This paper examines the effects of Canadian agricultural business risk management (BRM) programs on farm financial performance and incentives to adopt environmental stewardship practices (i.e., Beneficial Management Practices [BMPs]). Monte Carlo simulation is used to model stochastic prices and production for a representative Alberta cropping operation. Net present value analysis is used to evaluate BRM program participation. Participation is modeled for Growing Forward and Growing Forward 2 versions of AgriInvest, AgriStability, and AgriInsurance. Adoption of select BMPs is also modeled. Results indicate that BRM program participation significantly improves farm financial performance with a corresponding reduction in risk. Much of the benefit from participation comes from subsidization associated with the programs. While changes to BRM programs under Growing Forward 2 result in reduced support, the impact on representative farm performance is small. BRM program participation reinforces incentives to adopt BMPs that already have positive net benefits (e.g., crop rotation BMPs) and increases the magnitude of disincentives (i.e., net costs) associated with adoption of land use BMPs such as wetland restoration or buffer strips. The results from this analysis raise questions related to both risk management and agri‐environmental policy in terms of policy effectiveness, efficiency, and compatibility.Cet article examine les effets des programmes canadiens de gestion de risques d'entreprises (GRE) sur le rendement financier des exploitations agricoles et les mesures incitatives pour l'adoption de pratiques d'intendance environnementales (comme les pratiques de gestion bénéfiques ou PGB). La simulation Monte Carlo sert à modéliser les prix et la productions stochastiques pour une exploitation agricole albertaine représentative. L'analyse de la valeur actualisée nette sert à évaluer la participation aux programmes GRE. La participation est modélisée pour Cultivons l'avenir et Cultivons l'avenir 2, des versions d'Agri‐investissement, Agri‐stabilité et Agri‐assurance. L'adoption de quelques PGB est aussi modélisée. Les résultats démontrent que la participation aux programmes GRE améliore considérablement le rendement financier avec une réduction correspondante du risque. Une grande part des avantages à la participation proviennent du financement associé aux programmes. La réduction du soutien résultant des modifications aux programmes GRE dans le cadre de Cultivons l'avenir 2 n'a entraîné qu'un impact minime sur le rendement de l'exploitation agricole représentative. La participation aux programmes GRE renforce les mesures incitatives pour l'adoption de PGB qui produisent déjà des avantages positifs nets (comme les PGB de la rotation des cultures) et augmente l'envergure des contre‐incitations (comme le coût net) associées à l'adoption de PGB de l'exploitation des terres comme le rétablissement des zones humides ou tampons. Les résultats de ces analyses soulèvent des questions liées à l'efficacité, l'efficience et à la compatibilité à la fois des politiques de gestion du risque et agroenvironnementales.

This paper examines the effects of Canadian agricultural business risk management (BRM) programs on farm financial performance and incentives to adopt environmental stewardship practices (i.e., Beneficial Management Practices [BMPs]). Monte Carlo simulation is used to model stochastic prices and production for a representative Alberta cropping operation. Net present value analysis is used to evaluate BRM program participation. Participation is modeled for Growing Forward and Growing Forward 2 versions of AgriInvest, AgriStability, and AgriInsurance. Adoption of select BMPs is also modeled. Results indicate that BRM program participation significantly improves farm financial performance with a corresponding reduction in risk. Much of the benefit from participation comes from subsidization associated with the programs. While changes to BRM programs under Growing Forward 2 result in reduced support, the impact on representative farm performance is small. BRM program participation reinforces incentives to adopt BMPs that already have positive net benefits (e.g., crop rotation BMPs) and increases the magnitude of disincentives (i.e., net costs) associated with adoption of land use BMPs such as wetland restoration or buffer strips. The results from this analysis raise questions related to both risk management and agri-environmental policy in terms of policy effectiveness, efficiency, and compatibility. Cet article examine les effets des programmes canadiens de gestion de risques d'entreprises (GRE) sur le rendement financier des exploitations agricoles et les mesures incitatives pour l'adoption de pratiques d'intendance environnementales (comme les pratiques de gestion bénéfiques ou PGB). La simulation Monte Carlo sert à modéliser les prix et la productions stochastiques pour une exploitation agricole albertaine représentative. L'analyse de la valeur actualisée nette sert à évaluer la participation aux programmes GRE. La participation est modélisée pour Cultivons l'avenir et Cultivons l'avenir 2, des versions d'Agri-investissement, Agri-stabilité et Agri-assurance. L'adoption de quelques PGB est aussi modélisée. Les résultats démontrent que la participation aux programmes GRE améliore considérablement le rendement financier avec une réduction correspondante du risque. Une grande part des avantages à la participation proviennent du financement associé aux programmes. La réduction du soutien résultant des modifications aux programmes GRE dans le cadre de Cultivons l'avenir 2 n'a entraîné qu'un impact minime sur le rendement de l'exploitation agricole représentative. La participation aux programmes GRE renforce les mesures incitatives pour l'adoption de PGB qui produisent déjà des avantages positifs nets (comme les PGB de la rotation des cultures) et augmente l'envergure des contre-incitations (comme le coût net) associées à l'adoption de PGB de l'exploitation des terres comme le rétablissement des zones humides ou tampons. Les résultats de ces analyses soulèvent des questions liées à l'efficacité, l'efficience et à la compatibilité à la fois des politiques de gestion du risque et agroenvironnementales.

Purpose – The purpose of this paper is to evaluate Alberta’s cattle loan guarantee program. It measures the risk premiums on lending that would accrue to banks participating in the program, estimates the value (price) of the loan guarantee, and estimates the interest subsidy provided by the program. Design/methodology/approach – A cash flow model of cattle feeding is used. The model estimates a measure of risk that is applied to option pricing models to estimate the value of the guarantee. Findings – Insurance premiums for the credit risk to lenders are 0.20 percent of the value of the loan for the entire feeding period, and 0.41 percent for backgrounding but negligible for finishing. The price of the loan guarantee estimated by the Black-Scholes model is 4.43 percent of the value of the loan and is comparable to prices estimated by the binomial model. The program provides a subsidy rate of 4.58 percent. Research limitations/implications – Charging a guarantee fee can potentially eliminate the interest subsidy inherent in the program. But this would necessitate determining the impact of the guarantee fee on the additional access to credit that has been achieved through the program. Practical implications – Different levels of risk for backgrounding and finishing imply different risk premiums on cattle loans. Therefore interest on cattle loans should reflect not only the individual farmer’s risk profile but also the nature of the feeding operation. Originality/value – This is the first paper to simultaneously estimate risk premiums on cattle feeding loans, the value of the loan guarantee provided by the Alberta Feeder Association Loan Guarantee Program, and the inherent interest subsidy.

We analyze Canadian beef cattle cycles using time-series properties of four variables: total cattle inventories, beef cow inventories, beef supply, and beef prices. Our aim is to provide up-to-date estimates of the duration of the cycles, and to determine whether or not some of the recent market shocks can be associated with changes in the nature of the cycles. Spectral decomposition of the variables reveals 10-year cycles in total cattle inventories, beef cow inventories, beef supply, and beef prices. Seasonal and annual cycles are also found in beef supply and prices, respectively. Using intervention analysis, exchange rate appreciation, feed price escalation, and bovine spongiform encephalopathy (BSE) are modeled as pure jumps. Exchange rate and feed price shocks are modeled as having started in 2002 and 2007, respectively, and persisted up to the end of the sample period, while BSE is modeled as a shift for the period 2003 to 2005. We find significant impacts of the three shocks on total inventories, but beef supply appears to have been impacted by exchange rates and BSE. A spectral comparison of the pre- and post-shock periodograms of beef supply reveals a 58% reduction in the peak amplitude of the beef supply cycle. Dans le present article, nous analysons les cycles du secteur canadien des bovins de boucherie par le biais des proprietes des series chronologiques de quatre variables associees a ce secteur, a savoir le cheptel bovin total, le cheptel de vaches de boucherie, l'approvisionnement en bOEuf et les prix du bOEuf. Notre objectif consiste a fournir des estimations a jour de la duree des cycles et a determiner si certains chocs ayant recemment secoue les marches peuvent etre associes ou non a des changements lies a la nature des cycles. La decomposition spectrale des variables montre que le cheptel bovin, le cheptel de vaches de boucherie, l'approvisionnement en bOEuf et les prix du bOEuf suivent des cycles de dix ans. L'approvisionnement en bOEuf et les prix du bOEuf suivent respectivement des cycles saisonnier et annuel. l'aide de l'analyse d'intervention, nous avons modelise l'appreciation du taux de change, la flambee des prix des aliments pour animaux et les episodes d'encephalopathie spongiforme bovine (ESB) comme etant des chocs. Les chocs lies au taux de change et aux prix des aliments pour animaux ont ete modelises comme ayant commence en 2002 et en 2007 respectivement, et ayant continue jusqu'a la fin de la periode d'echantillonnage, tandis que l'ESB a ete modelise comme un changement au cours de la periode 2003-05. Selon nos resultats, les trois chocs ont eu des repercussions considerables sur le cheptel bovin total, tandis que le taux de change et l'ESB semblent avoir touche l'approvisionnement en bOEuf. Une comparaison spectrale des periodogrammes de l'approvisionnement en bOEuf avant et apres les chocs revele une diminution de 58% de l'amplitude de crete du cycle de l'approvisionnement en bOEuf.

This paper examines the economics of adopting agricultural beneficial management practices (BMPs) to protect riparian areas in the Canadian Prairies. Monte Carlo simulation methods and cost/benefit analysis (net present value) are used to evaluate BMP adoption for a set of representative cropping and mixed farm operations in Alberta and Saskatchewan. BMPs considered in the analysis involve restoration, maintenance and/or protection of riparian areas and associated wetlands. Implementation of these BMPs by the representative farms is generally costly, resulting in negative net benefits. This is primarily due to opportunity costs from forgone returns and BMP establishment costs. The farm level results are combined with estimates of public values for riparian ecosystem services using the Pannell land use policy framework. Results indicate that in many cases, positive incentives, such as subsidies or conservation auctions, are appropriate policy responses to encourage increased production of riparian/wetland ecosystem services. Given the uncertainty in public and private benefit estimates, it may also be the case that no intervention is the optimal policy response in some instances. There is significant scope for further research in order to obtain better estimates of benefits and costs associated with riparian area management.Ce travail etudie les gains economiques obtenus en adoptant de meilleures pratiques agricoles de management (MPAMs) pour proteger les zones riparienne des Rocheuses Canadiennes. Nous combinons les methodes statistiques de Monte Carlo et une analyse cout/benefice (valeur presente nette) pour evaluer l'adoption de meilleure pratiques pour un echantillon representatif de fermes cerealieres dans l'Alberta et la Saskatchewan. Les MPAMs considerees dans notre analyse impliquent la restauration, le maintien et/ou la protection des zones riparienne et des marais qui leur sont associes. La mise en place d'une MPAM est en general couteuse et reduit les benefices nets. Cette reduction est en grande partie due aux couts de mise en oe uvre de la MPAM et a la perte nette d'exploitation qui resulte de la MPAM. En nous aidant du cadre reglementaire de l'utilisation des terres developpe par Pannell, les resultats obtenus a l'echelle de la ferme sont combines avec les estimations des valeurs publiques pour des services des ecosystemes riparien. Nos resultats montrent que dans de nombreux cas des incitations positives telles que des subventions ou des encheres de conservation sont necessaires pour encourager la production de services obtenus grace aux ecosystemes riparien. Dans certains cas, etant donnee l'incertitude, il est possible qu'il soit optimal de ne pas intervenir du tout. Notre etude montre aussi l'importance de continuer les travaux de recherche dans le management des zones ripariennes.

Robertson, S. M., Jeffrey, S. R., Unterschultz, J. R. and Boxall, P. C. 2013. Estimating yield response to temperature and identifying critical temperatures for annual crops in the Canadian Prairie region. Can. J. Plant Sci. 93: 1237–1247. Historical yield and temperature data, by municipal district for the three prairie provinces, are used to estimate the marginal effect of exposure to specific temperatures in defined ranges during the growing season. Incorporating these non-linear temperature effects into the model improves yield forecasting for Canadian prairie annual crops over models that use average temperatures or growing degree days. Critical maximum temperatures at which yields decline, calculated for winter wheat, spring wheat, durum wheat, barley, spring rye, fall rye, oats, canola and flax, range between 28 and 34°C, depending on the crop. Additional critical minimum and maximum temperatures are estimated using the marginal effect of exposure to specific temperatures in defined ranges. Estimates of critical maximum temperatures and their marginal impact on yields are important for research and policy analysis on various issues and problems, including climate change, risk management instruments such as crop insurance, and development of heat tolerant crop varieties.

Representative farm analysis; Cropping economics; Net private benefits; Ecosystem services; Beneficial management practice (BMP); Monte Carlo simulation; Buffer strips; Residue management; Field peas; Ecological Goods and Service

Vegetative buffers, if established around riparian areas, represent a type of beneficial management practice (BMP) that provide ecological goods and services in the form of improved water quality, improved wildlife/waterfowl habitat, etc. Establishing these buffers result in reduced area for agricultural production, with corresponding opportunity costs. This study builds on previous work from AAFC's Watershed Evaluation of Beneficial Management Practices (WEBs) project, to examine the direct farm-level economics of vegetative buffers for a representative mixed farm operation in the Lower Little Bow watershed. Simulation results suggest that the opportunity cost associated with vegetative buffers varies with buffer width, but can be as great as $600 per acre converted. The cost per acre varies inversely with the width of the buffer.

A survey among cow-calf producers was conducted during 2006 in Western Canada, to assess producers’ preferences towards participation in beef alliances. Producers’ choices were analyzed by varying the degree of vertical coordination in hypothetical lliance participation, while controlling for producer and farm-specific characteristics to explore risk, transaction cost and incentive considerations in participation decisions. Estimates from the attribute-based choice experiments suggest that information sharing regarding animal performance, revenue-risk and residual claimancy are important factors for producers driving alliance choices. Overall, cowcalf producers are willing to move toward higher levels of vertical coordination based on individual animal performance. However, the estimates also suggest that producers consider the benefits from being able to access animal-specific yield and grade data to be smaller than the costs of bearing potentially greater revenue risk as a result of moving towards grid-based pricing, and the transaction costs associated with relationship-building in alliances.

The public and private net benefits of retaining wetlands in agricultural cropland in east central Saskatchewan are evaluated in a policy case study. Wetland drainage on agricultural lands continues to occur despite evidence from existing studies concerning societal benefits derived from wetland retention. A simulation model was developed to estimate on-farm costs and benefits associated with wetland drainage in east central Saskatchewan. The private net benefits were compared to existing estimates of the public benefits to retaining wetlands in this region. The analysis suggests that payments from existing “beneficiary pay” policies, such as public incentive payments to farmers to retain wetlands, are too low to retain wetlands at risk of drainage. Les avantages nets, publics et privés, de la conservation des milieux humides sur les terres agricoles cultivables du centre-est de la Saskatchewan sont évalués dans une étude de cas sur les politiques. Le drainage des terres humides en milieu agricole se poursuit malgré l’existence d’études montrant que la conservation des milieux humides procure des avantages à la collectivité. Nous avons élaboré un modèle de simulation afin d’estimer les coûts que doivent engager les agriculteurs pour drainer les terres humides dans le centre-est de la Saskatchewan et les avantages qu’ils en retirent. Nous avons comparé les avantages nets privés avec les estimations existantes des avantages publics liés à la conservation des terres humides dans cette région. Les résultats de notre étude autorisent à penser que les primes prévues dans les politiques existantes du «bénéficiaire payeur», telles que les primes d’encouragement versées aux agriculteurs pour conserver les milieux humides, sont insuffisantes pour protéger les milieux humides contre le risque de drainage.

Les avantages nets, publics et prives, de la conservation des milieux humides sur les terres agricoles cultivables du centre-est de la Saskatchewan sont evalues dans une etude de cas sur les politiques. Le drainage des terres humides en milieu agricole se poursuit malgre l'existence d'etudes montrant que la conservation des milieux humides procure des avantages a la collectivite. Nous avons elabore un modele de simulation afin d'estimer les couts que doivent engager les agriculteurs pour drainer les terres humides dans le centre-est de la Saskatchewan et les avantages qu'ils en retirent. Nous avons compare les avantages nets prives avec les estimations existantes des avantages publics lies a la conservation des terres humides dans cette region. Les resultats de notre etude autorisent a penser que les primes prevues dans les politiques existantes du 'beneficiaire payeur', telles que les primes d'encouragement versees aux agriculteurs pour conserver les milieux humides, sont insuffisantes pour proteger les milieux humides contre le risque de drainage.

AgriStability is the primary Canadian agricultural risk management program. Recent experience with bovine spongiform encephalopathy (BSE) in the cattle sector demonstrated that output prices are susceptible to both “normal” risk and sudden, “catastrophic” declines. This paper evaluates the AgriStability program for cow‐calf producers when there is potential for catastrophic price risk. A simulation model is developed. Under a base case scenario, when there is no catastrophic price risk, AgriStability behaves more like an income support program than a risk management tool. Risk‐neutral producers see a 12.1% increase in certainty equivalent wealth compared to 12.5% for moderately risk‐averse producers. Introducing catastrophic price risk increases risk‐averse producers’ expected benefits to 21.8%. Actuarially fair program premiums and implied subsidies are also estimated. These results demonstrate that AgriStability is highly subsidized. Finally, benefits from supplementary catastrophic revenue insurance are calculated and discussed, along with several additional structural features of the program. Agri‐stabilité constitue le principal programme canadien de gestion des risques en agriculture. L'encéphalopathie spongiforme bovine qui a frappé le secteur de l’élevage bovin a démontré que les prix des extrants sont exposés à des risques « normaux » et à des chutes soudaines et « catastrophiques ». Le présent article évalue le programme Agri‐stabilité dans le cas des producteurs vache‐veau (veaux d’embouche) lorsqu’un potentiel de risque de prix catastrophique existe. Nous avons élaboré un modèle de simulation. Dans le cadre d’un scénario de référence, lorsqu’il n’existe pas de risque de prix catastrophique, le programme Agri‐stabilité ressemble davantage à un programme de soutien du revenu qu’à un outil de gestion des risques. Dans le cas des producteurs indifférents aux risques, l’équivalent certain de la richesse aléatoire est supérieur de 12,1 % comparativement à 12,5 % dans le cas des producteurs modérément risquophobes. L'introduction de risque de prix catastrophique augmente les bénéfices espérés des producteurs risquophobes de 21,8 %. Nous avons également estimé ce que représentent les indemnités actuariellement justes ainsi que les subventions implicites. Les résultats ont montré que le programme Agri‐stabilité est très subventionné. Finalement, nous avons examiné et calculé les indemnités tirées d’une assurance‐revenu supplémentaire en cas de risque catastrophique et nous avons aussi analysé plusieurs autres caractéristiques structurelles du programme.

This article analyzes responses from a 2008 survey of Canadian meat consumers about concerns regarding genetically modified (GM) feed used in livestock meat production. Approximately 50% of the sampled consumers express relatively high levels of concern about GM feeds. Based on the results from an ordered probit model that relates respondents’ ratings of concern to their demographic characteristics, residents of Quebec and British Columbia tend to be more concerned than those in other locations. Respondents who express more trust in food industry institutions and show more confidence in buying beef and chicken tend to express less concern about GM animal feed. Other demographic characteristics and the household’s levels of expenditures on different types of meat are not found to have an effect on expressed concerns with respect to GM-fed animals.

This report summarizes a series of projects undertaken by staff and students in the Department of Rural Economy which examine various socio-economic aspects of chronic wasting disease and its effect on a range of stakeholders in Alberta. The four projects included exploring impacts on the cervid farming industry, hunters, the general Albertan public, and certain Aboriginal groups. General results from these studies are presented with references that provide a more thorough analysis and discussion.

The provincial government of Alberta in Canada experiences significant annual revenue variability arising from changes in crude oil and natural gas prices. This research evaluated whether Alberta’s non-renewable revenue risk could be managed using a derivatives hedging program. Results from a historical hedging simulation approach suggested that such a program would not have been the most effective method of managing revenue risk over the period of 1995-96 to 2003-04. Total impacts of hedging would have varied from Can-$8 Billion to Can $6 Billion over this time period. These results suggest the Alberta government explore alternative methods to manage non-renewable resource revenue risk.

Several studies examined the impacts of the bovine spongiform encephalopathy (BSE) crisis on the Canadian agricultural sector. However, few investigations determined the on-farm financial repercussions arising from the crisis. This study examined impacts at farm level attributed to the BSE crisis. Cash flow and hedonic price models were used to examine changes in farm wealth for the years 2002 through 2007. While BSE received substantial media coverage, little attention was given to exchange rates and land values. Data demonstrated that exchange-rate fluctuations exerted a much greater impact on producer wealth than did the BSE crisis. Both farm equity and land values temporarily dipped following the BSE crisis but have since followed their previous trend. If the United States had not closed its borders to Canadian beef and cattle exports, producers would have an additional 0.65% growth in wealth. However, had exchange rates remained constant, farmers would have an additional 10.75% increase in equity. Consequently, the BSE crisis produced a smaller impact on farmer wealth than factors that received less media attention.