AGRI-STABILITY CUTS SHOULD NOT GO UNNOTICED

Originally published on October 4, 2012

 

 Always read the fine print. I almost missed something buried in it.

I had heard that the federal and provincial governments were going to remove the middle stabilization tier (85 to 70 percent) in the coming Growing Forward 2.

What I didn’t know is that they had agreed to limit 2013-18 Agri-Stability reference margins to the lesser of a farm’s historical reference margin or its allowable expenses.

This took me by surprise because it will reduce per acre coverage guar­antees from what has been available.

Your farm’s Agri-Stability refer­ence margin is your average pro­gram margin for three of the past five years. The lowest and highest margins are dropped from the cal­culation.

You can increase your chances for an Agri-Stability payment in a current or future “below average” year by building up reference margins with a better than average year.

Agri-Stability coverage levels have not been transparent, but farmers remain enrolled in record numbers.

They have paid their accountants to file their applications and review the processed results.

They paid their annual enrolment fees, answered numerous questions from program personnel, and mailed in required information.

Our client Dan (not his real name), was comforted knowing that his ref­erence margin was on the rise.

In 2009, his farm’s reference margin was reported to be $216,999, but in 2012 it had jumped to $433,870.

Last week, Dan called to tell me he is harvesting a below average crop.

He has avoided a 2012 insurance claim on his identity preserved canola and field peas, but his flax, regular canola and barley were well below his farm’s five-year average.

His fusarium-tainted wheat will also generate an insurance claim.

His 2012 crop insurance premium of $20,906 will be offset by $37,445 in crop insurance proceeds, leaving him with $16,539 in his pocket.

Dan’s challenge to me was, how much can he expect from Agri-Stability given his record setting reference margin?

To get our answer, we first estimat­ed Dan’s 2012 production revenue.

His provincial crop insurance records were a good resource, and after some detailed figuring we arrived at $395,694 of income.

We then tallied allowable expenses for 2012, which totaled $340,370.

Subtracting expenses from income, generated Dan’s 2012 program mar­gin of $55,324, or $24.58 per acre.

 

 

Agri-Stability under the old funding requirements of Growing Forward will backstop Dan to $88.28 per acre at the 70 percent threshold plus an additional $20.22 at the 85 percent threshold, bringing his total funding to $108.50 per acre.

Put another way, Dan should expect $198,706 from his 70 percent disaster tier and $45,537 from the 85 percent stabilization tier for a total of $244,243.

This is Dan’s reward for his record-setting reference margin and is summarized in the accompanying table.

But what would Dan have received had we already been under Growing Forward 2 funding restraints?

Well, in short, much less.

For 2013-18, the governments have removed the 85 percent tier, which removes $45,537 or $20.22 per acre of former Growing Forward funding.

As well, in the fine print, they have lowered Dan’s reference margin to his allowable expenses and cut back funding in the disaster tier by 10 per­cent. This removes an additional $70,656, or $31.39 per acre.

In total, Dan would lose $116,193 ($45,337 plus $70,656) if his 2012 pro­duction year was reported in 2013.

This is $51.61 per acre. Ouch.

Dan has been farming for a long time and knows how things roll.

That being said, he is glad that he is under the Growing Forward rules and not Growing Forward 2.

From a government program per­spective, he’s very much a cynic. He always knew his reference margin might be “too good to be true.”

DOING THE MATH FOR AGRISTABILITY PAYMENTS
  Growing Forward 1 Growing Forward 2 Funding
  (2012) (2013-2018) Reduction
Former Stabilization tier $20.22/acre $0/acre -$20.22/acre
began at 85% of ref . Margin      
Gov't funded portion $45,537 (none) -$45,537
removed under GF2      
Disaster tier begins at 70% $88.28/acre $56.89/acre -$31.39/acre
of reference margin      
Gov't funded portion in GF2 $198,706 $128,050 -$70.656
is reduced and ref. margin      
lowered to the historical average of the farm's allowable expense  
Agri-Stability funding $244,243 $128,050 -$116,193
GF1 vs. GF2 $108.50/acre $56.89/acre -$51.61/acre

 

Supplemental farmer facts:
• Current reference margin: $433,870
• Crop basket acres 2,251
• Agri-Stability fee $1,230
• Current program margin $55,324
• Historical average of
allowable expenses $340,370

 

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.