Farm Income Stabilization and Risk Management: Some Lessons from AgriStability Program in Canada

This paper analyzes the effectiveness and efficiency of farm income stabilization program such as AgiStability in Canada. This program intends to mitigate farm income fluctuations, which is seemingly more neutral to the farming decision than the payments that are countercyclical with price or revenue, or that are commodity specific. However reduction of income variability generate responses in farmers’ risk management strategies, and most often generate crowding out effects of other strategies such as insurance or diversification. Stochastic analysis of risks and payments is combined with a micro economic model of endogenous risk management decision under uncertainty to explore the interactions between them. The part of the program that is triggered with small margin reductions of 15-30% (frequent normal risk) is found to have the strongest crowding out effects; the most catastrophic part of the payments (when margins are negative) is paid too late for being an effective disaster assistance; the middle range part of the program enters in competition with AgriInsurance, the subsidized insurance program. In all, this program is a socially more acceptable form of supporting farmers, rather than an efficient risk management tool.