Summary of OPIC Financial Crunch Meeting December 11, 2007 Helpful Hints For Ontario Hog Producers By Peter Gredig, Farms.com An information meeting held by the Ontario Pork Industry Council (OPIC) in midDecember was dedicated to bringing producers up to speed on the existing government programs available to those experiencing financial stress. Here is a summary of the information provided at the meeting and recent announcements regarding available support from the government. CAIS Program Michael Brine of Agricorp addressed the interim payment option available to participating producers through the CAIS program. For producers who are experiencing cash flow difficulties, Brine suggested they apply for an interim payment instead of waiting until their fiscal year. “As long as you are more than 6 months into your fiscal year, you can apply for an interim payment,” said Brine. Here are some things to keep in mind if you are considering applying for an interim payment from CAIS: 1. You can now apply for an interim payment for the 2008 program year, if your fiscal year end is before June. 2. To apply for an interim payment, you must already have completed and submitted the previous year’s CAIS application. 3. If you receive an interim payment that exceeds the final payment, you must pay back the difference. 4. Application forms for interim payments are available at: http://www.agricorp.com/enca/programs/forms/cais/2007/ . The interim payment application requires that you provide estimates of anticipated total eligible expenses for the year and production numbers. Phil Anwender, a hog producer and chair of the Ontario Pork safety net committee, added some practical points for producers to consider when trying to source benefits through the CAIS program. “Remember, the CAIS program is a benchmark against yourself, which makes every producer’s potential level of assistance unique. Your reference margin dictates how you are treated by CAIS,” advised Anwender. According to Anwender, the CAIS program has some inherent weaknesses which are magnified by the current financial challenges facing Ontario hog producers. “There is a lack of consistency and predictability,” says Anwender. He adds that there are problems with how the program deals with applicants that have contract feeding arrangements. Treatment of Canadian hog inventory located in the US has also been inconsistent, says Anwender. Farmers have complained about how long it takes for Agricorp to process CAIS applications. Anwender acknowledged the criticism, and reported that as of late November, 35 percent of the 2006 CAIS program year applications had yet to be processed. But he added that farmers have to do their part and get their applications in to
Agricorp in a timely fashion. “Most of the applications come in a slug during the last two weeks before the deadline. This slows the turnaround,” he explained. Some specific advice for CAIS from Anwender: 1. Get a second opinion on all matters relating to CAIS. Even if you receive a payment, it can be worthwhile to get another accountant or management professional to examine your application and determine if an appeal is warranted. 2. Interim payment applications are being processed based on need. If you are in a financial crisis, make sure Agricorp knows your situation so that your application can be dealt with as quickly as possible. 3. If your reference margin has eroded in recent years due to disease issues such as PRRS or circo virus, be sure to inform Agricorp. You’ll need documentation from a veterinary, but Agricorp can do what they call a structural recalculation and adjust your reference margin if your production levels have fallen due to disease. 4. Recalculate your application using the accrual method. This is particularly true for producers who routinely made year end prepayments to defer income tax. There is nothing to lose other than the time or cost of re-applying using accrual rather than cash method. If the accrual process indicates a smaller payout, your benefit is not reduced. 5. Be timely! Do not hesitate – get your interim or final applications in as soon as you can. 6. Talk to farmers with similar operations and compare reference margins and benefits to see if your results are way out of line. New programs As most producers are aware, the federal CAIS program is about to be replaced. In essence, CAIS will be split into two programs: AgriInvest, which has some common elements with the old NISA program that was in place before CAIS, and AgriStability which retains some of the characteristics of CAIS. The AgriInvest component will be administered by Agriculture and Agri-food Canada (except in Quebec) and it includes a savings account where producers and government make matching deposits, similar to NISA. This program is designed to address any reduction in margins up to 15 percent. The federal government is providing a one-time infusion of $600 million to facilitate transition to the new program – this money is being called a kick-start payment. The AgriStability component will work similar to CAIS. Payments from the program are determined based on historical income/margin calculations. As losses worsen, the government covers a larger portion of the loss. Phil Anwender explains that while this support is welcomed, once the kick-start is over, the combined AgriInvest and AgriStability programs will actually provide less support to swine producers than was available through CAIS. “Kickstart is a positive, but we are
losing benefits that were provided through tier one of CAIS. The loss of tier one protection in CAIS and the replacement program AgriInvest will be negative for the swine industry for two reasons. First, the money that was available to be paid out through tier one of CAIS to producers in a claim position will now be redistributed to all producers whether they are in a claim position or not. Secondly, the AgriInvest program involves producer contributions and matching government contributions, similar to the old NISA program. The allowable contribution to the AgriInvest account for both producer and the government is based on a percentage of allowable net sales. With current high feed costs and low hog revenue, it is possible that net sales could end up being negative, resulting in zero money flowing to swine producers through the AgriInvest portion.” Advance Payment Program (APP) Anwender also has concerns about the Advanced Payment Program (APP). “The APP program, in reality, does not provide additional credit for most swine producers,” says Anwender. He suggests that if you access $100,000 through the APP, it simply reduces the amount of credit available from your banker by the same amount. In other words, there is only so much credit available to each operation and this is determined by the farm’s balance sheet and cash flow potential. Anwender notes that if producers with an APP loan receive an interim payment from CAIS, the money usually goes to pay down the APP loan right away, so there is little liquidity benefit for the producer. “We also know that banks who have clients in tough shape with outstanding operating loans will not allow them to take APP loans because this puts the bank behind the government for debt repayment,” says Anwender. The following press release provides more information from the federal government regarding AgriInvest and forthcoming Kickstart funds. $600 Million on the Way to Farmers FEDERAL AND PROVINCIAL GOVERNMENTS LAUNCH AGRIINVEST Federal, provincial and territorial governments have signed agreements to launch a new suite of business risk management programs for 2007. The new programs are moving forward under Growing Forward, the new policy framework for Canada’s agriculture, agri-food and agri-based products industry and include: • AgriInvest farmer accounts; • AgriStability, an improved margin based program; • AgriInsurance, which includes crop insurance and production insurance and is being expanded to include more commodities; • AgriRecovery, a new disaster relief framework. With agreements now in place to implement the new suite, $600 million in federal funds to Kickstart new AgriInvest accounts is on the way to farmers. “We have worked hard with provinces and industry to develop AgriInvest and I am
pleased this program is now up and running with $600 million to kickstart new farmer accounts,” said Minister Ritz. “This seals the deal on our commitment to replace CAIS with better programs.” With this announcement, the federal government is following through on a $1 billion commitment to improve farm financial programs. Close to $400 million has already been delivered to farmers through a direct payment to address high production costs. With AgriInvest accounts, farmers make a deposit based on a percentage of allowable net sales of eligible commodities and receive a matching government contribution. Farmers have the choice to withdraw the money to cover small margin declines or for investments to mitigate risks or improve market income. With today’s announcement, Canada’s government has completed the following commitments announced by Prime Minister Stephen Harper in March: • AgriInvest is in place for 2007 and $600 million in federal funds to kickstart AgriInvest accounts is now being delivered. o Initial kickstart deposits will be made to farmer accounts based on 2.63 per cent of a farmer’s average Allowable Net Sales (ANS) from previous years. A final federal kickstart deposit may be made based on availability of funds. o Farmers will not have to make a matching deposit to receive the money. • The bulk of direct payments of $400 million to help address high production costs over the last four years have been delivered, and final payments are going to farmers now. To date, farmers have received $322 million. • The Canadian Agricultural Income Stabilization (CAIS) program has been replaced with a new suite of business risk management programs which has been developed based on input from farmers. Most farmers will automatically receive a letter with information on their share of the $600 million. For others, applications are available on the program web site or by calling 1 866-367-8506. In Quebec, the program is delivered provincially. Farmers can contact La Financière agricole du Québec at 1-800-749-3646 for more information.