grain and oilseed producers. Ontario must as well. OMAF's argument that such a program must be cost-shared with Ottawa (implying such a program must first be adopted nationally) is a major hurdle to overcome. It is interesting to note that such a requirement has not stopped Quebec from offering cost of production based support to grain and oilseed producers in that province. Certainly hasn't prohibited such support in the U.S. either.
As part of the Ontario Agricultural Commodity Council (OACC), OCPA participated in discussions on distribution of the $173 million (60% federal funding, 40% provincial funding) earmarked under the APF/BRM agreement for distribution over the first three years of the APF. This funding, referred to as "wedge funding", is meant to transition Ontario agriculture from the previous safety net environment (which included funding for companion programs such as MRI, Self-Directed Risk Management (SDRM), etc.) into the new safety net environment where only CAIS and PI will be funded by governments. The three-year "wedge" period covers the 2003, 2004, and 2005 crops and ends March 31, 2006.
OMAF announced details on the distribution of "wedge funding" as follows:
Canadian Agriculture Income Stabilization Program (CAIS)
In mid-March, producers began receiving a letter from AGRICORP (CAIS administration in Ontario) that included the 2004 CAIS Application Form, the Production Summary (Schedule 1), and the Inventory, Accounts Receivable and Accounts Payable (Schedule 2). The letter advised participants to complete and submit the 2004 Application Form and Schedules 1 and 2 to AGRICORP by May 31, 2005.
Canada Revenue Agency's T1163 form
reporting farming income for tax purposes must be submitted by June 15 (if reporting
as an individual) or by June 30 (if reporting as a corporation). The letter
also advised CAIS participants that since no decision had been made yet on the
producer deposit requirement for 2005 CAIS, the deadline of March 31, 2005 had
been extended. Further details would be shared by mail and posted on the AGRICORP
web site, www.agricorp.com.
Grain Financial Protection Program
OCPA received notification that the Norfolk Co-operative Company Limited received court protection from creditors on February 22, 2005. The Ontario Superior Court of Justice appointed KPMG Inc. to oversee the co-operative's restructuring efforts. While under court protection, Norfolk Co-operative will continue "business as usual", and plans to participate in a new business with GROWMARK, Inc. Subject to court approval, this new business will continue to provide goods and services to members. Grain in storage in Norfolk Co-operative elevators remains protected under the Grain Financial Protection Program, and is held under the terms of the Orford Co-operative Grain Dealers' License.
Ontario Grain & Oilseed Group's "Looking Ahead" Document
OCPA, in conjunctions with the six other Ontario grain and oilseed commodity groups, has been working to achieve 3 goals as outlined in the following brief presented to Minister Peters, Rural Caucus, Cabinet Ministers, and Premier McGuinty.
Looking ahead to the 2005/06 crops and beyond, our sector realizes we are in a desperate cost/price and cashflow squeeze. Forward contract prices for delivery in fall of 2005 and into the winter of 2006 are disastrously low, at 25-year lows for corn and soybeans, and far below cost of production for all field crops. There is not one field crop that a commercial farmer could plant in 2005 that will pencil a profit at expected prices. We therefore are asking for your support of our short, medium, and long-term strategy for our grain and oilseed sector.
Short-term:
$300 m immediate cash infusion to get 2005 crops planted. The problem is timing. Payments for the 2004 CAISP program year will not be received until about October 2005 - March 2006. OMAF's own estimates project only $66 m for field crop producers in 2004 CAISP payments versus $31 m in projected 2003 CAISP payments (however, only $13 m has actually been paid out so far as of February 4 latest OMAF update). This could be an average of less than $6,000 per payment for 2004 CAISP and less than half of CAISP participants will likely trigger a payment.
OMAF Crop Budgeting worksheets for 2005 (which use only selected operating expenses) show that total costs (when allowance for rent, labour, land ownership, financing, other expenses, etc. of only $100/acre is included) are very close to 100% of the Indexed Moving Average Price (IMAP) adjusted for Farm Input Price Index (FIPI). For example, corn total cost of production is about 102% of this 100% FIPI indexed IMAP, soybeans and wheat total cost of production are each about 95%. Therefore, 100% of the old IMAP for 2005 is currently close to cost of production for 2005 crops. At 100% of IMAP and 100% of long-term average yield (LAY) and using current forward contract prices for 2005 (wheat $3.51/bu, soybeans $6.04, corn $2.70), the old expired MRI program would have generated $705 million in payments for the 2005/06 crop year for the G&O sector as a whole.
100% of IMAP and 100% of LAY minus the 1/3 holdback under the old expired MRI program (as a means to recognize the $172 m withdrawn from G&O NISA accounts in 2004, and the $160 m still available in G&O NISA accounts for 2005 and beyond) would have generated $465 million in total payments for 2005/06 crops using current forward contract prices for 2005/06 crops.
Subtracting the projected $66 m in projected 2004 CAISP payments (as above) to be received during the 2005/06 crop year, and subtracting the $85 m in dispersal of the MRI fund hopefully to be received around planting time leaves a shortfall of $314 million. Remember, this only covers cost of production for 2005/06 crops! This demonstrates clearly how low prices have fallen for 2005 and unfortunately likely also 2006 crops.
100% IMAP, LAY = $705
million (roughly equivalent to COP 2005 crops)
minus 1/3 holdback = $240 m (consider equivalent to NISA withdrawals)
equals = $465 m
minus 2004 CAISP = $ 66 m (OMAF projection to receive in 2005)
minus residual MRI = $ 85 m (OMAF projection to receive in 2005)
equals = $314 million shortfall
We are asking for an immediate cash infusion of $300 million to make up this shortfall in revenues for the 2005 crops even after allowance is made for 2004 CAISP payments, dispersal of residual MRI funds, and NISA fund withdrawals in the G&O sector.
Medium-term:
An adequately funded, effective replacement program for MRI. Only an adequately funded, commodity-specific program that is triggered by price can respond quickly enough to handle situations such as the unprecedented collapse in forward contract offers for 2005 crops. For this reason, we are asking for an adequately funded, effective replacement program for MRI.
Price collapses as we are experiencing are more commonplace in our sector than any other, and last for much longer periods of time. The reason is that only our sector is forced to operate in a business environment where our prices are artificially depressed for years on end by the impact of the U.S. Farm Bill. As the WTO Court found, U.S. subsidies cause "severe price depression" and "market price prejudice". However, both our immediate competitors (the U.S. and Quebec) continue to expand production (i.e. corn acreage in both Michigan and Quebec has increased every year for the last five years, while corn acreage in Ontario has declined every year for the same five years despite market prices and costs of production being very similar) because their agricultural support programs insulate them against the injurious impacts of U.S. subsidies.
This insulating ability comes because their support programs are commodity specific and triggered by price as well as obviously being adequately funded. Only the Ontario grain and oilseed sector is forced to combat this unfair business environment unaided. Even the George Morris Centre study on the effectiveness of CAISP admitted that CAISP would do nothing to support income in the face of such trade injury. Only a commodity-specific MRI-like program triggered by price stands any chance of helping to combat such injury. Without it, our sector has a bleak future.
As a further note, even if an adequately funded, commodity specific, price triggered, and effective replacement program for MRI were introduced for the 2005/06 crop year (ie. commences September 2005, ends August 2006), payments would not be forthcoming until late fall 2006!
Long-term:
Refinements to CAISP to make it more effective. As current and projected CAISP payments to our sector clearly prove, not only in Ontario but across Canada, refinements are needed. Without going into detail on the whole list of refinements needed including elimination of the deposit requirement, one prime concern is the methodology used to value inventory.
The current system does not recognize the decline in the value of inventory until sold. In other words, it is a cash-based inventory valuation methodology. Because our sector characteristically carries over a significant proportion of production from one program year into the next, all that does for our sector in particular is to push off any assistance for at least 12-14 months.
Our proposal is to incorporate true accrual accounting methodology. The quantity and value of inventory on hand January 1 minus the quantity and value of inventory on hand December 31 should be the change in inventory to be applied against program year financial results. This recognizes the loss (or gain) accrued against the crop in storage and applies them against the expenses accrued to produce that same crop. That is true accrual accounting. The net effect is to move assistance up (assuming a claim position) into the program year (ie. the year of crop production) rather than postpone until the following program year. Assistance is moved up by 12-14 months. Getting the most money to farmers as fast as possible should be the goal." .
Western Farm Organizations Seek Aid
The income crisis facing Ontario grain and oilseed farmers is not unique. Agriweek carried the following article in mid-March. Three general-membership farm organizations in western Canada (Keystone Agricultural Producers in Manitoba, Agricultural Producers Association of Saskatchewan, Wild Rose Agricultural Producers in Alberta) prepared a position paper in late February entitled "The State of Agriculture in the Prairies". The paper has been circulated to all levels of government. The paper documents the desperate situation of prairie farmers and the $2.3 billion in financial assistance needed to compensate for an exceptionally adverse combination of events.
"The string of events is well known. Farm prices, with the exception of hogs, are at long-time lows. Crop prices are further being reduced by the high dollar exchange rate, American and European subsidies, and high ocean shipping costs for export grain. The last few crop seasons have brought one disaster after another, including drought, grasshoppers and frost. Much of the 2004 harvest is of such low quality that there is no market for it."
"Annual average farm net income on the prairies between 2002 and 2004 was $6,700 per farm. Program such as crop insurance and CAIS are inadequate to deal with drastic production and income drops. Farm lenders are getting nervous. Production costs, especially energy and petroleum-derived inputs, are soaring. Doing nothing is not an option."
The groups presented the paper to Agriculture Minster Andy Mitchell and requested emergency aid or $2.3 billion on the prairies alone in excess of established program funding.
Canadian Federation of Agriculture meets with Minister of Finance
On Tuesday March 8, members of the CFA Executive met with Minister of Finance Goodale to discuss the severity of the farm income crisis facing Canadian producers and present a call for immediate action. The CFA presented their document "Measuring the Level of Need" which highlighted the level of hurt in agriculture "particularly in the grains and oilseeds and ruminant sectors". The document also highlights the increase in costs, the decline in incomes, and the escalation in the level of farm debt.
The CFA document compares Realized Net Farm Income of the last 3 years against the previous 10 years. The annual deficiency to return to historical average is $1.9 billion, or a total deficiency to return the past three years to historical average of $5.7 billion. The numbers include sectors that are doing reasonably well (supply management) that if removed from the data, Realized Net Farm Income would be much lower.
Minister Goodale said he had taken note of the urgency regarding the income crisis in the grains and oilseeds sector and "will have to think very carefully where we have the flexibility within the fiscal framework to help." CFA stressed that any assistance cannot be a CAISP offset (ie. a CAISP advance payment) as that will not address the problem.
U.S. Senate Rejects Major Cuts to Farm Program Payments
On Friday, March 11, the U.S. Senate Budget Committee by a 15-7 vote adopted an amendment expressing the sense of the Senate that mandatory savings in agriculture programs should be found primarily via changes to farm program payment caps. However, the amendment is not binding and the Ag Committee appears opposed to changing the payment limit formula. Other reports from Washington suggest that senior Republicans in both the House and the Senate, while open to small reductions in farm subsidies, are adamantly opposed to the cuts (5%) proposed by President Bush in his budget submission aimed at reducing federal deficits.
NAFTA Panel Orders U.S. Department of Commerce to Reconsider Wheat Duties
A NAFTA panel on March 11 ordered the U.S. Department of Commerce (DOC) to reconsider duties on spring wheat imports from Canada. The panel gives the U.S. 90 days to come up with a new determination on countervailing duties related to Canadian Wheat board financial guarantees, which now account for 4.94% of the overall 14.15% tariff on imports of Canadian hard red spring wheat to the U.S. The panel rejected DOC's treatment of the 3 guarantees (initial payment guarantee, rail car supply and movement, freight revenue cap) as a single program and is requiring each guarantee to be separately evaluated. The CWB has appealed the overall tariff through a separate NAFTA panel, which held hearings in Washington March 9. The panel reaffirmed the DOC decision to assess a 0.35% duty resulting from government of railcars, an issue that the government of Canada, Saskatchewan and Alberta had appealed. For the entire duty to be dismissed, the benefit calculated from all alleged subsidies must be less than 1%.
U.S. Department of Commerce Keeps Tariff on Canadian Hogs
In a decision announced March 7, the U.S. Department of Commerce issued an affirmative determination in the antidumping investigation against imports of Canadian hogs. The decision was based on a finding that "producers/exporters have sold live swine from Canada into the U.S. market at less than fair value, with margins ranging from 0.53% (de minimis) to 18.87%. The average rate is 10.63% (12.68% against sales by Ontario Pork)." In at least a partial win for Canada, the decision also announced that "in the countervailing duty investigation, we found that countervailable subsidies are not being provided to producers or exporters of live swine from Canada." The case is not over yet because there is still a final determination to be made on injury by the U.S. International Trade Commission in April.
In early March, the European Union summed the state of WTO negotiations this way. "2005 will be a defining year for the Doha Round of international trade talks and the multilateral trading system. The mini-Ministerial Meeting in Mombassa on March 3-4 gave important impetus to the negotiations by re-balancing them across the board and identifying precise steps to accelerate the negotiations. That ministerial was one of a series of way-marking meetings aimed at providing political guidance to the negotiations as we move to the 6th WTO Ministerial in Hong Kong in December 2005. With a successful Doha Round dependent on broad agreement in all sectors, including the Round's vital development goals, the next ten months will be crucial."
Compare that assessment to this
statement from the Australian Bureau of Agriculture. "New loopholes are being
developed by WTO negotiators which will allow the U.S., EU, and other protectionist
countries to increase farm subsidies. Releasing the report "WTO Agreement on
Agriculture: The Blue Box in the 2004 Negotiating Framework", Executive Director
Br. Brian Fisher said, "unless further controls are agreed, the door is open
to expand farm payments in many protectionist countries." (Refer to our January
editorial)
U.S.-based National Starch & Chemical closed its Nacan corn wet milling facility in Collingwood at the end of November 2004 shutting down a processor for about 3.5 million bushels of grain corn (approximately 2 m yellow dent; 1.5 m waxy corn). The closure is of concern also because Nacan was the only processor of waxy corn in the province. Waxy corn provided a 35-60 cent/bushel premium to contracting growers. The OCPA is part of a team with Nacan, the Municipality of Collingwood, OMAF, other Ministries, several provincial and federal politicians, and others to develop options for the continuation of the facility. A potential buyer has emerged, Power Stream Energy out of Toronto, who has signed a Letter of Intent to purchase and re-tool the plant into a fuel ethanol facility producing about 51 million litres annually grinding 5 million bushels of corn. The OCPA sponsored an January application by Power Stream/Nacan to the CanAdvance program for financial assistance to complete detailed engineering evaluations assessing the conversion and co-generation capabilities of the facility. We anticipate that the Power Stream/Nacan ethanol facility could be the first new ethanol plant to begin production under the province's Renewable Fuel Standard announced in the fall of 2004.
Ethanol Expansion Program Phases 1 & 2
In August 2003, the Federal government announced $1 billion in investments to implement a portion of the Climate Change Plan for Canada. The Ethanol Expansion Program is a $100 million component of the overall announcement and consists of two phases: $78 m awarded under Phase 1 in February 2004 to 7 projects (including $22m to the Suncor Energy Products Inc 200 m litre project at Sarnia, and $10.5m to the Seaway Grain Processors Inc 68 m litre project at Cornwall); the balance of $22 million is to be awarded under Phase 2. Phase 2 applications closed February 22, 2005 with no announcements of awards yet.
To our knowledge, Seaway and Suncor are the only two Ontario projects to have submitted all required documentation under Phase 1, and both projects are currently finalizing environmental Certificates of Approval, the last step before turning sod. Virtually all the other projects under Phase 1 may have already defaulted except the 130 million litre Husky Oil facility at Lloydminster Saskatchewan which has fallen behind schedule. In order to secure assistance under Phase 1, projects must commence construction by April 22, 2005. However, both Seaway and Suncor are awaiting clarification of the RFS and incentive package by the Ontario government.
OCPA believes the federal government should ensure that additional funding (i.e. the balance of the original $100 m not utilized under Phase 1 and any funds not utilized under Phase 2) should be made available for new applicants under a Phase 3 and a Phase 4. The program is a necessary stimulus to get new ethanol projects operational. OCPA believes it should be continued.
OCPA is hopeful that the Integrated Grain Processors Co-operative's 120 m litre project at Brantford is in a position to benefit from Phase 2, as well as the Power Stream/Nacan 51 million litre ethanol conversion project at the old Nacan Collingwood corn wet milling facility (referred to above).
The OCPA clarified it's position on bioproducts (ie. new products made from corn or corn derivatives) at its December Board meeting. The policy statement reads "That OCPA supports bio-economy initiatives that provide direct financial benefits to corn producers." There are a multitude of new uses, new products, and new opportunities emerging for corn thanks to greatly intensified research and development initiatives (primarily in the U.S.). But of what value is this to the Ontario corn producer?
A very great many of these developments do not involve grain corn as the starting point, but start with corn derivatives such as glucose, dextrose, starch, HFCS, ethanol, distillers grains, etc. Expansion of these new products may, or may not, result in expanded demand for grain corn. The JBL citric acid plant constructed adjacent to, and supplied dextrose by, the Port Colborne Casco wet mill is an example of a new use that did not expand demand for grain corn. The Casco facility grinds the same volume of corn as it did previously.
Moreover, Ontario is a net importer of grain corn and has been for fifteen years or more. This means we are at or near the "import price ceiling" and have been for a long time. The import price ceiling would appear to be generally insufficient to expand domestic corn production in Ontario because corn acreage has been declining for at least the last five years. In this situation, simply expanding demand means only that more corn will be imported because new demand cannot increase price beyond the import price ceiling, a point we are already at and a price level apparently insufficient to entice more domestic corn production. Therefore, new products that may or may not simply increase demand for grain corn and where the economic benefit accrues to the secondary or tertiary processor, not the corn producer, are of limited economic benefit to Ontario corn producers.
Price cannot increase simply by expanding demand in Ontario. Therefore, only those bioproducts that require specific traits in the grain corn and confer a premium to the corn producer for production of corn with those specific traits are of economic benefit to Ontario corn producers. The clarification of the OCPA's policy on bioproducts reflects that thinking. The OCPA will support those bio-economy initiatives that provide direct financial benefits to corn producers.
Bruce Wilson joined the Grain Growers of Canada as the Executive Director. He has experience in trade negotiations as a Canadian foreign service officer and at Agriculture Canada; as a supplier of grains to Mexican customers in private business; as the head of Ontario trade and investment development offices in Eastern Ontario, Chicago and Boston (which included food); and as the CEO of large USA-Canada trade associations in corporate strategy, economic (rural) development, executive recruitment and real estate. There has been emphasis on policy development and government relations throughout his career. We look forward to working with Bruce.
Joanne Buell, OCPA's Office Manager, will be leaving OCPA, March 25.The directors and staff of OCPA thank Joanne for the 14 years of service she has provided and we extend best wishes to her as she pursues a new opportunity with the Ontario Agri Business Association. We
are pleased to welcome two new staff members to the OCPA team. Kimberly Denommee
has assumed the Database Management Clerk position.This position is responsible
primarily for managing the producer records, sales records and check-off information.
Cathy Lysnes will join OCPA as the Financial Officer. Cathy will assume bookkeeping
and accounting duties and provide administrative support.
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