CAISP: THE NEWEST MEMBER OF THE GOVERNMENT LEAGUE OF SUPERHEROES

Originally published on September 4, 2003

 

I wonder if any of our farm policy makers read comic books.

Beginning in 2003, the Canadian Agriculture Income Stabilization Program, known by its acronym CAISP, will replace the existing Net Income Stabilization Account and Canadian Farm Income Program.  CAISP promises to be the "permanent disaster program which farmers can rely on."

With the introduction of this latest farm program, I keep visualizing tired superheroes named NISA, AIDA, CFIP and now CAISP joining forces to fight the dark villains named BSE, drought, GTDS  (global trade distorting subsidies) and grasshoppers.

So far, I'd have to say the bad guys are winning.

CAISP is based on a production margin whereas CFIP is based on a gross margin calculation.  With CAISP there is a much smaller list of allowable expenses that can be subtracted from the farm's commodity revenue to arrive at its production margin.

If your farm's current year production margin plus any change in inventory, receivables, or payables falls below your historical production margin, known as the reference margin, then a payment is triggered.

Proponents of the new program state that because the production margins are larger, producers will get more support in a significant downturn.  They add that the larger production margin means fewer farmers will have negative margins, which are not covered under the existing CFIP or new CAISP programs.

I have recreated CAISP graphically in the accompanying table.

The two stabilization tiers and the disaster tier are labelled.

As the farm loss deepens, the government assumes a greater share of the cost to cover the current year loss.

For example, in the first stabilization tier, 15 percent of loss would be cost-shared 50:50 with the government.

In the second stabilization tier, the government share would be $2.33 for every producer dollar.  In the disaster tier, which is any part of the loss that was between zero and 70 percent of the reference margin, the producer would get $4 from the government for every dollar of his or her own funds.

In September, all farmers will get a letter from the CAISP administration indicating their average production margin, or reference margins and asking them to select their 2003 coverage.

You can select any level of coverage from the minimum of 70 percent of your average production margin to the maximum 100 percent.  

Farmers must then open a CAISP account at their financial institution and place one-third of the producer deposit in the account by March 31, 2004.

The deposit is fully refundable in years when a withdrawal is triggered.  If you experience a margin decline, you may be asked to make an additional deposit if the funds in the account are not sufficient to cover your share of the program payment.

If you have a margin decline of more than 30 percent, the one-third producer deposit then resets and you will have three years to bring the account balance to the full amount required to secure the percentage level of protection selected.

I am particularly curious to see how our newest superhero CAISP will combat the villain BSE.

 

 

Since the payment trigger is based upon the farm's claim year margin plus accrual adjustments, everyone is anxious for the CAISP administration to announce its commodity price listings.

This price listing will inform us of the effect of the accrual adjustment on the claim year margin.

I am speculating that pre BSE market prices will be weighted too heavily in the 2003 CAISP commodity price listings.

I'm afraid that policy makers are also speculating that the border will open soon. The last thing they want is to make a large number of CAISP payments on losses that were not realized, but created by an accrual adjustment.

I know several ranchers who  are talking about backgrounding their calves this winter. They say there are no other options.

One alternative is to sell the calves and culls as normal.

You will realize a memorable loss per pound, but this cash loss could be offset with CAISP funding. If the 2003 CAISP commodity price listing does not reflect the full effect of BSE, then this may be the only way to secure your entitled assistance.

Final CAISP applications will be available in February 2004, so producers must be prepared to wait until July for their 2003 CAISP cheque.

Before you consider the fire-sale of any market livestock, consult with your accountant.  

As a general rule, an increase in inventory or high commodity prices will reduce your CAISP payment.  Similarly a decrease in inventory or low commodity prices will increase your CAISP payment.

Some livestock producers may choose to sell their market livestock before their year end, and then hedge by replacing them at the same low prices in the following fiscal year.

I would also like to make some recommendations to producers about the program.

Almost everyone will want to select 100 percent margin coverage. The one-third producer deposit is refundable and the banking industry will be motivated to find a way to have it made. 

As well, since we will have to wait until February 2004 to see the 2003 CAISP commodity price listings, producers will want to sell some of their commodities within 30 days of their year end to establish a price that properly reflects the market price at their year end.  This will give them the most flexibility in managing their accrual adjustment.

Under CFIP, producers were able to use prices other than those on the published commodity price lists, so long as they submitted an official income receipt, within 30 days of their year end, with their application.

We expect a similar pricing methodology will continue under CAISP.  If you don't make a sale then you don't have this option.

I hope that CAISP is the permanent disaster program that all producers can rely on.

As farmers and ranchers, we could all use a superhero right now.

 

Allyn Tastad, certified general accountant, is a partner in the accounting firm of Hounjet Tastad Harpham in Saskatoon at 306-653-5100, e-mail at allyn@hth-accountants.ca or website www.hth-accountants.ca. He is also involved in the family farm near Loreburn, Saskatchewan.  The opinions expressed in this column are for information only.