DOES CAIS PROVIDE CERTAINTY FOR FARMERS IN UNCERTAIN TIMES?

Originally published on February 26, 2004

 

Farming and ranching have always had their fair share of uncertainty. As a result, any farm program that reduces this uncertainty is welcome. Unfortunately, the launch of the new Canadian Agricultural Income Stabilization program is one year late and has raised suspicions among producers that the only certain thing about CAIS is its uncertainty.

My clients are asking three questions:

What level of protection should I choose?

You should choose the maximum protection level. To secure it, you must deposit the appropriate amount of money into a CAIS program account, which is held at a financial institution of your choice.

Your CAIS deposit is not a premium. You own those funds and you can carry forward unused funds to the subsequent year.  If your farm's claim-year margin falls below your reference margin for previous years, you will have access to both your own funds and CAIS government funds.  Together, these funds would bring your farm's claim-year margin up to its previously calculated reference margin.

Put another way, for every dollar you put in, you will eventually get the same dollar back, with interest.

The only immediate challenge is finding the initial one-third deposit. CAIS producer information sessions spend too much time focusing on how to select the appropriate level of protection. Minimize your risk by choosing the maximum level of protection.

Should I continue to carry crop insurance?

Yes, you should.

Crop insurance protects your farm's reference margin because its proceeds are considered allowable income while CAIS proceeds are not.  In a second or third year of drought, the farmer with crop insurance will have a higher reference margin and a higher protection level than the farmer who relied only on CAIS.

 

 

As well, crop insurance payments have proven to be considerably more timely than the Canadian Farm Income Program. With CFIP, it was not uncommon for farmers to wait more than a year to receive their cheques.  How patient can you afford to be? How patient is your banker? Crop insurance also provides higher compensation for spot losses.   Whether it is midge or simply bad seed germination, crop insurance will pay when CAIS may not.  In 2002, sure-crop areas were devastated with drought. Without crop insurance, most farms would have reported negative margins, which were not financed by CFIP and may not be financed by CAIS.

For 2004, CAIS policy makers continue to work on a linkage to crop insurance.

At a recent CAIS information meeting, I was told that if you are "financially disadvantaged," meaning your CAIS payment is reduced due to a receipt of crop insurance, you could be eligible for a "refund of your crop insurance premium." Details remain sketchy, but I am told it will be ready this year.

How do I participate?

By now, you should have received two CAIS Options Notices.  While they look similar, one is for 2003 and one is for this year.   It is important to realize that both have an April 30, 2004, reply deadline.

To participate in CAIS for 2003, you must sign the bottom of page one of your 2003 Options Notice, select your protection level and return it to CAIS by April 30. You must also have your minimum one-third deposit in your CAIS account by Dec. 31.

To participate in CAIS for 2004, you must sign the bottom of page one of your 2004 Options Notice, select your protection level and return it to CAIS by April 30. If you do not participate in the 2003 CAIS, your one-third deposit is not required to be in your CAIS account until Dec. 31. 

To manage uncertainty, most farm managers will join CAIS for 2004. They will select the maximum CAIS coverage but they will also manage their farm risk by carrying provincial crop insurance. They will also continue to look cynically upon policy makers whose programs are introduced as a permanent change for the better.

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.