By Paul Kuntz
On Dec. 17, 2019, Agriculture and Agri-Food Canada Minister Marie-Caude Bibeau announced that there was a change to AgriStability. Beginning in the 2020 program year, private insurance is no longer considered eligible income. This means if you collect insurance proceeds from private crop insurance or hail insurance companies, it will not go against you in your AgriStability claim. The rules for government subsidized crop insurance did not change, they are still considered eligible income.
So what does this mean for you? Well it may mean a lot or perhaps it will mean very little. If you have stayed in AgriStability over the years, then you are ready to take advantage of these changes. If you are no longer in AgriStability, or never have been, then you will need to enroll prior to April 30, 2020.
There is a lot of negative feedback around AgriStability. Farmers comment that it does not work for them on their farm. The most important aspect of any program is to fully understand it. We can have our opinions but we need to ensure our facts are straight.
Starting in 2013 the program changed significantly. The spirit of intention for the program changed. It was originally set up as an income stabilization tool. Relatively minor changes in income would trigger a payment. The program changed to disaster assistance. Now you need a relatively large wreck on your farm to trigger a payment, and if you trigger a payment with AgriStability, your farm will still be in financial trouble. This change caused a lot of farmers to exit the program. In the 2011 program year, Saskatchewan Crop Insurance Corporation (SCIC) lists in its annual report that it processed 17,256 applications as of March 31, 2013. In its latest report, SCIC reports it processed 8,510 for the 2017 year as of March 31, 2019. These are just Saskatchewan numbers, but I am confident the same drop would have occurred in Alberta and Manitoba.
Although livestock operations do qualify for AgriStability, the new changes will not affect them as there really are no private insurance options for livestock producers.
AgriStability functions by measuring your current financial performance to your past financial performance. It measures the difference between allowable income and allowable expenses, and they call that your margin. AgriStability goes back five years and calls the historical part of the calculation your reference margin and then call this year your claim year margin. If you are already in the program, 2019 will be your claim year and 2018-17-16-15-14 will be the reference years. For 2020 you can just slide those years ahead by one.
When it measures your historical margins, government takes out the high year and low year and average the remaining three. This is called an Olympic average. Allowable income on a grain farm is primarily your sale of grain and crop insurance payments. Allowable expenses are seed, fertilizer, chemical, fuel, salaries and a few other items.
Had our farmer participated in any insurance programs in the past and received a payout from the insurance company, that payout would go towards the margin calculations and most likely there would be no payout from AgriStability. As of the 2020 program year, a farmer can now insure themselves privately and not have that affect their AgriStability claim.
Our example above shows that in the event the farmer had income drop by $120/ac or 28 per cent ($420 – $300 = $120), AgriStability was not much help. Again, it is designed to kick in when a disaster hits. Because the premiums are literally pennies per acre for AgriStability, it still can be good protection to have at the bottom end of the spectrum but in order to have adequate financial protection, you will need something else. The changes to the program now allow for that.
If you had a hail storm, you could protect the top end of your coverage with private hail insurance and the bottom end with Agristability.
There is one last rule that will affect farmers who wish to cover themselves with private insurance and that is the deemed insurance rule. This only kicks in when negative margins appear. So, the farmer grew $300/ac worth of crop and had $185/ac worth of expenses, meaning a margin of $115/ac. If they had a wreck and grew $50/ac with allowable expenses of $185/ac, then the margin would be -$135/ac.
If you have a negative margin and you are not in your government subsidized crop insurance program for your province, AgriStability will deem you to be in your crop insurance at a level of 70 per cent coverage. This only affects the negative margin portion of the calculation. In most cases, if AgriStability deems you to have 70 per cent coverage of crop insurance, you will not receive coverage for the negative part of your margin decline. If you protected your farm with private hail insurance and had a wreck, most likely AgriStability will assist you but it will be limited to just your positive margin and not the negative amount. Using the -$135/ac margin, if your farm had the ability to purchase crop insurance coverage at the 70 per cent mark and that worked out to $200/ac of coverage, this would eliminate the negative margin payout.
AgriStability reduces your payout if you participate and collect from government subsidized crop insurance and it also punishes you if you do not participate in it. How much this affects your farm will depend on your claim year and crop insurance coverage.
So what are your options? You can have AgriStability on its own. You will need a significant drop in income to trigger a payment. If you are in a negative margin, meaning your income did not cover your allowable expenses, most likely the negative margin portion will not be covered because of the deemed insurance rule.
You can purchase government subsidized crop insurance with AgriStability. If you trigger a payment from crop insurance, this is counted as income and will work against your AgriStability. The rules around negative margins will not apply because you have crop insurance but most likely your crop insurance claim will pay to a point that is above your AgriStability coverage so you will probably receive very little, or nothing, from AgriStability.
You can purchase private hail insurance. The proceeds received from that type of hail insurance will not affect your AgriStability claim. You will be affected by the deemed insurance rule if you experience a negative margin.
Global Ag Risk Solutions offers a private crop insurance program that will work with AgriStability. There are products available that cover where AgriStability does not provide coverage but also reduced premiums and coverage in the areas where AgriStability does provide coverage. The deemed insurance rule will be in effect for the AgriStability claim if you experience a negative margin.
You may want to speak with one of your trusted advisors to help you through this maze of insurance options. If you have questions regarding AgriStbility, call the agency that administers it for your province or your farm accountant.
The most important thing to do is understand the options you have for insurance and what is right for your operation. A farmer who is just starting out with large debt and little equity will view insurance much different than someone established and financially secure. The tolerance to risk will be different and the coverage levels required are also different. You need to know what you need, what is available and what will work for your operation.
