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Deciding on AgriStability

AgriStability has never been popular with farmers, and there’s a burgeoning lobby to get it improved. But keeping your farm enrolled still looks like the right move

If you ask farmers what they think of AgriStability, chances are you’ll hear grumbling, some of it pretty loud. But as farm groups gear up to negotiate with the federal government over the next round of Growing Forward programs, it’s time to examine what’s actually working, what’s not, and what’s misunderstood about the program.

What’s certain is that AgriStability isn’t winning any popularity contests. For instance, in a survey this spring by the Agricultural Producers Association of Saskatchewan, farmers in that province ranked AgriStability lowest among the federal government’s suite of business risk programs.

Fewer than 20 per cent said AgriStability is actually benefiting their operations.

Worse, 35 per cent said they had already opted out.

“Governments have indicated that they have no desire to return to the days of ad hoc programs. But given the participation level in AgriStability, there’s certainly going to be a call for that if market shock occurs,” says Dennis Thiessen, a grain farmer from Steinbach, Man., who also chairs the safety nets committee of the Grain Growers of Canada.

The knocks against AgriStability are well founded, Thiessen says. The program is complex, it penalizes diversification, its margins are unrealistic, and it is too hard to predict. Added to that, lobbyists say, is the increasing risk that the funding will be syphoned off for food processors.

The knocks against AgriStability are well founded, Thiessen says. The program is complex, it penalizes diversification, its margins are unrealistic, and it is too hard to predict. Added to that, lobbyists say, is the increasing risk that the funding will be syphoned off for food processors.
photo: Chris Procaylo

In 2011, 88,492 producers were enrolled in AgriStability, according to the federal government. By 2013, enrolment had dropped to 74,121 (Agriculture Canada doesn’t yet have numbers for 2014 or 2015).

The federal government says the drop is partly due to farm consolidation and market conditions, along with business decisions made by farmers.

Thiessen, however, points out that while participation rates in AgriStability are declining, AgriInsurance and AgriInvest participation rates are solid, even though both programs require farmers to invest considerable dollars.

That’s because those programs are predictable and bankable, he says, adding “They provide peace of mind to farmers.”

The feds’ numbers confirm that AgriInvest has held steady. Over the same time period, enrolment went from 110,483 to 105,566 producers, a relatively small drop the feds attribute to consolidation.

Why exactly are so many producers giving AgriStability a pass? What needs to be done to fix the program? And, is withdrawing from the program in a farmer’s best interest?

Country Guide spoke to farmers, accountants, and farm group leaders to find out.

Yes, it’s complicated

Norm Hall, president of the Agricultural Producers Association of Saskatchewan, says one issue is what will happen to the farmers who have left AgriStability when the bottom falls out of the market.

But he’s also concerned about how well enrolled farmers will be covered.

“AgriStability is a misnomer now,” says Hall. With the drop in reference margins, it’s AgriDisaster, he says.

Whether or not farmers will see a payment under the program depends largely on their reference margins, calculated by subtracting allowable expenses from farm commodity sales. Under the first Growing Forward framework, reference margins were based on an Olympic average, determined by taking the last five years’ reference margins, dropping the highest and lowest margins, and averaging the remaining three. Farmers received a payment once their reference margin dipped to 85 per cent of that historical average.

But when the Growing Forward programs were renegotiated in 2013, the AgriStability payment trigger was dropped to 70 per cent.

“And the other change, which turns it into a real wild card for producers, is they have this limiting of the margin,” says Steve Funk, director of farm income programs at Meyers Norris Penny (MNP). The limited margin caps the reference margin to allowable expenses included in the margin. Farmers must use whichever margin is lower — either the limited margin or the original Olympic average.

Producers confused by these rules are in good company.


AgriStability and AgriInvest by the numbers

How much money have farmers contributed to AgriInvest?

In 2013, the government’s contribution was cut from 1.5 per cent to one per cent of allowable net sales. Producers started cutting their contributions to the programs as a result.

agristability-agriinvest-numbers1

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While it’s possible to estimate the size of the payment a farm might receive under AgriStability, it’s not easily done. Many farmers and their accountants have been unable to accurately forecast payments, says Ben Le Fort, senior farm policy researcher with the Ontario Federation of Agriculture (OFA).

OFA surveyed its members, and found 85 per cent of respondents said the program is difficult to understand. Even more doubt that their bankers understand the program either, or that their bankers would give them a better borrowing arrangement for participating.

“If you have inventory adjustments or you change your production in any way, it really throws off some of the numbers,” says Le Fort, who adds that not knowing what circumstances will trigger a payment and how much they might receive makes it more difficult to make long-term plans.

“Farmers understand that numbers have to be verified, and that’s the nature of the program,” says Thiessen. “But it’s still frustrating for farmers.”

And the changes to reference margins hit some farm operations harder than others.

Cranberry farmers, maple syrup producers, and organic farmers are a few examples of operations more likely to be limited by the rule changes because their expenses are relatively low compared to their allowable income, Funk explains.

There are also geographical divides. In Saskatchewan, for instance, farmers in the south tend to be affected more than their northern counterparts.

“North is canola-wheat country, and south is lentil-durum country. And lentils don’t take fertilizer,” explains Shea Ferster, business adviser with MNP in Saskatoon.

By contrast, Ferster points out, crop rotations in the south tend to be pulse-heavy. Those pulses cut fertilizer requirements, and the seed also costs less than canola. All that adds up to lower costs for southern Saskatchewan farmers, making them more likely to fall outside AgriStability’s limited margin.

Another source of frustration for farmers is that AgriStability discourages diversification on the farm, says Thiessen. For example, with a mixed farm, if either the grain or livestock side drops off, the overall farm is less likely to see a payment than farms that focus on one or the other.

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Indeed, Hall says their survey shows that this is how farmers see it too, with more mixed farms appearing to pull out of AgriStability, along with smaller farms.

Funk agrees that mixed farms tend to qualify less often for AgriStability than farms that aren’t diversified. When they do qualify, they also might receive less benefit. But that’s not to say that they’ll never qualify for money, says Funk.

“We have some very large clients across the firm that are well diversified and we often see them qualify” he says.

Should you drop AgriStability?

In general, producers aren’t participating at the levels that they should. Some of them have gotten out of the program. And I think it’s a bad decision for a lot of them,” says Steve Funk of MNP.

People tend to look at the business risk management programs in isolation, Funk says. But asking whether or not a farm should enrol in AgriStability is the wrong question, he argues. Instead, farmers should ask how they can combine the available risk management programs to maximize their coverage at a reasonable cost.

Like some other advisory services, MNP’s accountants can show clients how much of their margin would be protected in various scenarios, so they can compare options.

For example, if you have a 30 per cent loss, how much of that loss will be covered through AgriStability alone? Or AgriStability with crop insurance? Or Global Ag Risk Solutions (GARS) instead of the Growing Forward programs? And what happens when you switch between the conventional and limited margin?

MNP also accounts for the costs of the programs. For a typical 5,400-acre Saskatchewan farm that we used as an example, AgriStability costs totalled $1.17 per acre. That broke down to $0.62 per acre in government fees, with the balance in accounting fees (MNP puts together the application and forecasts expected benefits for clients).

That’s a pretty typical cost for AgriStability. Ferster estimates that a 5,000-acre farm would pay between $1 and $1.50 per acre to participate in AgriStability. Fewer acres doesn’t drop the accounting fee significantly, he adds, because putting together the application and forecasting the benefits takes a certain amount of time no matter the farm size.

The bottom line is that when they are used together, crop insurance and AgriStability will cover most of the losses for this farm. Ferster and Funk say they haven’t seen many of their clients withdrawing from AgriStability, especially once they’ve learned how the different programs work together.

But are there scenarios where it makes sense to opt out of crop insurance and AgriStability and to pay into GARS instead? Ferster says he hasn’t found a better answer than “it depends.” Until you run the scenarios, you won’t know which options are best, he says.

Typically GARS competes better for a farmer who hasn’t been using crop insurance, because they’re then dealing with area averages rather than the farm’s average, Ferster adds.

GARS is also worth a look when AgriStability doesn’t provide a lot of coverage. Funk had a client whose $900,000 margin was being capped at half a million.

“That’s pretty severe limiting,” says Funk. That client was pondering whether AgriStability was still worthwhile. But when Funk crunched the numbers and did some forecasting, the eligible margin was heading back to $800,000 in the near future.

“Just because you’re limited one year doesn’t mean you’re limited to the same extent the next year,” Funk says.

He also adds it’s usually worth staying enrolled in the program, because dropping out and re-enrolling takes as much work or more.

As for the grain farm Funk used as an example during the interview, the limited margin would have dropped their AgriStability benefit by $6 per acre.

“Is the program still beneficial? You bet it is,” says Funk.

What farm groups want

All of the farm groups contacted for this story want AgriStability strengthened rather than scrapped.

“It’s a known commodity,” says Agricultural Producers Association of Saskatchewan (APAS) president Norm Hall. “You don’t have to guess what sort of ad hoc program is going to come out, or demand some sort of ad hoc program.”

On everyone’s wish list is returning payment triggers to 85 per cent of the reference margin. And everyone would like something done with the limited reference margin. OFA’s Le Fort would like to scrap that cap altogether, calling it a “double whammy” that cuts the likelihood of a payment and adds complexity to the program.

“We don’t mind if there’s a cap. But the one that they’ve got with eligible expenses is the wrong one because there’s unintended consequences there,” Hall agrees.

Although it’s difficult to change program rules midstream, the Grain Growers of Canada want the federal government to take another look at how AgriStability accounts for certain farm expenses, Thiessen says. For example, custom work, whether it’s work done by or for the applicant, is a messy area.

“There are different ways of calculating that in the costs. And they don’t always make sense,” says Thiessen.

Hall is also keeping his eye on the big picture when it comes to business risk management programs. There are all kinds of demands on the next policy framework, including trade and research along with business risk management.

Other groups, such as food processors, are also looking to Growing Forward for dollars that they used to access under Industry Canada, Hall says, then asks: “Will the government be willing to put more money into the total of the next policy framework, or are we expected to reduce something else to fund this extra demand?”

Given the falling participation rates in AgriStability over the last 10 years, “a simple return to the 85 per cent coverage rate” may not be the best solution, says Thiessen. He suggests “a deeper dive” to figure out what the issues are in the program, and to find workable solutions to those issues.

The Grain Growers of Canada wants an advisory committee to do that deep diving. Thiessen says they want representatives from national commodity associations on the committee. Provincial associations should also be at the table to address regional gaps in the program suite, he adds.

There was also a general feeling among the farm groups that the program needs to be more user-friendly and transparent. One complication is that AgriStability works on an accrual basis, while many farms operate on a cash basis, Hall says. Timing is also an issue, he says. Farmers can see payments from AgriInvest and AgriInsurance within 60 days, he says, but AgriStability takes six months, a year, or more.

Ontario’s OFA wants the government to encourage new farmers to enrol in AgriStability. The first five years are the riskiest phase, says Le Fort, so he would like program fees waived for those farmers.

Of course, AgriStability isn’t the only program potentially up for revision. Even farmer-favourite AgriInvest could use a few tweaks, according to farm groups who want the government contribution bumped from one per cent of allowable net sales back up to 1.5 per cent, restoring it to 2013 levels.

“We’re also asking them to encourage some investment from the program,” says Le Fort. Right now, when farmers withdraw funds from AgriInvest, that money comes from the government-contributed portion, triggering taxes. Le Fort wants farmers to be able to withdraw first from their share of the contributions to avoid those taxes.

“Under our recommendation it would be more like a TFSA,” he says.

“AgriInvest has been a good tool for small bumps in the road, as long as you had some good years prior to build up a bit of an account,” says Thiessen. “AgriStability is for the big bumps.”

And if there’s one thing you can count on in agriculture, it’s big bumps. Thiessen thinks the next one might be around the corner. Global stocks of wheat and coarse grains are building, causing prices to drop significantly, he says. And overall commodity prices are higher than they would be in Canada due to the weak dollar and low oil prices.

“When oil prices recover, and the dollar recovers with them, that’s when we’re going to see significant market shock.”

And he worries that’s when we’ll find the programs are lacking.

About the author

Field Editor

Lisa Guenther is a field editor for Country Guide.

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