AgriInvest for Dairy Farmers
John Hunt , Partner, BDO Dunwoody LLP
The Milk Producer
March, 2008
Confused by all the new government farm programs? You’re not alone.
Over the past few months there have been a number of important program announcements affecting Ontario farmers. Some program names have been changed, while others require new applications or have new deadlines.
One program in particular you should have seen by now is the new AgriStability program, the renamed program replacing the Canadian Agricultural Income Stabilization (CAIS) program. CAIS was created to help producers protect their margins from larger declines. A portion of the funding for the CAIS/AgriStability program has been diverted to fund a new initiative called AgriInvest, which operates similar to the old Net Income Stabilization Account (NISA) program.
AgriInvest replaces coverage previously available under CAIS for margin declines of 15 per cent or less. Producers who make a yearly deposit into an AgriInvest account will receive matching contributions from federal and provincial governments. The funds can be used to cover small margin declines and for risk mitigation.
The maximum amount a producer can contribute is determined by Agriculture and Agri-Food Canada (Ag Canada) based on the applicant’s income tax returns and T1163 statement of farm activities form for unincorporated operations or the CAIS Statement A form for incorporated operations. On an ongoing basis, Ag Canada will allow farmers to contribute 1.5 per cent of their allowable net sales, which consists of commodity sales minus commodity purchases. Interest is credited to the account at a rate linked to T-Bill rates. According to Ag Canada, the interest will be 3.49 per cent for January 2008. Farmers are not required to participate in CAIS/AgriStability to take part in the AgriInvest program.
While milk, poultry and egg sales are still not considered allowable sales for the AgriInvest program, the reduction for supply-managed operations is not as onerous as it was for the CAIS program, which many dairy farmers had little use for. Under the CAIS program, in a year that you potentially had a CAIS payout there was usually a large clawback based on the percentage of milk sales to total farm sales.
To assist producers in the transition to the suite of new business risk management programs, Ag Canada has announced a one-time $600 million investment to kick-start the AgriInvest accounts. “Kickstart” is based on your activity for the 2000 to 2004 period. The program provides a one-time contribution of 2.63 per cent of your average allowable net sales for the same period. Producers do not have to make a deposit to their AgriInvest account to access their “Kickstart” funds. All funds withdrawn from AgriInvest accounts are taxable when withdrawn.
The example shown [below], shows a dairy farmer with sales of non-supplied managed commodities totalling $75,000 or 23.1 per cent of total sales. Reducing purchases of non-supply managed commodities by 23.1 per cent, or $10,385, means his allowable net sales would be $64,615. As a result, he would be entitled to an AgriInvest benefit of $969 and a one-time Kickstart benefit of $1,699.
| Calculation of Allowable Net Sales |
| Average Commodity Sales for 2000 to 2004 |
|
|
Milk
|
$250,000 |
|
Cattle
|
25,000 |
|
Crops
|
50,000 |
|
| |
$325,000 |
|
| |
|
|
| Percentage of Non Supply Managed |
|
|
Commodity Sales
|
23.1% |
(25,000 + 50,000) / 325,000 |
| |
|
|
| Average Commodity Purchases for 2000 - 2004 |
|
|
Cattle
|
$10,000 |
|
Prepared Feed (reduced by 35% factor)
|
20,000 |
|
Seed
|
15,000 |
|
| |
45,000 |
|
| |
|
|
| Non Supply Managed portion of Commodity |
|
|
Purchases
|
$10,385 |
(45,000 x 23.1%) |
| |
|
|
| Allowable Net Sales |
$64,615 |
(25,000 + 50,000 - 10,385) |
| |
|
|
| KickStart benefit |
$1,699.38 |
(64,615 x 2.63%) |
| |
|
|
| AgriInvest benefit |
$969.23 |
(64,615 x 1.5%) |
To be eligible for Kickstart funds, producers must have farmed in 2007 and must commit to participating in AgriInvest for the 2007 program year.
If you filed a CAIS application for the 2004 program year, or if you participated in the Cost Of Production program last year, you will automatically be enrolled in the program. You should have already received a form requesting the Kickstart funds. If you did not receive the form or if you’d like to apply to the AgriInvest program, contact Ag Canada at 1-866-367-8506 or download an application form at www.agr.gc.ca.
The deadline to apply for KickStart funds is March 31. There is likely to be a fee for participation in the program, however none had been announced at the time of writing this article.
John Hunt is a chartered accountant and partner at BDO Dunwoody in Hanover, Ont. For more information, e-mail jhunt@bdo.ca or visit the website www.bdo.ca.
