PROVINCIAL CROP INSURANCE SHOWS DISPARITY

Originally published on November 28, 2002

 

I came across a photo in The Western Producer a few weeks ago that got me thinking. At issue was the Canadian Wheat Board's monopoly of wheat and barley sales.

A farmer was photographed wielding a placard that stated there should be "Equal Rights for all Canadian Farmers."

While I do not intend to trivialize the debate over the wheat board's monopoly, the sign triggered thoughts that there is little equality in provincial crop insurance programs. Nor is there equality in how Mother Nature treats farmers.

Over the past month, many of us have received 2002 crop insurance proceeds and the first instalment of the $600 million in federal transition funding. In Saskatchewan, it has been hard not to be envious of the Manitoba harvest or the Alberta government's deep pockets.

Alberta's advantage lies in that government's continuation of the variable price option, or VPO, into 2002. In Saskatchewan and Manitoba, the provincial VPO was discontinued in 2001.

The VPO was implemented to give producers the chance to benefit from increases in market prices occurring after the fixed prices were set in December of the previous year.

As we know, the 2002 drought made the Alberta-only VPO a real plum for producers who selected the additional coverage.

According to James Wright of Alberta Crop Insurance, the VPO increased insured barley coverage by about 40 percent, canola coverage jumped about 20 percent, oats coverage rose about 45 percent and triticale increased by the VPO-capped maximum 50 percent. Wright said wheat did not increase because it did not go above the VPO minimum 10 percent hike.

To show the disparity in coverage, I have set up hypothetical 2,100 acre farms in Saskatchewan, Manitoba and Alberta. They each grow 700 acres of wheat, 350 acres of canola, 350 acres of oats and 700 acres of barley.

The three provincial crop insurance offices provided me with their 2002 commodity-insured averages and commodity-insured prices.

Table one illustrates the effects of the Alberta-only VPO. On this hypothetical farm, the Alberta VPO producer who had a total crop failure would get about 35 percent more than his Saskatchewan counterpart in the same situation.

Manitoba's edge lies in its historical average harvest yields. Over the past four years, Manitoba has not experienced the kind of droughts experienced by the other two provinces. For this reason it is easy to see why the 2002 Manitoba coverage is close to that of Alberta, even after including Alberta's VPO coverage.

 

 

      

      

On this hypothetical farm, we see that a Manitoba producer who harvested an average crop in the past but has crop failure this year would get about 30 percent more revenue than his Saskatchewan neighbours.

In reality, there have been few insurance claims in Manitoba.

There is speculation that Alberta will add a provincial top-up to the $600 million in transition funding that was deposited to farmers' Net Income Stabilization Accounts in October.

If this is the case, Saskatchewan farmers will have more reason to look longingly at the favourable treatment enjoyed by their Alberta neighbours.

 

Allyn Tastad, certified general accountant, is a partner in the accounting firm of Hounjet Tastad Harpham in Saskatoon at 306-653-5100, e-mail at allyn@hth-accountants.ca or website www.hth-accountants.ca. He is also involved in the family farm near Loreburn, Saskatchewan.  The opinions expressed in this column are for information only.