VIDEO: Drought complicates business risk management
REGINA — The current business risk management programs must change if multi-year droughts continue, says the national risk management lead at Farm Management Canada.
Mathieu Lipari said the existing suite was designed as a safety net for shocks.
AgriStability, for example, wasn’t designed for prolonged water shortages. A drought of several years will cause lower reference margins.
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“The more your reference margin goes down, the lower your payments are going to be in future years, even if you do have an event that causes you to have a lower margin,” Lipari said during a Simpson Centre webinar on agricultural water risk.
Crop insurance during a drought pays out well at first, but then higher premiums follow, and a period of lower yields affects the long-term average and coverage, he said.
AgriRecovery, the framework that allows provinces to request assistance under exceptional circumstances, is not intended to cover an ongoing event.
“The more recurring it is, the less it sort of falls under that AgriRecovery umbrella,” Lipari said.
“So if it becomes more common to have droughts or more severe droughts or more prolonged droughts, then that will decrease the intervention of AgriRecovery.”
Why it Matters: Some regions have been dry for a number of years, including pockets that are nearly a decade into drought. BRM programs are under review as part of the usual agriculture policy framework cycle.
David Sauchyn, head of the Prairie Adaptation Research Collaborative at the University of Regina, said drought is a natural phenomenon.
“It’s not caused by climate change, but it’s occurring in a warming climate,” he said during the webinar.
The strongest evidence of that warming is showing up in night-time temperature data. For example, at Red Deer, Alta., the temperature at night has risen by more than four degrees in the past 100 years.
In Lloydminster, there have been only two winters since the 1990s when the night-time temperature average has been greater than -20 C.
Sauchyn said warmer winters mean less snow and and earlier melting of that snow.
“We are losing the advantage of our cold winter in terms of our major water supply, which is snow,” he said.
Accordingly, the growing season is getting longer.
However, the prospect of greater production from a longer season is tempered by the low yields and losses from drier conditions.
“Drought has and will always limit productivity on the Prairies,” he said, adding that the fact farmers report they are producing good crops despite both too much and too little moisture is because they have adapted farming practices.
Lipari said governments have attempted to adjust the programs to account for drought. AgriStability’s compensation rate has gone up from 70 to 90 per cent, at least partly in response to the issue.
In Alberta, the government updated its “normal” moisture levels for crop insurance to reflect the drier reality, and some provinces increased low-yield allowances so farmers could salvage crops for feed.
In dry 2021, crop insurance claims from yield losses totalled about $6 billion across Canada, mainly in Saskatchewan and Alberta. There were also payments from the other programs, which all added up to a big impact, he said.
“It does show that we have production insurance that was there to cover that type of drought, but in a one year event,” he said.
“This system is really built on the assumption that we have, once in a while, a severe drought.”
Lipari said the programs will fall short because of backward-looking pricing. Using historical data, during recurring drought, will diminish the ability of the programs to help, he said.
Structural drought will result in lower crop insurance coverage, higher premiums and a limited disaster response through AgriRecovery.
He said there has to be a balance between proactive and reactive risk management.
A report done by FMC and the Canadian Agri-Food Policy Institute last fall discussed this concept.
“The first line of defence in our mind is the farmer when it comes to these types of risks,” Lipari said.
“And as much as the BRM suite is important as a safety net, there’s a need to reduce some of the dependency on those reactive responses.”
Farmers will have to take adaptive measures in a drier pattern, but the programs could also be adapted to deal with the shift.
“I think the key here is that our main shift should be from paying after there’s been a loss to reducing the vulnerability,” said Lipari.
“It’s more about adapting and becoming more resilient, and that as well could become part of the BRM suite offered by our government.”
There could be incentives for water smart practices, and support to shift to more drought-resistant practices, he said. Sharing data to establish benchmarks will be necessary.
Source: producer.com