November 9, 2023

By Ryan Tougas-Cooke & Kat Lorimer

Extreme Weather & Canada’s Agriculture Sector

Extreme weather events have become increasingly prevalent, and they are having sizable negative impacts on agricultural productivity and triggering substantial agricultural support program payments. In Manitoba alone, 2021 drought conditions reduced average provincial crop yields by between 22% and 37%, and led to a six-fold increase in crop insurance costs that year (i.e. $469 million in 2021, up from $62 million in 2020). Similar emergency payments were also issued to livestock and forage producers in 2023 due, once again, to severe drought conditions in the Prairies. The scale of these yield declines and disaster payments are a clear signal that expanded investments into farmer-led initiatives that build greater resilience to climate change are vital. Providing new incentives that support the adoption of practices that help farmers withstand the impacts of extreme weather events can simultaneously reduce public spending on business risk management (BRM) programs, as well as support food security and farm profitability.

New Investments in Climate Resilient Practice Adoption

Noting the important impact certain agricultural practices can have on resilience, the Green Budget Coalition, a coalition of 22 of Canada’s leading environmental organizations, recently released a set of recommendations for Budget 2024 that propose Canada’s BRM programs as an avenue for supporting the adoption of climate resilient farming practices. The BRM programs typically include AgriInsurance, AgriInvest, AgriStability, among others, and these programs help farmers manage financial risks, production losses, and loss of income to ensure their farming operation remains viable.

To leverage these programs for resilient practice adoption, the Green Budget Coalition has proposed a new initiative, called the ‘Climate Risk Reduction Fund.’ The Green Budget Coalition calls for $435 million over the next 5 years to deliver voluntary incentives or premium discounts that promote beneficial management practice (BMP) adoption. One potential area for this type of support is for practices that improve soil health. Healthy soils are known to mitigate drought impacts at the farm level due to improved water infiltration and increased water holding capacity from higher levels of soil organic matter. In fact, the USDA estimates that about 1% soil organic matter in the top six inches of soil can hold about 27,000 gallons of water per acre, and that adopting conservation practices, like reduced tillage, cover crops, and crop rotations, can improve soil organic matter within 3 to 10 years.

The Agriculture Financial Services Corporation (AFSC), which administers Alberta’s crop insurance programs, recently commissioned a study to explore the impact of soil organic matter on drought resilience. Early findings from AFSC’s research suggests that higher soil organic matter content is associated with higher yields and a reduction in crop insurance payouts of up to $56 per acre. A separate study in the US has also found that a 1% increase in soil organic matter could reduce yield losses by up to 12% under severe drought conditions and reduce insurance payments by up to 36%.

Piloting Innovative Program Structures for Climate Resilient Outcomes

The Green Budget Coalition is also calling for $10 million in new investments to pilot innovative BRM program designs that could accelerate the adoption of sustainable farming practices - a key focus of Smart Prosperity Institute’s work on advancing risk reduction approaches, like beneficial management practice insurance programs. BMP insurance programs encourage farmers to trial new sustainable farming practices, while helping to mitigate the financial risk of any potential decline in yield or productivity. Several yield-based BMP insurance programs have been implemented in the United States, with the most recent being the USDA’s Post Application Coverage Endorsement program for split nitrogen application in corn.

The main benefit of this approach is that farmers can trial and evaluate new BMPs by comparing the real-world performance of a test-strip to a ‘business as usual’ plot first-hand in their own farm context.  This provides crucial, applied information to help farmers make the best decision for their farm. Some pilot studies in the US have suggested that BMP Insurance programs even encourage sustained adoption following participation – the BMP Challenge in the United States found that about 60% of farmers continued using the BMP they initially adopted on their farms after completing the program.

Going Forward

Regardless of the approach, there is a clear economic case for including new and voluntary incentives into the suite of BRM programs to target and promote the adoption of climate resilient farming practices. As long as these pilots remain additive and focus on incentives, BRM programs could be a great addition to the policy tool kit for achieving Canada’s climate targets, while improving food security and sector profitability.

For more information on SPI's ongoing work exploring program designs and incentive structures to support a climate resilient and profitable agricultural sector in Canada, subscribe to our newsletter.