From shifting weather patterns to fluctuating markets, farmers have a lot to consider – all while working tirelessly to keep food on Canadians’ tables. Effectively managing the business side of farming is crucial to their success, but the ever-evolving policy agenda and geopolitical landscape adds another layer of complexity.

Policy changes, both in Canada and abroad, can have far-reaching impacts on the agricultural sector. For instance, today’s newly imposed tariffs by the United States highlight how a single policy decision by a major trading partner can throw Canadian businesses and consumers. Even subtler shifts in policy—ones that don’t make international headlines—can profoundly affect farms by shaping access to funding, environmental regulations, market opportunities, support for sustainable practices, and ultimately affect their profitability and ability to adapt to shifting market dynamics and climate challenges.

At the Canada Climate Law Initiative, we’re committed to helping businesses understand the risks and opportunities that climate change brings to businesses’ bottom line. Policy change, in particular, remains a pivotal consideration to navigate.

Professor Margot Hurlbert of the Johnson Shoyama Graduate School of Public Policy (University of Regina) has explored the risks that policy changes can pose to Canadian farm corporations. Below, we share an excerpt from her work, Cultivating effective climate governance: A guide for small farm corporations in Canada.

Transition risks

Climate change transition risks are perceived in many organizations as outside normal temporal decision-making processes and essentially involving the future. However, increasingly best practices and legal responsibility are changing the habit of ‘kicking the can down the road’, or not anticipating, and taking action in relation to these transition risks now.

Transition risks involve those related to transitioning to a net-zero carbon economy. Transition risks entail policy, legal, technology, market, liability, and reputational risks. Their consideration is important to avoid the risk of stranded infrastructure, such as built equipment whose useful life doesn’t last the full term of its mortgaged or depreciable life, suffering a downgraded credit rating resulting in higher loan payments and insolvency, or losses in investments because of the loss of an asset through a climate impact like a flood, but the retention of a mortgage or loan associated with its purchase. Many of the potential consequences of a changing climate and a transition to a net-zero carbon economy are and will occur within the lifespan of a farmer operating an agricultural corporation.

Climate change related policy changes

A key transition risk relates to upcoming changes in climate and climate-related policy. Canada has been involved in international climate change discussions and commitments. It is only in recent years that significant changes have occurred in relation to climate law and policy. Generally, climate law and policy relate to ‘mitigation’, which is the reduction of greenhouse gases (GHGs), or ‘adaptation’, the proactive preparation for climate impacts in the future by minimizing harm and taking advantage of opportunities.

Directors of farm corporations have a responsibility to be informed, understand, plan for, and oversee the implementation of farm practices and strategies responding to climate law and policy changes. There is a suite of overarching policies that have indirect implications at the present time for agriculture, and there is also a suite of policies that directly apply to agricultural production. Climate change policy is important; without policy Canada’s emissions would be 7% higher and in 2030 they would be 41% higher.

One of the most significant policy measures has been carbon pricing and the federal government’s legislation requiring minimum standards. Carbon pricing is about recognizing the cost of pollution and putting a price on it. It is based on the theoretical premise that as products, such as gasoline or natural gas, that include GHGs become more expensive, consumers will purchase less of them, adopt alternatives, or embrace efficiencies to reduce their usage, ultimately resulting in fewer GHGs in the atmosphere. An increasing number of companies need to disclose the use of internal carbon pricing and directors of farm companies should plan for the potential impact of carbon pricing on their corporations, suppliers and distributors as it will be a key risk to be managed in the future.

Key goals of Canada’s 2030 agricultural strategy include beneficial management practices and natural climate solutions, such as rotational grazing, cover cropping, regenerative agriculture, nutrient management, manure management, and agroforestry. A resilient agricultural landscapes program and the Agricultural Climate Solutions On-Farm Climate Action Fund provide financial support to these measures. Canada has committed to setting a national fertilizer emission reduction target of 30% below 2020 levels by 2030. Sheldrick recommends that industrial and agricultural chemicals, the largest source of emissions through ammonia, and the upstream source material for consumer products (e.g. ethylene) be first. It is recommended Canada builds on its membership in the First Movers Coalition to explore opportunities with like-minded countries. The industry is dominated by a relatively small number of companies; Nutrien was created in 2008 through the merger of Agrium and PotashCorp and is responsible for 2.7 Mt of emissions from five of its largest facilities. Although consultations are underway in achieving this, the fertilizer and chemical industry has started to plan for climate risk.