Measuring the Economic Impacts of the Ontario Risk Management Program

The Risk Management Program (RMP) is among the suite of business risk management (BRM) programs available to farmers in the Province of Ontario. It responds to the well identified need for producers to manage the risks associated with the volatility of market prices for agricultural commodities. The program is the result of a collaborative effort between industry representatives and the provincial government. The Ontario Agriculture Sustainability Coalition (OASC) represents the RMP eligible commodity producers from the Grain Farmers of Ontario, Beef Farmers of Ontario, Ontario Pork, Ontario Sheep Marketing Agency and Veal Farmers of Ontario.

 

RMP started as a pilot project in 2007 between the Grain Farmers of Ontario and the Ontario Ministry of Agriculture and Rural Affairs (OMAFRA). The full program, open to the five OASC commodity groups, was launched in 2011. In June 2015, OASC commissioned Harry Cummings and Associates to conduct an economic impact assessment of RMP. This assessment provides evidence to OASC on the impact that RMP has on individual operations, on farm production in Ontario and the consequent impacts of the program on the broader economy. The study includes farmer participation through surveys, interviews, focus groups and case studies, and validates these finding through secondary data available through a variety of industry studies, reports and statistics. The report explores provincial level economic impacts through input-output modelling for the Province of Ontario and a sensitivity analysis developed from primary and secondary data sources.

 

Primary agriculture is the foundation of the Province of Ontario’s food system. The 2015 Dollars and Sense report for Southern Ontario estimated the gross value of farm production, food processing and manufacturing at $53.7 billion. An OMAFRA study further estimates that total sales revenues from Ontario agriculture in primary, processing and retail activity accounted for $158.6 billion in 2011. RMP eligible commodities account for approximately 40% of this activity. Market prices for agricultural commodities are subject to wide volatility, with market prices for some agricultural commodities seeing prices peak at levels double those seen during market downturns. In addition to market volatility many producers find themselves competing with producers in neighbouring jurisdictions (such as Quebec and the US) and with supply managed commodities that receive program support at levels unavailable to RMP eligible producers. The Government of Ontario delivers a suite of business risk management programs available to Ontario farmers, including RMP, through the crown corporation Agricorp. Since 2005, gross government payments to Ontario farmers have decreased by more than 65%, while producer contributions in the form of premium payments have seen an increase.

 

RMP was specifically designed to address the risks and challenges faced by farmers with respect to market conditions that are beyond their control or influence. The program provides partial protection for producers against downturns in market prices. OASC and OMAFRA collaborated to design a program that meets producer needs and interests, in particular through the incorporation of cost of production in the calculation of target prices, the need for timely payments to support producers in times of financial need and the development of the industry managed Farmer’s Risk Management Premium Fund. Since 2013, the program has been restricted to a $100 million annual budget. In each year of the program, gross payments triggered by the program (including those made to the Self-Directed Risk Management Program) have been over or near $100 million. Since the introduction of the budget cap, OASC has advocated for a raise in the cap by $25 million per year over three years to enhance the program’s effectiveness.

 

A total of 217 producers and commodity representatives contributed to this assessment through surveys, interviews, focus groups and case studies. Survey respondents widely indicated that their farm operation had been supported by RMP. When asked what might have happened to their operation had RMP not been available, 62% of the respondents suggested that without RMP they would not be able to maintain current on-farm employment. Furthermore, 37% of producers suggested that without RMP they may have downsized their operation or left the industry. With respect to how RMP might support new farmers, 72% of respondents indicated that RMP was very important or extremely important for them when recommending new farmers to begin or to continue farming. Finally, producers indicated that RMP supported them in the adoption of better farming practices, including: biosecurity, livestock handling and feeding practices, field/crop management, computerization, and improvements to infrastructure/equipment.

 

Focus group participants and interviewees acknowledged that the collaboration amongst commodities and with OMAFRA/Agricorp that has been achieved through RMP has been positive and is a valuable contributor to the health of the sector. It was widely suggested that RMP is well designed to address the real risks and needs of producers. The risk associated with market price volatility is a significant threat to farm viability and the timely payments triggered by RMP are said to address this risk in a way that no other program or strategy does. Producers felt that the business risks they face are increased by the imbalance in the financial support provided through supply management and in other jurisdictions. The support provided by RMP was said to provide producers with a sense of confidence that allowed them to persist and in some cases to grow. It was noted that the risks faced by new farmers are higher than for established operations, making the program particularly important for new operations. Since the introduction of the $100 million program cap, it was widely indicated that confidence in the benefits of RMP has decreased (this sentiment was reiterated by case study participants).

 

Case study participants from both large operations (5000 acres) and smaller operations (150 acres) indicated that RMP was a beneficial program. Farmers reported a wide variety of expenditures ranging from large suppliers (i.e. feed, machinery and fertilizer) to local contractors and hardware stores. The vast majority of these expenditures were being made within Ontario. Case study participants reported using several different BRM strategies, but indicated that RMP addressed very specific risks in a way that other programs/strategies did not. RMP was said to be an important part of helping producers (especially livestock producers) establish guaranteed contracts with suppliers, processors and contract farms. Uncertainty of market prices would likely have compromised these relationships in the absence of the program. Case study participants also noted that RMP allowed them to operate in a more forward thinking fashion, allowing them to invest in on-farm maintenance, innovation and stewardship practices that might otherwise have been overlooked or postponed in tight financial times. 

 

The economic impact modelling in this study was based primarily upon data from Statistics Canada and OMAFRA, as well as the application of input-output economic modelling from the 2015 Dollars and Sense report. The modelling in this report uses two basic economic assessment approaches:

 

The Province of Ontario contributed an average of $59.5 million in net RMP payments annually to producers from the five OASC commodities from 2011 to 2014. As a result, farmer expenditures of RMP payments would be expected to contribute a total of $133.7 million in gross output (sales & economic activity) annually to the Ontario economy.

 

Farmers reported that confidence and stability provided by RMP has been invaluable for keeping farm operations viable. Without RMP it is reasonable to expect contractions in the economic activity and employment that are supported by RMP. A sensitivity analysis was used to determine the effect on the Ontario economy of a contraction in the expenditures of a portion of RMP enrolled producers. A modest 5% contraction in economic activity and employment of RMP enrolled producers would result in a loss of approximately $780 million in total sales revenue and 3250 jobs from the Ontario economy. A more significant 15% contraction by RMP producers would amount to a loss of over $2 billion in total sales revenues and nearly 10,000 jobs.

 

This assessment suggests that impacts of RMP on the Ontario economy go beyond the simple expenditure of the government payments by farmers. Farmers and commodity representatives have expressed that RMP has played an integral role in encouraging industry collaboration, on-farm business confidence, innovation/stewardship and sustainability. These impacts are important considerations for the stability the industry and of the program. The majority of producers in this study were fully supportive of the program and commodity leaders have acknowledged its benefits to producers, as well as to the future of the industry. Ensuring that the program is oriented and empowered to meet its stated objectives of predictability, bankability and sustainability have been identified as the priorities for producers to ensure that the full benefits of the program are realized.

 

Read the full report HERE.

 

Completion Date: 2015