Will tying eco-goals to risk management programs work?

The federal government recently confirmed that climate-focused environmental programming will be integrated into Canada’s farm Business Risk Management (BRM) programs. A research paper from the Canadian Agri-Food Policy Institute (CAPI) questions whether the strategy will achieve greenhouse gas reduction goals. 

Why it matters: Business Risk Management programs must be improved if cross-compliance with environmental programming is to have an impact.

The new five-year agricultural policy framework announced July 22 includes $500 million in funding aimed at achieving economic and environmental goals. Funds for climate resilience will be incorporated into BRM programming, while a review of risk management programs will be undertaken to improve delivery.

Lacklustre delivery and apparent lack of value in at least some programs (AgriStability, for example) is already a barrier to farmer participation in risk management programming, says Al Mussell, research director with CAPI and one of the authors of the think-tank’s paper “Challenges with Cross-Compliance and Agricultural Business Risk Management Programming in Canada.”

The main conclusion suggests pursuing multiple objectives with a single set of programs increases the risk that such programs will be ineffective. It also heightens the risk that governments will have to implement ad-hoc programs.

The report says cross-compliance provisions will cause producers to re-evaluate risk management program value, potentially resulting in lower participation if the cost-to-benefit ratio does not balance or reduce exposure to volatility and risk.

The loss-driven nature of BRM programs like AgriStability and AgriInsurance can be a problem as well, the report says. If payments for margin or production loss are expected to offset that original loss, as well as the implementation of best management practices, a producer’s ability to cope with the original loss is weakened.

There’s a moral hazard dimension, too, says the report. Some people may be incentivized to incur a loss and trigger a payment to cover the cost of compliance with environmental parameters.

Although BRM programs are set for review, Mussell says the amount available in programs such as AgriInvest must be sufficient to warrant investment. The current limit of $10,000 per year in government contributions is likely inadequate.

“A big part of this is retention. The reality is beneficial practices take money,” says Mussell.

On-farm extension – and everything else required to make compliance verification possible – must be efficient and effective.

Governments are generally not known for being good at that, says Mussell, and the need to maintain extension and administrative networks may further erode funding for BRM programs.

“The bottom line is, if you go cross-compliance to AgriInvest, the most you can lever is $10,000. If you go further into AgriStability or AgriInsurance, you’re going to have much more to consider. It’s kind of an all or nothing thing.”

The report says an alternative solution for environmental program delivery lies in targeted programs to match specific objectives to specific policies.

“It will likely be more efficient and effective, and deliver better environmental outcomes, if governments used targeted programs, potentially leveraging Environmental Farm Plans, to increase best management practices adoption.

“New programming should include additional funds and appropriate implementation resources…While the recent focus on changes to BRM programs has been on cross-compliance, there remains a need for further dialogue on how to improve the effectiveness of risk management tools,” says Mussell.