February 1999 Editorial - Ontario Corn Producer

IMPROVING MANAGEMENT

With this issue, we begin a series of articles aimed at improving financial and marketing management in the Canadian Agricultural Income Stabilization Program (CAISP) era. Looking forward into the 2005 crop year, lessons from 2004 for many Ontario corn producers are that:

Support available from government in time of need has been dramatically reduced. For confirmation, consider the termination of the Market Revenue Insurance (MRI) program. Consider also that support provided in the past through the Special Grains Program (in 2000), Transition Program Year 1 (2001), and Year 2 (2002), as well as MRI has not only been eliminated, but also been eliminated from your reference margin under CAISP. It was only through these additional programs that support for Ontario grain and oilseed farms came anywhere near equity with support equivalent to producers in the U.S. and Quebec in those years. By excluding those payments in your reference margin, you are by definition being supported at a level far below your competition.

Total support from the provincial government for the agri-food sector in Ontario in 2003/04 was only 94% of what it was in 1996/97, while Quebec was up 20% and provincial support in all of Canada was up 48%. The current provincial government's budget for 2004/05 further reduced support for the agri-food sector in Ontario. By comparison, support from the federal government in 2003/04 was almost double that provided in 1996/97 (granted, most of the increase was due to Crop Insurance and BSE payments).

What little support may be provided through CAISP is not forthcoming in a timely fashion, especially in comparison with the timeliness of support in adjoining competing jurisdictions. The nature of CAISP means that many Ontario producers are just now finding out that they will not be receiving a 2003 CAISP payment (despite what their application and accountant thought) and it is now late winter 2005. Producers in the U.S. and Quebec had received 2003 program payments long ago.
The OCPA has said from the beginning of the debate over the Business Risk Management (BRM) pillar of the Agricultural Policy Framework (APF) that the program proposed (now emerged as CAISP) was fatally flawed. The following are some points about the then proposed APF/BRM program that I made in the summer of 2002:

It ignored the artificial depression of grain and oilseed prices caused by U.S. subsidies and did nothing to offset that injury because the program merely stabilized participants at historic artificially depressed levels;
By eliminating consideration of income from Special Grains, Transition Years 1 and 2, and MRI that offset that injury from the reference margin, grain and oilseed producers are preferentially disadvantaged.
The requirement of a producer deposit was not an actual requirement for WTO compliance, tied up scarce producer capital needlessly, served only to give the appearance that a payout covered 100% of a loss, whereas government was actually only covering a maximum of 70% of a loss (balance from producer account), and was a ridiculous requirement, since a producer had to immediately replenish the deposit upon withdrawl.

All these still apply. Since that time, and especially given actual CAISP administrative details, the OCPA has more issues as we summarized at our 2005 regional meetings:

The program needs much greater transparency in calculations and formulae so that producer/accountant payment projections made upon application are "bankable" numbers, with a much higher probability of realization when payments (if any) are actually made.
The program must have a greatly improved audit trail such that producers and accountants can actually follow the paper trail of calculations used to determine a payment. The Calculation of Benefits form and the backup documentation available upon request is less than clear.
Inventory valuations used by CAISP administration should be posted monthly o An Ontario CAISP Policy Handbook needs to be published and updated frequently much as tax updates are circulated.
The appeal process needs to be clarified and clearly communicated. o The structural adjustment formula needs improvement.
Determination of reference margin using "Olympic" averaging distorts marketing management decisions.
The modified accrual accounting treatment of inventory valuation must be addressed immediately. The system distorts support provided by the program and also distorts marketing signals, especially when prices are below cost of production, which they are artificially for grains and oilseeds for years on end thanks to systemic pressure from U.S. subsidies.

We are left with a very imperfect CAISP. While the OCPA struggles to improve CAISP by correcting the many inherent design flaws, and to ensure the introduction of an adequate MRI replacement program, we need to also provide information to our membership on how to make the best of a difficult situation. Thus, we present the articles on financial and marketing management in this issue and issues to come. Another lesson from 2004 concerned marketing management. In hindsight, forward contract price offers available for the 2004 crop in early spring of 2004 required more attention from grain and oilseed producers. The article on marketing management begins to provide ways to improve your "comfort level" to forward sell more. That was also the subject of Mr. Roy Smith's Marketing Awareness seminars across Ontario in January 2005 which OCPA co-sponsored.
In this era of reduced support in Ontario, government is fond of telling us we must manage our businesses better. With the articles in this issue and issues to come, OCPA is trying to help you do just that. But, to be fair, we will be sharply increasing the pressure on government to also do much more. Government's continuing mantra of "no new money" is not acceptable. We look forward to working with government to do better as well .