As part of the Growing Forward 2 (GF2) framework agreement, federal, provincial and territorial (FPT) Ministers of Agriculture made a commitment to encourage the development and implementation of new risk management tools for agricultural producers, including private sector risk management tools. To this end, the federal government and Western provinces have been working in collaboration to explore the feasibility of a livestock price insurance program.
Livestock producers face a substantial risk from unexpected price declines. Unlike crop producers, who have access to production insurance under the AgriInsurance program, livestock producers have fewer risk management options available to them.
The four-year pilot Western Livestock Price Insurance Program (WLPIP) will enable livestock producers to protect themselves against unexpected price declines beyond market expectations by allowing them to purchase insurance coverage, while still being able to take advantage of favorable market conditions if livestock prices should rise. Producers will select from a range of coverage and policy options to help them manage price risk. Indemnity payments will be paid to producers if the settlement price is less than the insured price. This pilot program is actuarially sound and self-sustaining, with premiums fully funded by producers.
Alberta first introduced price insurance in 2009 for fed cattle. Since then, Alberta broadened its livestock insurance programming to include feeder cattle, calves and market hogs covering price and basis risks. Through a unique collaborative arrangement between the federal and provincial governments, Alberta’s existing program will expand to a regional model, offering a voluntary, simple and easy to understand price insurance product to livestock producers across Western Canada.
Alberta’s Agriculture Financial Services Corporation (AFSC) will be the central administrative body for the program, using their experience with existing programs to maximize administrative efficiencies, which will allow for a rapid implementation of the expansion to the rest of the Western provinces.
Federal and provincial governments will cover administration and delivery costs for the pilot WLPIP through GF2 AgriRisk Initiatives - Administrative Capacity Building stream, which provides assistance for the implementation of new risk management tools. Canada will also provide deficit financing for the pilot. Near the end of the four-year pilot, governments will initiate a review of program operations and management and will consider its potential beyond the GF2 framework agreement.
Western Cattle Price Insurance
Cattle price insurance is reflective of price in the producer’s local market, and coverage options are designed to reflect differences in localized prices and risk for different commodities. WLPIP will help reduce producers’ exposure to price and basis risk. Producers have the option of insuring their calves, feeders, or fed cattle as well as selecting only basis protection for fed cattle. A new settlement index will be created to represent Western regional markets for feeders and calves.
Western Hog Price Insurance
Hog price insurance is designed to offer coverage based on current Western Canadian market conditions. Producers decide on the level of coverage, policy length and the amount of weight to insure. Settlement is based on the monthly average price of hogs sold in several Western Canadian markets. If the market goes above the insured price, producers can still take advantage of the upside and sell hogs for that higher price.
Livestock producers can expect to receive WLPIP program information in March from their provincial agriculture office. Further information on the pilot Western Livestock Price Insurance Program is available at www.wlpip.ca
