Coralee Foster, CA, Partner
Better Farming
January, 2008
AgriStability replaced the Canadian Agricultural Income Stabilization (CAIS) program beginning with the 2007 program year. However, it is very similar to the CAIS program. The program compares the farm operation’s current year program margin to the reference margin for the prior five years. When the current year falls below 85% of the calculated average, a payment is triggered.
Production Margin
The margin for current and prior years is determined by calculating the difference between allowable income and allowable expenses. Allowable items include only those items that fluctuate directly with the production of commodities. Allowable income includes sales of crops, livestock and by-products. Allowable expense includes input costs, commodity purchases, hydro, vet, fuel and wages to unrelated parties. This is only a partial list; please consult Agriculture Canada for a current, complete list. Supply managed commodities are eligible for coverage of a portion of production margin declines.
Claim Year Margin
The production margin for the current year is determined by calculating the difference between allowable income and expenses for the fiscal year on an accrual basis.
Reference Margin
The reference margin is calculated by determining the operation’s production margin for the prior five years using an Olympic average. The highest and lowest margins in the five year period are eliminated and the remaining three are averaged to determine the reference margin.
Adjustments will be made to the reference margin for producers who did not farm in all five of the prior years or who have undergone a change in the scale or type of farm operation during the period.
AgriStability Fees
The AgriStability program works much like any insurance plan. A premium is paid, in advance, for coverage for the upcoming period. The AgriStability fee is provided annually on an enrolment notice sent to producers. It is calculated as 85% of the contribution reference margin x .45% plus an administrative fee of $55.
Calculations
The following example illustrates the operation of the program.
Assuming the claim year margin is $50,000 and the prior year margins are as follows:
Using the Olympic average calculations, the highest ($150,000) and lowest ($65,000) margins are removed and the remaining three are averaged. This yields a reference margin of $100,000.
The first 15% ($15,000) of decline in margin is not covered under the program. The next 15% of decline will be compensated at 70% by the government. The remaining 70% decline will be compensated at 80% by the government. There is also coverage for negative margins.
Other Issues
There are specific rules to cover negative margins, beginning farmers, supply managed commodities, interim payments, structural change adjustment for operations changing in size and commodity and some rules specific to individual provinces. This is a complex program with many specific policies and interpretations; please contact your advisors for assistance on your own operation.
Conclusion
AgriStability is part of a suite of business risk management programs that also includes AgriInvest, AgriInsurance and AgriRecovery, which are designed to be complementary. Operations do not need to participate in any or all of the programs. Each farm operation will have different needs and different rules specific to their operation.
Coralee Foster is a chartered accountant and partner at BDO Dunwoody in Mitchell, Ont. For more information, e-mail cfoster@bdo.ca or visit the website www.bdo.ca.
