Agriculture and Agri-Food Canada

Agriculture and Agri-Food Canada

May 18, 2006 10:10 ET

AAFC: Minister Strahl Announces $950 Million for Farmers

OTTAWA, ONTARIO--(CCNMatthews - May 18, 2006) - Minister of Agriculture and Agri-Food and Minister for the Canadian Wheat Board Chuck Strahl today announced a budget commitment to address weaknesses in the Canadian Agricultural Income Stabilization (CAIS) program that will provide $950 million in new support to Canada's producers.



The changes are:

- adjusting the inventory valuation calculation retroactively for
2003, 2004, and 2005;

- expanding the eligibility criteria for negative margin coverage
under CAIS.


"I have heard from farmers across the country that CAIS is not working for them, and I have committed to working with my provincial and territorial colleagues to replace it with separate income stabilization and disaster assistance programs that are simpler, more predictable and bankable," said Minister Strahl. "These changes will better address the losses producers have experienced, and put significantly more money into the hands of more farmers this year."

The Government of Canada is committed to replacing CAIS with a new program that separates disaster relief from income stabilization. It is working with the provinces and territories to include these changes to inventory valuation and negative margin eligibility as a new income stabilization program is developed.

Payments resulting from these changes are expected to flow beginning this fall.

After making the inventory valuation adjustment, the CAIS applications that producers have submitted for 2003, 2004 and 2005 will be recalculated. If producers are entitled to more money after the recalculation, they will receive additional payments. This initiative is a one time federal government injection of $900 million.

The $50 million in federal funding for negative margin changes for 2005 and 2006 is part of the annual increase announced in Budget 2006. Negative margins occur where expenses exceed income. This change will be cost-shared with provinces and territories, and will result in more farmers with negative margins due to back-to-back disasters being eligible for CAIS payments.

The $950 million announced today is part of this government's $1.5 billion agriculture budget commitment.

For more information on these changes, producers should call the toll free 1-866-367-8506 or visit www.agr.gc.ca/caisprogram.

BACKGROUNDER

$950 MILLION IN FEDERAL FUNDS TO FLOW THROUGH CANADIAN AGRICULTURAL INCOME STABILIZATION (CAIS) CHANGES

Inventory Valuation - what producers need to know

Producer payments for CAIS will be recalculated for each of the 2003, 2004 and 2005 programs using a new method for valuing inventory. If producers are better off after the recalculation, they will receive a CAIS Inventory Transition Initiative (CITI) payment. Payments will be issued as applications for each program year are recalculated.

To ensure that payments do not exceed the $900 million spending cap, payments will be recalculated and producers will receive a percentage of the total payment. Further details on payment percentages will be announced in the coming weeks.

Payments are expected to flow to producers beginning this fall and delivery of payments for all program years is expected to be complete in early 2007. Producers do not need to apply. Federal and provincial CAIS administrations will deliver funds based on information which producers have already submitted for the program.

In Quebec, the new inventory valuation method being introduced in other provinces is already in place. The province will receive federal funding based on the method used to calculate benefits in other provinces and will deliver the funds to producers.

The federal government will work with provinces and territories to change the inventory valuation method for 2006 and onward.

How the new inventory valuation method works

The CAIS program uses producer information reported for tax purposes. Since most producers report to tax on a "cash" basis, adjustments are made to better measure actual farm income in the year. This includes an adjustment for changes in inventory over the year. This ensures the CAIS payment is made based on the most accurate picture of the producer's farm income situation.

As a transitional measure to more responsive programs in 2007, the method for calculating inventory changes is being amended so that losses in inventory values caused by declining commodity prices are reflected in a producer's payment.

Currently, changes in inventory quantities (e.g. for livestock, grain, horticulture crops and other commodities) are valued using a year end price. This means that losses in the value of a commodity are not recognized until the inventory is actually sold.

With the new inventory valuation method, an opening price (P1) and an end of year price (P2) will be used to value inventory. The decline or increase in value of inventory will be included in the calculation of a producer's production margin (i.e. farm income) for the year. This method will be applied to market commodities but will not be applied to productive assets such as breeding livestock.

Broader negative margin coverage - what producers need to know

Federal and provincial officials are currently putting the necessary authorities in place to increase coverage for producers with negative margins (negative margins occur when eligible expenses exceed income in a program year). This will benefit cattle producers who were affected by BSE and other producers who have viable farms but were affected by back-to-back disasters such as drought.

Producers will not need to apply for negative margin coverage. When the negative margins changes are in effect, their benefits will automatically be calculated when their 2005 and 2006 CAIS applications are processed.

What the changes to negative margins mean for producers

Producers with a negative reference margin are currently not eligible for CAIS. When negative margin changes are implemented, they will be eligible if they have positive margins in three of their previous five years.

Currently, producers can receive only two negative margin payments in a five year period. With the changes, there will be no limit on the number of negative margin payments a producer could receive.

The federal government is working with the provinces and territories to put changes to negative margin coverage in place for 2005 and 2006 CAIS. The changes to negative margins will be cost-shared.

For more information:

Producers can check the CAIS website at www.agr.ca/CAIS or call 1-866-367-8506

Contact Information

  • Agriculture and Agri-Food Canada, Ottawa
    Media Relations
    (613) 759-7972
    1 (866) 345-7972
    or
    Minister Strahl's Office
    Jeff Howard
    Press Secretary
    (613) 759-1059