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Farm Bill Shadow Loss Program: Who Gains and Who Loses?

How the U.S shadow loss program could impact Canadian canola production

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The 2012 Farm Bill is a contentious topic in US agriculture and there is a lot to gain and a lot to lose. For US crop farmers there is something to gain if the new shadow-loss program gets passed. Under the current system, producers can buy insurance that would cover them in the event that they might experience poor yields or a decline in price. But like most insurance policies it doesn’t protect you from all revenue loss. The shadow-loss program gives farmers a lump sum of monies upfront in the event that their crop prices drop to a point that otherwise wouldn’t be covered under crop insurance.

For larger crops such as corn the incentives of the program wouldn’t have much of an impact. But it has the potential to alter the incentives for small-acreage crops such as canola and mustard seed. These crops would have the advantage if the shadow loss program was introduced. The new formula would guarantee producers large returns in the market. The appeal is that these crops tend to be more volatile to whims of the market, and with the new proposed changes it would make them more secure.

Currently, canola is primarily used as a rotational crop in the US, but the shadow loss program might be the catalyst for producers to grow more small acreage crops like canola to capitalize and benefit through the program formula for crop acreage breakdowns.  But for farmers across the border there is a potential for a loss. This could have drastic ramifications for Canada’s canola production.  Canada is the number one single producer of canola, and the world’s only “Made in Canada” crop, and it is often the nation’s most valuable one contributing more than $13 billion annually to the economy. The introduction of the shadow loss program could shift the competition playing field for farmers across the border that might not be able to compete with the subsidies given to US farmers. 

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