AgriStability, or one of its similar predecessor programs, has been around for a long time. Over the years, it has seen many changes, and for the past several years, very few of those changes have benefited producers, leading many farmers to opt out, and many others to question each year whether it is worth enrolling again.
And it is a question worthy of serious consideration. Administration costs are high, especially when considering both the direct financial costs, and the time required to compile all the information necessary for a complete return. At the same time, can you afford to drop the financial protection the program provides if or when commodity prices take a hit? Here are a few of the factors we think you should consider before deciding whether or not to enroll.
Farmers have enjoyed a number of years of relatively stable prices and “not bad” returns. Some regions have had significant weather challenges, but crop insurance seems to be better suited to cover off this risk. However, the very recent past has seen a number of trade challenges show up around the world, some of which have significantly affected Canadian farm commodity prices, or have affected the ability to deliver commodities to markets in a timely manner. In the case of a trade dispute or a significant drop in even one commodity price, farmers could see a very significant hit to their bottom line. In these types of situations, crop insurance will not help. AgriStability, on the other hand, certainly will. Beef producers who suffered through the BSE crisis in 2003 and the following years likely have very vivid memories of how AgriStability (then CAIS) came to their rescue. Is the program today as good as it was back then? No, but the way AgriStability works to protect margins when affected by market forces or trade issues is still the same. We think producers need to seriously consider how vulnerable they are to these challenges, and consider what this type of margin protection is worth to them.
No doubt, there are costs to participating in AgriStability. An enrollment fee must be paid to AgriCorp, AAFC, SCIS, or AFSC, depending on the province in which you farm. Then, unless you take care of the AgriStability application yourself, you will need to pay your accountant what is likely to be a fairly significant fee to prepare and submit your application, take care of the inevitable follow-up questions from the agency, and to review the calculations the agency comes up with when the application process is complete. And, even if you hire your accountant to look after your application, you will have your own administrative costs, since you will need better records, and you will need to spend time compiling the information necessary to complete an accurate application.
However, before simply dismissing the program because it looks too expensive, consider the costs on a per acre or per animal basis (or both if you operate a mixed farm). For most producers, administration costs for AgriStability should be between $1 and $2 per acre, including both enrollment fees and accountant costs. Compare this to your tolerance for risk, and consider whether or not it is a fair price to pay.
And, if you are frustrated with the record-keeping requirements, talk to us! We can help you develop a system that will take the headache out of tracking your production information. Even if you decide not to participate in AgriStability, you would do well to keep good inventory records, as your inventory is likely a very significant part of your net worth, and is also a very important part of both short-term and long-term tax planning.
AgriStability offers financial protection if you have a poor year. If your margin drops below 70% of your reference margin, and you are enrolled in the program, you will receive a payment. If you are not enrolled, you have no other program to rely on. If your farm has comfortable cash reserves or other equity to fall back on, you may be able to weather a bad year or two. However, with ever-increasing input costs, many farmers rely heavily on lines of credit and other short-term financing arrangements to get through the growing season. Increasingly, we are seeing banks and other lending agencies require enrollment in AgriStability as a qualifying condition for financing. In some cases, enrollment in AgriStability is also a prerequisite for participation in the Advance Payments Program.
Whether or not you should enroll in AgriStability will depend on your farm’s specific circumstances. Not everyone should participate in the program. However, we believe that due to increases in risk factors in today’s farming environment, increasing production costs, and some small improvements to the AgriStability program, more producers should be enrolled. Participation rates in AgriStability have fallen dramatically over the past decade or more, but we believe the negative factors of the program have been oversold. Yes, there certainly are negatives to the program, and there is much room for improvement. But, it is still a relatively low-cost way of reducing risk to your operation. If we could predict the weather or the markets more than a few days in advance, we could determine on a year-to-year basis whether or not to participate in the program. But then, if we could do that, we wouldn’t need an AgriStability program either, would we?
If you would like an in-depth consultation as to whether or not your farm should participate in AgriStability, get in touch with us. We love talking with farmers!
If, on the other hand, you have already decided to participate in AgriStability, visit our enrolment page to get started.