Federal and provincial governments, implicitly supported by most farm organizations, will change accounting rules for Canada’s main farm support program.
Critics say the program will become less effective for most producers, but governments insist it will be more responsive.
Beginning in the 2007 program year that will affect payments made in 2008, the historic reference margins for the Canadian Agricultural Income Stabilization program will be calculated using accrual accounting rules rather than the cash accounting system most farmers use.
The reference margin is the record of past farm profitability, which is the average of the past five years with highest and lowest years removed. That number determines if income declines in the current year are steep enough to trigger a CAIS payment.
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The change was recommended last summer by a majority on the National CAIS Committee made up of federal, provincial and producer representatives. Federal and provincial ministers then approved it for implementation in the 2007 CAIS year.
Danny Foster of Agriculture Canada said the change is an attempt to make the CAIS program consistent because the government calculates current year farm records on an accrual basis, even if most farmers file income tax returns on a cash basis.
He said government analysis suggests changes will be “payment neutral,” neither increasing nor decreasing overall payouts but making payouts faster in years when inventory values fall.
“There is no doubt, depending on the farm circumstance, that some farmers will do worse under this system, but our analysis is that the vast majority, 70 percent, will do better,” he said.
Farmers with declining inventory values during the reference years will see their historic margins shrink.
Murray Downing, a Manitoba farmer, National CAIS Committee member and twice a Liberal party candidate in the Brandon-Souris riding, begs to differ.
He insists that the switch to accrual calculations will reduce the average reference margin for many or most farmers and therefore reduce their ability to trigger CAIS payments in future.
On his own farm, Downing calculates that cash accounting would give him three healthy margins out of four from 2004-07. Accrual accounting will give him negative margins in those four years and little chance to trigger a payment this year.
“I can’t tell you how widespread this is or whether it is regional, but of all the files I’ve dealt with from other farmers, I’ve not found one that it helps,” he said April 22. “I think this will save the government billions of dollars in reduced CAIS payments.”
In Regina, farm program critic and former Saskatchewan Rally organizer Lloyd Pletz has been waging an e-mail campaign against the changes for months.
In an April letter to the Western Producer that mirrored e-mails to politicians and bureaucrats, he said it is a deliberate plan by governments to destroy CAIS.
“The majority, if not all, of Canada’s farmers will find … that their margins have dropped from minus 100 percent to minus 120 percent, eliminating the majority, if not all, of Canadian farmers from the CAIS program,” he wrote.
Ontario Federation of Agriculture analyst Jason Bent said many farmers will find their reference margins decreased, although OFA has not formally opposed the change. He said any farmer who received a payment under the federal government’s $900 million retroactive switch to the so-called P1-P2 inventory evaluation system will find their historic margins reduced and their current eligibility for help diminished.
“There is no doubt many farmers will find a lower reference margin but since the government says it is payment neutral, some will gain and some will lose,” he said.
In fact, the Ontario government corporation that administers farm programs says that in Ontario, a switch to accrual from cash for historic margins will hurt most farmers.
Agricorp said 90 percent of Ontario farmers use cash accounting: “For most producers, this actually provides a higher and more stable reference margin over time, which in turn provides better support for CAIS program coverage.”
For his part, CAIS national committee member Marvin Shauf from Saskatchewan said last week committee members were convinced by government analysis that the switch will benefit most farmers and make the CAIS program more consistent.
“The program is designed to be a stabilization program and to stabilize over the years. It has to compare apples to apples,” he said. However, Downing’s calculations will be considered at the next committee meeting, likely in May, he said.
Defenders of the change say cash accounting can allow farmers to manipulate profit or loss for a year by deciding what income or costs are counted in the year.
