AgriStability reference margin change a good start

There won’t be many accolades and certainly no victory parades, but federal and provincial agriculture ministers are doing a number of things right when it comes to the business risk management programs.

Starting in 2018, the next five-year agriculture policy framework will officially be called Canadian Agricultural Partnership, and while funding for farm safety nets isn’t being increased, at least it isn’t being cut.

Crop insurance funding is being maintained. It’s the most important of the farm safety nets and the one most used, understood and appreciated by producers.

It was good to see the Western Livestock Price Insurance Program maintained. It’s a great tool to protect against dropping market prices.

The only program cost for government is administration because the guaranteed prices along with currency fluctuations are hedged, making this a great service for a government program to provide.

The insurance programs are attractive as long as market prices are strong. That won’t always be the case. When prices drop, the other safety nets are supposed to kick in.

Chief among those is the much maligned AgriStability, and on this program an important change is being made. Starting in 2013, AgriStability program benefits have been calculated based on a producer’s reference margin, or average allowable expenses, whichever is less. This decreased the value of the program to many producers, especially those with low costs.

A producer’s reference margin is determined by excluding the highest and lowest program margins in the previous five years and averaging the remaining three.

Many producers had their current year’s margin fall below 70 percent of their reference market, but they didn’t have a claim or as large of a claim because of the limited reference margin rule.

The allowable expenses from the three years used to calculate the reference margin were averaged. If that amount was less than 70 percent of the reference margin, that number was used instead.

This limited reference margin is being eliminated starting in 2018. It is a positive move, but unfortunately it won’t likely be enough to bring producers back into AgriStability. Lack of participation will be a big problem when the farm economy hits its next big speed bump.

To pay for the change to AgriStability, a minimum payment of $250 is being implemented for both AgriStability and AgriInvest. More significantly, the net sales eligible for AgriInvest are being reduced from $1.5 million to $1 million. With the one percent government contribution, the maximum payment per farm will be $10,000 rather than $15,000.

Governments are undertaking a review of business risk management programs with a specific focus on AgriStability. Why the heck this sort of review wouldn’t have been conducted years ago is a mystery, but better late than never. The agriculture ministers want options brought forward to their 2018 summer meeting to improve timeliness, simplicity and predictability, but any changes will have to be cost neutral.

AgriStability and the whole suite of business risk management programs will be in the spotlight at some future date when agriculture is in a serious economic downturn. The time to make these programs as effective as possible is now.

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