Canadas Crop Insurance and Disaster Assistance Programs

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Canadas Crop Insurance and Disaster Assistance
Programs
Presented by Alan Asselstine E-mail
asselsa_at_agr.gc.ca
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GENERAL CROP INSURANCE OVERVIEW
Has been available for 40 years, operating in all
provinces for 25 years. Voluntary enrollment for
farmers. Protects crops against yield losses due
to all uncontrollable natural hazards. (
Drought, Frost, Excessive Moisture, Hail,
Uncontrollable Diseases and Insects) Production
guarantee program for each crop.
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GENERAL CROP INSURANCE OVERVIEW
Individual Yield Plans both insurance
coverage and loss adjustments based on
individuals experience. Group Risk (Collective)
Plans insurance coverage and claim
payment based on area results. Indexed Based
Programs coverage and claim payment based on
area results. payment schedule relates index
data to historical yields.

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GENERAL CROP INSURANCE OVERVIEW
Provincial governments (Insurance Agency)
responsible for program design and delivery. 10
Provincial Programs in Canada. Covers most
commercially-produced crops in all provinces (90
of the value of all crops grown in Canada are
insurable). 65 to 70 of crop acres grown are
insured. 50 to 55 of Canadian farmers are
insured. Average coverage level insured across
Canada 75
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GENERAL CROP INSURANCE OVERVIEW
Cost-shared tripartite program.
(Federal/Provincial/Farmer)
Premiums -- Governments 67
Farmers 33 Administration -- Federal and
provincial governments each pay
50 of administrative costs. Total Program
-- Governments 70 Farmers 30
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HOW CROP INSURANCE WORKS
Farmer selects crops and must insure all
acres. Guaranteed certain level of production,
based on farmers or areas projected yield per
acre. Begin with area average (no records) move
to individual farmers production history quickly.
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HOW CROP INSURANCE WORKS
Projected yield determined by moving average
(5-15 years) may include adjustments for trend
and buffering extreme (high/low) yields.
Farmers premium based on crop/area/individual
risk.
Farmer selects coverage level - usually 70 - 80
of farmers projected yield. (50, 70, 80, 85
and 90 also available)
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HOW CROP INSURANCE WORKS
Production Guarantee Projected Yield X
Coverage Level X Insured Acres
Production Shortfall Crops actual
production - production guarantee
Payment amount Production Shortfall X
Insured Price
Insured Price - based on a projected or
historical average of prices, costs
of production or replacement values.
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HOW CROP INSURANCE WORKS
Additional benefits are available and paid
separately hail spot loss perennial
plant coverage/ tree loss reseeding
unseeded /prevented planting emergency work
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GOVERNMENT / INDUSTRY INVOLVEMENT
Federal Government
Cost-shares premium and administration
costs National standards for Premium Rates,
Projected Yield, Insured Values, Level of
Coverage and Insurable Benefits Provides
deficit financing/reinsurance to provincial
governments
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GOVERNMENT / INDUSTRY INVOLVEMENT
Provincial Government / Insurance Agency

Cost-shares premium and administration
costs Program design and development Administrat
ion sales and marketing underwriting premium
collection, loss adjustment and claim payment
and appeal procedures
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GOVERNMENT / INDUSTRY INVOLVEMENT
Producer
Pays a portion of total premiums Respect terms
and conditions of insurance contract Provides an
input for program design and development
Board members of Insurance Agencies Producer
organizations suggest changes to Provincial
Agencies Provincial and National Program
Reviews/Evaluations
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GOVERNMENT / INDUSTRY INVOLVEMENT
Private Industry No private insurers involved in
program design or delivery of multi-peril crop
insurance. Private insurers provide spot loss,
hail and fire protection. Private
reinsurers provide protection to provincial
insurance agencies.
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LESSONS LEARNED - CROP INSURANCE

• Timely, targeted assistance -expensive to
  administer
• Works well for many crops, but not all
• More Acceptance when plans meet local needs
• Significant government premium subsidies needed
  to attract participation
• Producers will demand increasing levels of
  protection

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PROGRAM DESIGN INITIATIVES TO REDUCE
ADIMINISTRATION COSTS

• Index Based Pilot Programs
• - Corn Heat Units, Forage Rainfall, Vegetative
  Index
• Government Purchased Weather Derivative
• Acreage Loss Programs -Vegetables
• Collective or Group Risk Programs
• Weather and Growth Simulation Models- Forage
• Pre-funded Catastrophe Assistance with area
  payments based on Collective or Post Loss Indexes

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PROCEDURAL CHANGES TO REDUCE ADMINISTRATION COSTS

• More self declarations of yields
• Telephone call centers
• Geographical Information Systems (GIS) to assist
  in loss adjusting
• Global Positioning Satellites (GPS) to assist in
  measuring acres

Agriculture and Agri-Food Canada Agriculture et
Agroalimentaire Canada
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LESSONS LEARNED - CROP INSURANCE

• Use measured/verifiable yield data, start
  conservatively.
• Individualize yields and premium rates a.s.a.p.
• Ensure administrative procedures are applied
  consistently
• Verify assumptions a.s.a.p.

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NATIONAL CI STATISTICS
2001-02 2002-03
102,300 104,000 56.0 million
69.5 million 6,792
million 8,035 million 74
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66,400 77,200 628 million
730.6 million
31/31/33 28/32/40
1,016 million 2,000
million 87 million 88.0
million
Farmers Acres Insured Coverage Av. Cov. Level Av.
Cov./ Farm Total Premium Prem. Shares Fed/Prov/Pro
d Indemnities Admin. Costs
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AVERAGE CROP INSURNACE PROTECTION FOR 2001-02
Saskatchewan Ontario
Canada Average Coverage
Purchased 59,800 68,800
66,660 Average Level of Coverage
Purchased 69 85 74 Average Premium
Paid 1,970 1,800 2,030 Average Premium Rate
(total) 11 5.26 9.24 Farmers Percentage
Share of Total Premium 30 50 33 Average
Acreage Insured Per Farmer 753 207
550 Average Number of Crops/Contacts Insured
by Farmer 2.8 2.0 2.6
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FEDERAL PRODUCTION INSURANCE COST ESTIMATES
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Disaster Mitigation and Response Planning for
Canadian Agriculture
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IMPACTS OF DISASTER/CRISIS

• Asset damage and destruction
• Income or production loss
• Cash flow or cash management problems
• Each situation is different, however, these three
  elements can be involved in any disaster

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EXAMPLES OF CURRENT RESPONSES

• Asset
• Natural disaster financial assistance
• CFIA compensation for animals
• Tax deferrals for breeding stock
• Income and production
• Interim NISA and CFIP
• Unseeded acreage crop insurance
• Cash flow
• Advances even when crop was not harvested in the
  fall

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NATURAL DISASTER ASSISTANCE ROLES

• Local government declares a disaster
• Provincial government declares the area a
  disaster eligible for Provincial Disaster
  Assistance
• provides assistance to local governments,
  individuals and small businesses (including
  farms)
• Canadian government declares that the disaster is
  of national significance
• reimbursed the province for part of eligible
  disaster expenses under the DFAA

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DISASTER FINANCIAL ASISTANCE ARRANGEMENTS

• Eligible expenses
• extra ordinary costs to protect individuals and
  assets and to clean up after the disaster
• assets repair, replacement or re-construction
• Ineligible expenses
• losses insurable at reasonable cost
• losses covered by other government programs (Crop
  Insurance)
• Production or income losses

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ISSUES WITH DISASTER ASSISTANCE

• The coverage of part-time farmers
• The level of assistance for small disasters is
  not always the same as for large disasters
• The sensitivity of programs to the agricultural
  sectors disaster needs
• Assistance for prevention and mitigation
  activities
• In very large disasters, additional
  federal-provincial recovery agreements have been
  implemented to fill some of these gaps
• Agricultural sector only disasters are generally
  not eligible for assistance

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ANIMAL HEALTH ACT (CFIA)

• Compensation provided for named diseases only
• Market value (to a maximum) for animals ordered
  destroyed
• Cost of disposing of these animals
• Ineligible items
• disinfecting and clean up costs
• loss of income related to a drop in price, loss
  of markets, increased costs or a decrease in
  production

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PLANT PROTECTION ACT (CFIA)

• Compensation (very rarely provided)
• clean up expenses
• rental of replacement land
• destruction of plant material
• seedling trees and planting costs only
• Ineligible items
• full value of trees ordered destroyed
• loss of production and income

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ISSUES WITH CFIA COMPENSATION

• Estimating the value of livestock and other costs
• Large indirect impacts of the disease on the
  industry such as a collapse of product prices
• Items related to disease prevention or control
  but not eligible for compensation
• Major re-organizations of farm businesses
• Some extraordinary expenses
• Assets no longer usable
• Large disease outbreaks such as FMD
• Inconsistency between Animal Health and Plant
  Protection Acts

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TAX DEFERRALS ON BREEDING HERD SALES

• Features
• Declared drought area (PFRA)
• Breeding herd sales only
• Deferrals for one year
• Challenges
• Sales of calves that are the herds future
• Two drought years in a row
• Timing of declaration of drought area

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LINKAGES TO OTHER PROGRAMS

• Income losses due to a disaster would be covered
  by improved NISA
• Integrated with the NISA disaster trigger with
  other disaster assistance
• Improved coverage of production losses within
  crop insurance programs
• An integration of mitigating activities such as
  digging wells or installing pole switches
• A disaster could trigger assistance for improved
  certification programs

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NISA RESPONSES (POSSIBLE)

• Interim NISA withdrawals
• Can they be simplified?
• Can the penalties be reduced in the event of a
  disaster?
• Special NISA deposit/withdrawals for specified
  uses
• Shipping cattle out of disaster area?
• Shipping feed into disaster area?
• Testing and disease prevention actions?

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CROP INSURANCCE RESPONSES (POSSIBLE)

• Extension of seeding deadlines (Red River Flood)
• Unseeded acreage payment conditional on taking
  out future unseeded acreage cover (Manitoba 1999)
• Advanced payments (Saskatchewan 2002)
• Full payment on grain when harvested as feed
  (Saskatchewan 2002)
• Note Broad insurance principles must be
  maintained

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CREDIT RESPONSES

• Repayment holiday
• Ice Storm
• Reduced interest costs on operating loans
• Ice Storm
• Interest free loans
• United States
• Advance payment even if crop still in the field

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PRIVATE SECTOR RESPONSES

• Principal and interest repayment holidays
• Extended line of credit
• Waiving of some fees or charges
• Insurance company payments to mitigate possible
  losses (pump to protect the house)

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RESPONDING TO DISASTERS AND OTHER CRISES
Conclusion

• Farm Businesses take actions (prevention,
  preparation, mitigation and recovery)
• Other sectors and communities assist
• BII will improve insurance possibilities
• Governments can, and do, assist in all aspects of
  the farm business disaster response
• Disaster Mitigation is an important part of the
  Agricultural Policy Framework
• Further improvements need to be explored

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FURTHER INFORMATION ON PROVINCIAL CROP INSURANCE

• British Columbias Crop Insurance Program
• www.agf.gov.bc.ca/cropins
• Alberta Agriculture Financial Services
  Corporation
• www.afsc.ca
• Saskatchewan Crop Insurance
• www.saskcropinsurance.com
• Manitoba Crop Insurance Corporation
• www.mcic-online.com
• Ontario Crop Insurance
• www.agricorp.com
• Newfoundland Crop Insurance
• http//public.gov.nf.ca/agric/programs/agribus/cro
  pinsu.htm

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