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CB Blog

CB Blog

October 10, 2018 by Kyle Martin

Reviewing the pros and cons of AgriStability

AgriStability is a program that provides financial protection to farmers in the event that their margin drops compared to the prior year of production. In essence, this is a financial safety net for farmers: they receive payments when their net income drops below 70 per cent of their reference margin, which is determined by averaging their net income over five years after eliminating the highest and lowest years. In many cases, the benefits of the program are worth the time and expense required to participate, but earlier this year, changes were introduced that may affect the program’s relevance to your farm operation. With that mind, here is a closer look at the pros and cons of AgriStability.

PRO – Financial protection

AgriStability offers financial protection should you have a bad year. If your net income drops below 70 per cent of your reference margin and you are enrolled in the program, you will receive a payment. For example, if your reference margin is $100,000, you qualify for a payment if your current year production margin is less than 70 per cent of that amount, which would be $70,000. If your production margin is $60,000, you’d be $10,000 below your reference margin and would be entitled to 70 per cent of that amount, which means you would receive a payment of $7,000.

CON – Challenges for cash croppers

One of the big issues with the previous Growing Forward arrangement was the different tests for the reference margin calculation. Cash croppers were getting caught not having as many expenses that qualified as allowable expenses, so their reference margin was lowered, which lowered their probability of a payment. As a result, many cash croppers dropped out of the program. The new 2018 to 2023 Growing Forward arrangement has modified this test to bring in a third criterion that limits the reference margin limit, but it can still be difficult for cash croppers to justify being in the program.

PRO – Relatively low entry fee

There is a fee to participate in the program, based on a percentage of your reference margin, but it’s relatively low. In Ontario, the formula is fee reference margin × 0.45 per cent × 70 per cent coverage + $55. Therefore, if your fee reference margin is $100,000, the cost would be $370 ($100,000 x 0.0045 x .7 + $55).

CON – Unexpected fees and requirements

When enrolled in the AgriStability program, you may also find the need for more detailed record-keeping and administrative work. In many cases, farmers hire advisors to help them complete the AgriStability applications, which adds to the cost of staying in the program. If you are ever in a payment position, the government agency will likely ask more questions than you are used to answering. For farmers who don’t keep detailed records, this proves to be a barrier for enrollment, and producing the necessary information can become a drain on their time.

PRO – Eligibility for the Advance Payments Program 

There are two loan programs available to farmers through Agriculture Credit Corporation (ACC). Farmers can qualify for up to $750,000 at a prime rate of interest through the first of these programs, the Commodity Loan Program (CLP), but they must also participate in production insurance. In contrast, Advance Payments Program (APP) offers up to $400,000, and eligibility is only based on enrolment in AgriStability or crop insurance. The first $100,000 is available interest free, and any additional amount is subject to prime rate and interest.

CON – Alternatives may be easier

If a cash crop farmer is choosing between AgriStability and production insurance to be eligible for APP, most would choose the latter, as the application process is far less complicated. For production insurance, the producer only needs to provide their production information (number of acres and yield for each crop). AgriStability requires this production information, as well as income and expense information. Every farm operation is different. With the help of an advisor, you just need to consider the variables and determine what is best for your business.

Meet the Author

Kyle Martin Kyle Martin
Elora, Ontario
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