With shrinking margins and mounting risks, farmers look for new ways to stay protected.

Canada’s mid-sized farms are entering a period of financial reckoning. After years of riding the highs of pandemic-inflated commodity prices, the agricultural sector is now facing a potent mix of geopolitical uncertainty, leveling crop prices, and rising input costs.

According to Ryan Johnston (pictured), vice president and national practice leader – agriculture at BFL Canada, the question farmers are now asking themselves is simple – but the answer is anything but: where should they spend their limited capital?

For many, this means choosing between upgrading equipment and investing in additional insurance coverage. That trade-off is bringing long-standing protection gaps into sharper focus and forcing farm operators to reevaluate how well their current risk transfer strategies are holding up.

Capital constraints are forcing trade-offs

While eligibility for public insurance programs hasn’t changed significantly, Johnston said that economic volatility is squeezing the financial flexibility of mid-sized farms.

“If you look at commodities, prices have leveled out. They've peaked during COVID and now … they're arguably back where they used to be, if not a little bit lower,” he said.

At the same time, farmers are seeing equipment costs surge due to inflation, supply chain complications, and tariffs. With operational budgets being stretched, many farm owners are facing tough decisions: do they invest in machinery, or shore up their risk management with more robust coverage?

This decision is made even more difficult by the structure of existing crop insurance programs. In many regions, Johnston said, indemnification levels top out at 80 percent, leaving a substantial coverage gap that’s becoming harder to ignore.

“I would argue that a lot of the industry is struggling as to how to approach that. I also think that that's exposing some of the gaps, because maybe they're more present than they were in prior years,” he said.

That discrepancy becomes more complicated when considering the differences in farm size and commodity value.

A mid-sized farm in Ontario might span 500 to 5,000 acres, Johnston noted, which could be considered small by Prairie standards, where operations are typically much larger. But Ontario’s smaller footprint is often balanced by higher-value specialty crops, which skews the financial picture.

This means that coverage gaps – especially the 10-20% of losses not covered by public insurance pools – can carry very different implications depending on where a farm is located, what it grows, and how risk-averse its operators are.

Size doesn’t always dictate risk—but it still matters

Despite assumptions that farm size might affect eligibility or underwriting in public crop insurance programs, Johnston said that while size does influence the underwriting process, it does not impact a farmer’s ability to access coverage – as program entry isn’t denied based on acreage thresholds.

“I don’t think they fit in any differently on the crop-specific program,” he said of mid-sized farms. “The public pools are typically open to anyone, regardless of acreage.”

However, size becomes a far more relevant factor when farmers start looking at alternative or private insurance models to bridge the remaining gap above the typical 80 or 90 percent indemnification level.

In those cases, Johnston said, “volume is everything.”

Private models and tech-driven solutions

Johnston believes the spotlight is likely to shift toward private solutions – but not overnight.

He said that the future of public crop insurance programs remains uncertain, and adds that, while political discussions often spotlight these programs during election cycles, meaningful reforms tend to be unpredictable and slow-moving.

What is more likely in the near term is a growing emphasis on how crop insurance is modeled and reinsured, particularly as climate-related risks become more pronounced.

While he avoided speculating on climate policy itself, Johnston acknowledged that shifting environmental conditions will inevitably play a greater role in how public programs are evaluated – and possibly restructured.

At the same time, there may be room for innovation on the private side.

“I think there’s going to be a big opportunity at some point for a private structure,” he said. One idea? A large cooperative-style model where thousands of farmers join forces, pooling millions of acres to create buying power and risk diversification that could support a more tailored insurance solution.

Still, Johnston cautioned that such a solution would require significant expertise and reinsurance backing. He said that it’s a very niche sector, and there are very few experts across the insurance industry who could realistically place that kind of risk.

On the question of whether technology could open doors for smarter, more affordable insurance coverage, Johnston was cautiously optimistic.

“There’s opportunity for technological advancement, probably under multiple pillars,” he said, noting that improvements in crop modeling, climate monitoring, or even genetically optimized seeds might support more precise underwriting in the future.

But at the end of the day, Johnston said that crop producers’ insurance still relies heavily on one outcome – crop yield.

“Whatever tech you build, it’s about understanding evolving weather patterns and the frequency of insured perils triggering claims payments,” he said.

Source - https://www.insurancebusinessmag.com