In March 2021, the Canadian federal and provincial governments announced changes to the AgriStability program to improve income support for farm producers. Given the influx of federal and provincial government support programs announced because of the COVID-19 pandemic in 2020 and 2021, producers may have overlooked the changes to the AgriStability program and its potential impact on their operations. As we look forward to 2022, producers who have never participated or have been out of AgriStability for several years should re-evaluate whether the AgriStability program would benefit their operations.

AgriStability overview

AgriStability’s purpose is to buffer farm producers from production margin declines. The AgriStability program calculates the producer’s production margin as:

allowable income - allowable expenses  = production margin

Allowable income includes sales of agricultural commodities, such as grain and oil seeds, beef, hog, sheep, etc. Allowable expenses include, but are not limited to, such expenses as seed purchases, pesticides, machinery fuel and feed.¹ The calculation of allowable income and expenses includes adjustments for inventories, accounts receivable, prepaid expenses and accounts payable to get a margin representative of production for the program year.

The mechanisms of the AgriStability payment calculation can be demonstrated through this example:

The first step is to take the producer’s prior five years of production margins and calculate the “Olympic Average,” removing the worst year (Year 2) and the best year (Year 1) and averaging the three remaining years to calculate the $200,000 reference margin.

A payment is triggered if the program year margin falls below 70 per cent of the reference margin. In this example, the producer’s current year program margin was $40,000, thus falling below the payment trigger of $140,000.

The Canadian Agricultural Partnership between the federal and provincial governments defines the benefit rate as 70 per cent of any margin decline below the payment trigger. Benefits are funded on a 60/40 ratio by the federal and provincial governments, respectively. As shown below, with a margin decline of $100,000, this producer qualified for an AgriStability payment of $70,000.

Changes to the AgriStability program

Removal of the reference margin limit

The most significant change to the AgriStability program announced in March 2021 was the removal of the reference margin limit tied to allowable expenses. This reference margin limit affected those with low ratios of allowable expenses to allowable income. The reference margin limit made it difficult for those producers to predict whether they could qualify for payments, as the payment triggers could range from 70 per cent to 49 per cent of the reference margins.

Field crop production, in particular, was significantly affected by this reference margin limit. Generally, field crop production is capital intensive with significant costs that are not allowable expenses for the purposes of calculating producers’ production margins. These non-eligible expenses include machine repairs and maintenance, custom work, financing costs and land rent. The result of the reference margin limit was that many producers needed the current year margins to fall 49 per cent below their refence margins to trigger payments. Using the above example, a producer impacted by the reference margin limit would require their production margin to fall below $98,000, rather than $140,000, to trigger a payment.

Many field crop producers and other producers with low allowable expenses relative to allowable income decided to exit the AgriStability program after the reference margin limit was introduced back in 2013. With the reference margin limit no longer a factor, low allowable expense ratio producers, such as field crop producers, may wish to consider participating in the program again.

Treatment of private insurance income

Prior to 2020, producers who participated in private insurance programs had these payments included in their program year margins. Private insurance refers to third-party, producer-funded coverage for revenue losses of allowable commodities.  Beginning in 2020, these private insurance proceeds are excluded from the program year margins but are still included in the producers’ reference margins, thus increasing the possibility of qualifying for payments. The Livestock Price Insurance programs offered in British Columbia, Alberta, Saskatchewan and Manitoba are examples of such programs. The treatment of production insurance offered by provincial agencies remains the same as before, with production insurance income included in the program year margin.

Should your operation enroll in AgriStability going forward?

Producers should consider several factors when deciding whether to participate in the AgriStability program.

Payment trigger unchanged at 70 per cent

The most significant AgriStability program change that was enacted in 2013 by the federal and provincial governments was the lowering of the payment trigger from 85 per cent to 70 per cent. This payment trigger factor remains unchanged, so producers are still not as likely to trigger payments as those who enrolled when the payment trigger was 85 per cent.

Understanding gross margins

The lower a farm’s gross margins, the more sensitive the operation will be to changes in factors such as market prices, production declines and rising expenses. With AgriStability, lower margin producers require a smaller percentage change in those factors to qualify for payments.

To illustrate how gross margins impact AgriStability payments, consider the hypothetical example below for two conventional corn producers who have high and low gross margins.

The chart calculates the percentage drop in the corn price required to trigger an AgriStability payment. To isolate the impact of the market price change, the yield per acre and the allowable expenses are held constant. The only change that occurs for the high-margin producer and the low-margin producer is the corn market price decrease from $230 per tonne. For the high gross margin producer with a 57 per cent gross margin, a 17 per cent price drop in corn is required to qualify for a payment. However, the low gross margin producer with a 35 per cent gross margin requires just a 10 per cent price drop.

The example above highlights how producers in low gross margin industries will be more likely to benefit from the AgriStability program as smaller changes in variables, such as market price or allowable expense price, can trigger payments. However, even the high-margin corn producer in the example above may still benefit from AgriStability as a 17 per cent price swing is not unusual in corn.

Understanding provincial farm supports impact on AgriStability

Each province is responsible for administering agricultural support programs, and the programs can differ from province to province. Some provinces have programs that complement the risks AgriStability is covering. For example, Ontario has the Risk Management Program (RMP), in which payments are considered advances under the AgriStability program. If an Ontario producer receives more through the RMP than the Ontario portion of the AgriStability benefit, the effective AgriStability benefit rate lowers to 42 per cent from the 70 per cent it would be with no RMP.

As well, in Ontario the provincial portion of the AgriStability benefit rate is 80 per cent rather than 70 per cent. However, the higher Ontario benefit rate will not change the net AgriStability payment received if the Ontario portion of the AgriStability benefit is already advanced through RMP payments.

Producer administrative work and AgriStability fees

AgriStability fees are calculated as 0.3150 per cent of the reference margin (plus $55). In the above example of a $200,000 reference margin, the producer’s premiums would thus be $685. This cost might be considered minor relative to potential margin coverage of 70 per cent when a payment is triggered. However, the premiums may be only a small portion of the cost to participate in the AgriStability program. Participants must also complete annual applications detailing their production histories, accounts receivable and accounts payable, and must provide detailed reconciliations of their opening and ending inventories, among other requirements. Compiling this information often requires a significant amount of work for producers and their advisors, over and above preparing the basic annual financial statements and tax returns.

It is common for AgriStability administration to follow up with a producer with inquiries even after the application is submitted. And if the application is not processed as expected, the appeal process can add even further to the administrative burden.

To enroll in the AgriStability program, producers must provide historical financial and production information to calculate their reference margins. Provincial agencies do have a simplified enrollment process for those who are new to farming or have been out of the AgriStability program for more than four years.

Supply management sectors

Historically, the supply-managed sector rarely experiences margin declines under 70 per cent. It is possible, however, that a disaster could cause a greater decline. The avian influenza outbreak that affected certain western-Canadian chicken producers more than ten years ago is a good example. These types of producers should consider whether the costs to participate in AgriStability outweigh the insurance coverage provided. They may already have sufficient resources, including other insurance products, to deal with unforeseen disasters.

Ad-hoc government disaster recovery programs

Many ad-hoc government disaster recovery programs in the past have been based on information filed through the AgriStability program and its predecessors, and thus may not be available to non-participants.

Get professional advice

The decision whether or not to participate in the AgriStability program can be complicated. Every case is different. The deadline to enroll in the 2022 AgriStability program is April 30, 2022. Contact your Baker Tilly advisor before making any decisions. We can help you to understand your options.

Meet the Author

Kyle Martin
Elora, Ontario
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