Transfer Efficiency Analysis of Margin‐Based Programs

Abstract

AgriStability, Canada's major farm support and business risk management program, has been in place since 2007. As with most agricultural insurance programs, AgriStability creates opposing incentives where moral hazard and misallocation effects discourage production while the risk reduction effects encourage production. We investigate the relative size of these effects to determine both the degree to which production is distorted and the percentage of government transfer that remains with the producer. Our results indicate mild but differential effects across crops. We find roughly 45% of program payments remains with primary producers. These findings are of particular interest because of their World Trade Organization implications.Agri-stabilité, le plus important programme de soutien et de gestion des risques de l'entreprise (GRE) au Canada, est en place depuis 2007. Agri-stabilité, comme la plupart des programmes de soutien, crée des incitatifs opposés où le risque moral et une mauvaise allocation des intrants découragent la production tandis qu'une réduction des risques la stimule. Dans la présenteétude, nous avons examiné l'importance relative de ceséléments afin de déterminerà la fois le degré de distorsion de la production et le pourcentage des paiements de transfert qui profite au producteur. Les résultats de notreétude indiquent des effets modérés mais différentiels, et ce, toutes récoltes confondues. Ils indiquent aussi que près de 45 p. 100 des paiements de transfert sont versésà des producteurs primaires. Ces résultats sont particulièrement intéressants en raison de l'analyse qu'en fera l'OMC.

Do Farm Support Programs Reward Production Inefficiency?

“…Gunnsteinsson () theoretically and empirically shows that the level of effort is a decreasing function of the level of insurance coverage. Rude and Ker (, p. 509) note that “ AgriStability creates opposing incentives where moral hazard and misallocation effects discourage production while the risk reduction effects encourage production.” Richards and Mischen () use a two‐stage approach to determine the effects of technical inefficiency—an indicator of adverse selection—on the demand for insurance. Richards and Mischen (, p. 54) note that “…standard crop insurance contracts require growers to use ‘best practice’ production methods.…”

Agricultural support policy in Canada: What are the environmental consequences?

“…In Canada, total annual payments made to agriculture from government sources averaged $3.1 billion per year from 2007-13 (OECD 2014), 2 which equaled approximately 0.5% of total federal and provincial government expenditures and 7.7% of gross farm revenue. Between 2007 and 2009, business risk management programs accounted for 84% of federal spending and 66% of provincial spending on agriculture (Rude and Ker 2013). Additional public support for farm income arises from agricultural D r a f t policy that affects market prices and other factors, so that 16.0% of total Canadian farm income for 2008-10 came from public (consumer and taxpayer) support.…”

Canadian Business Risk Management: Private Firms, Crown Corporations, and Public Institutions

“…Examples of peer‐reviewed literature include Schaufele et al. (), Rude and Ker (), and Vercammen (). Schaufele et al.…”

“…2 There is a significant amount of non-peer reviewed literature on Canadian BRM. Examples of peer-reviewed literature include Schaufele et al (2010), Rude and Ker (2013), and Vercammen (2013). Schaufele et al (2010) consider the performance of AgriStability under normal versus catastrophic risks using a simulation model.…”