Changes to AgriStability and AgriInvest Programs
INSIGHT ARTICLE |
This article was originally published on January 2, 2018 and has been updated.
Over the last few years, many Canadian farmers have benefited from AgriStability and AgriInvest, two federal government programs designed to help farmers manage their business risk. With AgriStability, the program compares sales from the current year with an average of three of the five previous years. The highest and lowest performing years no longer factor into the equation. So, if a rough year hits and farm sales dip below 30 per cent of the average, additional federal funding becomes available.
The AgriInvest program provides matching contributions. Farmers can allocate a percentage of their earnings into a fund, which the government matches, essentially creating a rainy day fund during prime earning years. These funds can be accessed at a later date to cover needed supplies or equipment, or to provide extra cash during lean years.
Both programs continue to offer economic value to farmers; however, in 2018, a few changes occurred, as outlined below. These changes remain critical to this day.
The program employs the lower of two numbers to arrive at the reference margin. The first, known as the production margin, includes admissible revenue such as grain and cattle and deducts eligible expenses and direct costs such as fertilizer and crop insurance.
To arrive at the second number, the program looks at the lower number of production margin and eligible expenses, focusing only on the expense part. As an example, farmers who buy their feed would have higher expenses than farmers who grow their own.
As of 2018, this second number reduces the reference margin by a maximum of 30 per cent. Even so, the farmer is still guaranteed no less than 70 per cent of the original reference margin. With these changes, provincial governments also now have the option to permit farmers to enroll in the program later, following a government judgment. Often, this occurs during a significant disaster event such as early snow or flooding, where the province can better determine the situation than the federal government. Examples include wet weather that interfers with harvests in certain areas of the country. That said, farmers who join the program on the heels of a productivity decline will see a 20 per cent benefit reduction so it still is best to get in early.
Previously, producers could bank one per cent on up to $1.5 million of allowable sales – i.e., the contribution margin. This included livestock and grain, with relevant expenses deducted. As an example, a sheep producer who nets $500,000 from the proceeds of the sale of his or her herd, spends $250,000 on feed and spends another $100,000 purchasing new animals in a year, has a contribution margin of $150,000. This particular producer would be eligible to contribute one per cent of that amount – $1,500 – which the government would, in turn, match.
While the basic AgriInvest rules remain unchanged, 2018 saw a 33 per cent reduction in the maximum allowable contribution – down to one per cent of $1 million. This does certainly limit AgriInvest’s benefits; however, the program still provides access to free money for farmers. As a general rule, whenever the government is inclined to match a contribution you make, it's in your best interest to take full advantage.
Which one do I choose?
Producers are free to join both programs. Independent of the stage of your operation, you benefit from AgriInvest. Contrary to belief, AgriInvest requires very little accounting; it is worth looking into. Conversely, AgriStability requires payment of an entrance fee and other up-front costs, as well as higher related accounting costs. Reach out to an advisor for an informed perspective prior to deciding which program is right for you.