AgriStability change less than overwhelming

The recent change to AgriStability is less significant and less helpful than it initially appeared.

When federal and provincial agriculture ministers met in Newfoundland and Labrador, their big announcement was the signing of a new five-year agreement with some changes to the business risk management programs, specifically AgriStability and AgriInvest.

Previous five-year agreements were Growing Forward 1 and Growing Forward 2. The new deal, which takes effect in 2018, is Canadian Agricultural Partnership.

Based on the news release and reports from the news conference, it sounded like the trigger mechanism for AgriStability was being changed and would make it easier for low-cost producers to qualify for support. While that’s true, it isn’t as simple as it first appeared.

First, some history.

Starting with Growing Forward 2 back in 2013, AgriStability program benefits have been calculated based on a producer’s reference margin or average allowable expenses, whichever is less. Adding the allowable expenses trigger decreased the value of the program for many producers, especially those with low costs.

The 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 based on allowable expenses.

It sounded like the limited reference margin was being eliminated starting in 2018. Instead, it’s being adjusted so that the reference margin limit will never be less than 70 percent of the reference margin.

Confused? This example may help. Assume that a producer has a reference margin of $100,000 and allowable expenses of $40,000. Under Growing Forward 2, the lower number would be used for the calculation of AgriStability benefits. Under CAP, the margin for benefit calculations will be $70,000. Even though allowable expenses are $40,000, the reference margin limit is capped at 70 percent of the conventional reference margin of $100,000.

So yes, this is an improvement, but it’s not like eliminating the allowable expense limitation altogether.

It’s also important to note that whatever the value is for the calculation of AgriStability benefits, the support level is only 70 percent. In the example above, 70 percent of the $70,000 is the actual support level ($49,000). To add insult to injury, only 70 percent of any shortfall is compensated.

If agriculture hits a major downturn, AgriStability could still provide significant support. Unfortunately, many producers have dropped out, believing they are unlikely to ever trigger payments.

No other safety net proposal has gained any traction. Federal and provincial governments seem content to tinker with what we have rather than design something new.

Over the past 40 years, the grain industry has gone through some long stretches of very tough times. The past 10 years have been amazingly buoyant, leading many to think they’re bulletproof. But markets and weather are unpredictable.

Now is the time to be designing a comprehensive safety net that’s bankable and easy to understand into which producers will want to enrol. Private industry has developed some innovative programs that might be used as templates.

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