Index
As of mid-May, about 26,500 applications had been received for the Ontario 2003 CAIS program (tax) year with 98% (25,895) already processed. Government payments (Federal and Provincial combined) for 2003 CAIS totaled $148.8 million triggered by 9,997 participants (or 37.8% of applicants) averaging $14,890 per payment. The $148.8 million in total government CAIS payments is far short of the $208 million projected annual average for Ontario for the five-year funding period of CAIS. Moreover, only 32.6% of the 10,289 field crop applicants triggered a 2003 CAIS payment averaging just $5,440; both results significantly below all other ag sectors in Ontario.
CAIS participation, at 26,500 applications for
2003 and 2004 program years, is far short of the 36,006 who were enrolled in
the 2002 NISA program in Ontario. Some older producers with perhaps smaller
operations may have decided not to enroll in CAIS, and some diverse operations
with multiple shareholders with separate NISA accounts may have reorganized
into one CAIS account, but 10,000 fewer participants is a startling statistic.
There is another noteworthy trend emerging from 2003 CAIS results in Ontario.
$79.4 million (53.4%) of the $148.8 million total payments was triggered in
the top two "stabilization tiers"; while only $59.1 million (39.7%) was triggered
in the "disaster tier", and $10.3 million (6.9%) triggered in the "negative
margin" area. This situation where most of government payments were triggered
in the stabilization levels is distinctly different than other provinces, especially
the Prairies, where most payments were triggered in the disaster and negative
margin levels. Because the ratio of government dollars to producer dollars is
relatively less in the stabilization tiers than in the disaster and negative
margin tiers, government support provided under CAIS in Ontario is relatively
less than elsewhere where more participants trigger into those tiers with a
greater ratio of government support.
Projections for 2004 CAIS payments suggest payments totaling $253 million to 15,727 participants who trigger payments averaging $16,094. However, the pattern where CAIS provides less support individually to Field Crop sector participants remains with payments averaging $10,380.
CAIS Production and Reference Margin Analysis
Data summarizing government analyses of trends in CAIS Production and Reference margins was recently released at National CAIS Committee, National Safety Net Advisory Committee, and Ontario Agriculture Commodity Coalition meetings. The analyses tracked producers who participated in both NISA and CAIS consecutively from 1994 through 2003 making the data set very robust and results very significant. Government analysts summarized by saying "results on aggregate level indicate little change over time." However, on closer examination, and unlike all other ag sectors, that summary is definitely not the case for the Ontario grain and oilseed sector. Governments' own analysis shows that of the 5,347 grain and oilseed farms tracked from 1994 through 2003, production margins declined for 96.6% (ie. those farms with annual sales less than $500,000). In fact, for 2/3 of the farmers in the data set, CAIS production margins declined by more than 1/3. Declining production margins over time confirms that CAIS-eligible income is declining, or CAIS-eligible expenses are increasing, or (most likely) both are happening concurrently for the vast majority of Ontario grain and oilseed farmers.
Worse, for the same 96.6% of grain and oilseed farmers in the data set with annual sales of less than $500,000, CAIS reference margins declined for the six years 1999 - 2004. In fact, for 2/3 of grain and oilseed farmers in the data set, CAIS reference margins declined 24% from 1999 - 2004. Declining CAIS reference margins means CAIS support is falling over time. Falling support means CAIS cannot meet Ontario grain and oilseed farmer needs.
Just as the previous two items confirm we have been correct in saying CAIS does not work for Ontario grain and oilseed farmers, here is another.
We have been saying that the CAIS methodology used to value change in inventory (ie. "P2" method: change in inventory from beginning to end of year multiplied by the end of year price) is flawed. It seriously delays (by fully one program year) recognition of the loss in inventory value incurred when prices decline over the year. It also minimizes payments for "unrealized" losses and underpayments for "unrealized" gains. Our argument has been that the objective of CAIS should be to get as much government support to producers when needed as possible. From that viewpoint, possible overpayments for "unrealized" losses when prices are falling (and therefore producers are in trouble) are an acceptable side-affect. Similarly, possible underpayments for "unrealized" gains when prices are increasing (and producers are not in trouble) are also an acceptable side-affect.
Governments hired an independent third party (IBM Business Consulting) to examine the issue and assess methods of valuing inventories. The report advised governments to adopt the methodology we have been suggesting to value inventory changes (ie. "P1-P2" method: price and volume end of year minus price and volume beginning of year) with an exception only for valuation of breeding livestock. Inventory valuation will be one item for discussion and hopefully resolution at the upcoming July 7-9 Fed/Prov Ag Ministers' meeting.
Another important CAIS element to be resolved at the July 7-8 Fed/Prov Ag Ministers' meeting is the issue concerning CAIS deposits. Governments have found administering CAIS deposits to be expensive and time consuming. A number of alternatives were analyzed by government using the key principles of producer affordability, administrative ease and cost, and of course "cost neutrality to government". Our preferred option of eliminating the deposit requirement entirely with no replacement requirement was dismissed. Four other options emerged for consideration by Ministers: free disaster tier coverage with a fee for stabilization tier coverage; fee based on level of coverage; single fee for all tiers; tiered deposit (ie. same as currently in that the fee would vary with level of coverage chosen, but with smaller deposit requirement).
One consideration in establishing the size of a fee (if one is to be required)
would be that it should be cost neutral to producers just as government is insisting
on cost neutrality for itself. The fee should therefore not exceed the net cost
of the interest rate spread on the current deposit requirement. For example,
a $100,000 reference margin would currently require a deposit of $22,000 (@
22%, not Ontario's original 26%) for full coverage or $7,333 with the current
1/3 deposit option. Given an interest rate spread of 1.5%, the net cost would
be $110 on the minimum deposit of $7,333. Ministers will, however, decide.
CAIS Deposit Refund
Keep in mind that Ontario was almost alone in requiring CAIS deposits up front along with PEI and Alberta. Quebec's ASRA deposits are deducted from the initial payout check. No other provinces required their producers to make deposits in order to qualify for 2003 or 2004 CAIS program payments. The deposit deadline for participation in 2005 CAIS was extended to March 31, 2006 to give Ministers time to decide on which deposit alternative as outlined above to implement. This meant that CAIS deposits in Ontario could be returned to participants without jeopardizing eligibility for 2003 or 2004 CAIS payments.
Therefore, Agricorp, as administrator of CAIS in Ontario, sent a letter to producers in mid-June outlining that "Agricorp will instruct your financial institution to issue any remaining funds to you unless you indicate otherwise" (by July 6, 2005). This means that unless you indicated otherwise, you will receive back all funds currently on deposit in your CAIS account.
As described in the item above, the letter from Agricorp explained "a deposit is still required for the 2005 program year. The required funds must be in your CAIS account on March 31, 2006. However, alternatives to a producer deposit are under discussion, with options being presented to agriculture ministers in July. Agricorp will communicate any changes to producers as quickly as possible."
The BSE crisis brought into focus another issue with CAIS. Governments delivered much needed ad-hoc assistance (a situation that by itself was an admission that CAIS could not respond sufficiently to such "structural problems" as Minister Mitchell admitted before the House Standing Committee on Agriculture) using "a multitude of CAIS advance mechanisms." This situation "highlighted the need for a national proactive advance mechanism." A model was developed in which CAIS advances to individual producers would be triggered automatically (the producer would not have to apply). The system works by using benchmark margins to determine the average industry margin decline relative to the producer's farm size and scale. The estimated percentage loss would be applied to the producer's actual individual reference margin. If the estimated decline is greater than a benchmark decline - perhaps 15% - producers would receive an advance of 50% of the projected CAIS payment. The National CAIS Committee suggested using this proposed Benchmark Model to generate CAIS advances exclusively to target responses to disasters such as BSE. Ministers will, of course, decide at their July meeting.
2004 CAIS Program Forms Deadline Extended
Agricorp extended the 2004 CAIS program forms deadline to July 15, 2005 to attract and accommodate as many participants as possible. Producers can submit 2004 forms electronically using the "myCAIS" site at www.mycais.on.ca. All other 2004 Program deadlines remain unchanged. Participants had to submit their 2004 T1163 (for individuals) or Statement A (for corporations) to the Canada Revenue Agency Winnipeg Taxation Centre by June 15, 2005 for individuals and June 30, 2005 for corporations.
The OCPA continues to pursue initiatives that might provide increased opportunities for producers to recover their cost of production from the marketplace. Since that is highly unlikely given the systemic and injurious impact U.S. subsidy programs have on corn prices, we also continue to pursue income support programs that will do the same thing … cover cost of production. However, opponents and OMAF senior bureaucrats in particular insist that our estimates for cost of production in the range $4.00 - $4.25/bushel are too high. A study completed in 2001 suggested $4.06/bushel. Bureaucrats have provided nothing on which to base their rejection, but reject it they do anyway.
Here's something to think about from two other sources. Support prices under Quebec's ASRA program are based on a detailed and all-inclusive survey and assessment of cost of production. The cost of production for grain corn under ASRA in 2004 was $4.70/bushel based on Quebec provincial average yields of 117 bushels/acre. Using Quebec's cost of production estimate and Ontario provincial average yields for 2004 of 131.2 bushels/acre results in a cost or production of $4.28/bushel.
A recent University of Illinois Extension study says that Illinois corn producers spent more per acre to grow corn in 2004 than in 2003. "Across the state, total costs per acre to produce corn increased 6% to 9%. The main reason was higher costs per acre for fertilizer, seed, and fuel," said Dale Lattz, University of Illinois Extension farm management specialist. "In 2004, the total of all economic costs per acre for growing corn averaged $444 in northern Illinois, $434 in central Illinois areas with high soil ratings and $411 in areas with low ratings, and $374 in southern Illinois."
Assume total costs per acre in Ontario are the same as in northern Illinois (in fact, Ontario costs are somewhat higher according to the Farm Input Price Survey). Regardless, a cost of US$444/acre using Ontario's average yield in 2004 of 131.2 bu/acre gives a cost of US$3.38/bushel which is Cdn$4.19/bushel.
The same study shows that Illinois costs were US$412/acre in 2003. Using Ontario's average provincial yield of 127 bu/acre in 2003 means cost of production was Cdn$4.02/bushel.
Seems to be a pattern there.
Value of Agricultural Production and Farm Income in Canada
Statistics Canada's recent report for agriculture in 2004 holds some signs that perhaps a bottom has been turned, or so it is to be hoped.
The total value of agricultural production in Canada in 2004 rose 1.8% helped by:
Canada's farm cash income recorded an increase to $8.1 billion in 2004 after declines of 7.1% in 2002 and 28.1% in 2003. Statscan says a 7.0% increase in the sales of primary agricultural products (primarily grains and hogs) led to the 2004 rebound. Statscan says "after two years of decreases following back-to-back droughts and the closure of the U.S. border to live cattle exports, net cash income rebounded to $6.3 billion in 2004. While Canadian producers saw their net cash incomes rise by 34.4% from the low received in 2003, this level was still 1.0% below the previous five-year average from 1999-2003."
Cash available for investment or withdrawal also increased 20.5% from 2003 to $10.0 billion. However, despite the increase, cash available for investment remained 2.5% below the average of the previous five years which itself was depressed by very poor results in 2002 and 2003.
However, farm liabilities at the end of 2004 were up 4.9% from 2003 to $44.9 billion. Current liabilities increased 8.1% while long-term liabilities were 4.0% higher than in 2003. By comparison, assets increased 1.8% in 2004. Farm sector equity in Canada edged higher to $183.4 billion in 2004.
Ontario farmers received $8.624 billion in total farm cash receipts (including
program payments) in 2004, up from $8.484 billion in 2003. However, total operating
expenses were also up to $7.52 billion from $7.371 billion in 2003. Total Ontario
net farm income in 2004 was $275 million, up from $127 million in 2003.
EU Ag Subsidies
The Fiscal Year 2006 Appropriations Bill is moving through Congress. Both the House and Senate ag subcommittees passed versions of proposals authorizing spending for the USDA, the Food and Drug Administration, the Commodity Futures Trading Commission and the Farm Credit Administration. The Senate version contained more money than the House version for most conservation programs. The House version included contentious amendments on limiting country-of-origin labeling requirements on red meat and caps on crop insurance. The Senate version set overall spending at $100.16 billion including $17.35 billion in discretionary spending and $82.81 billion in mandatory spending (this portion covers all subsidy and support programs mandated by the 2002 US Farm Bill). The Senate version is $506 million more than the amount approved earlier by the House and $597 million more than the amount requested by the Bush administration. The two versions are due to be melded into one FY06 Appropriations Bill for Congressional approval and forwarding to Bush for signature into law this fall. Bottom line is that Congress is not prepared to implement even the modest 5% cuts to US ag subsidies that President Bush proposed.
The contentious, and oft-delayed, omnibus US Energy Bill is currently before the US Senate. Costing $11 billion as proposed, the Senate Bill far exceeds the cost of the House version ($8.1 billion) passed many months ago and energy tax incentives the White House has proposed ($6.7 billion). Major Energy Bill issues that the eventual House-Senate conference will have to resolve include:
Agricultural Research Program Encourages Transformation through Innovation
On June 4 in Alymer, Paul Steckle (MP for Huron-Bruce) announced on behalf of Andy Mitchell, Minister of Agriculture and Food, the federal and provincial governments working together to provide up to $35 million for the Canada-Ontario Research and Development (CORD) program. The program will be administered by the Agricultural Adaptation Council under the provincial-territorial Agricultural Policy Framework on behalf of the Province of Ontario. The initiative will support new research and development projects within Ontario's agriculture and agri-food sector.
Mr. Steckle stated the Government of Canada is pleased to partner with the agri-food and research communities in ways that encourage transformation through innovation and collaboration. He continued by saying that through CORD, the Government of Canada will invest in projects that enhance the competitiveness, self reliance and long-term prosperity of the sector.
Minister Peters also shared project supporting comments. He was quoted as saying he felt that strategic investments in research and development consistently yield significant returns to the agri-food industry. He went further to say that as long as we continue to broaden our knowledge base through the types of projects CORD will fund, we can be confident that we are building a foundation strong enough to support growth and change in the agriculture and food sector.
Bob Bedggood, chair of the Agricultural Adaptation Council added that increasing the value of our agricultural products is the key to improving our agri-food sector. He also mentioned that the solutions to challenges facing Canada's primary producers and downstream stakeholders are readily available and the CORD program will draw those innovative individuals and groups together.
CORD funds can be used for a variety of initiatives, including projects which will add value to farm production, explore new processing ventures or tap previously unused resources of information or expertise. Any new initiatives must include a focus on specific opportunities or challenges facing the province's agri-food sector. Emphasis is placed on projects to enlist public support, demonstrate cost-sharing, address any gaps in support of research and technology transfer, and be market-oriented. A pre-approval process is in place which includes a review by the Ontario Agricultural Commodity Council's Research and Development Sector committees. Projects are assessed for the expected return on public investment, overall costs, industry support and potential benefits. The first round of projects have been approved, allocating more than $7 million to 70 research initiatives identified as priorities.
Next Generation of Environmental Farm Plans Launched in Ontario
The long awaited announcement for the continuation of the next generation of the Environmental Farm Plans finally came in April. Agriculture and Agri-Food Canada and the Ontario Federation of Agriculture (OFA) signed an agreement to deliver more than $57 million in Government of Canada support for programs to help Ontario farmers expand their environmental stewardship activities and make environmental considerations a farm business priority. The funding is provided under the Canada-Ontario Environmental Farm Plan Program (EFP) and Canada-Ontario Farm Stewardship Program (COFSP).
Andy Mitchell, Minister of Agriculture and Agri-Food, along with Huron-Bruce MP Paul Steckle made the announcement of the initiative and launched the supporting 3rd edition EFP workbook at a farm near Mildmay. MPP for Huron-Bruce, Carol Mitchell represented the Ontario Ministry of Agriculture and Food. There were also many farm leaders from farm organizations present for the announcement. The Environmental Farm Plan and Canada-Ontario Farm Stewardship Programs, which are key components of the environment chapter of the federal-provincial-territorial Agricultural Policy Framework, will help improve Ontario's on-farm environmental practices and position Canada as a world leader in environmentally responsible agricultural production.
Minister Mitchell stated that environmental sustainability is an integral part to the health and quality of life for rural and urban Canadians. He also went on to say that Ontario's farm organizations showed much leadership and initiative in increasing awareness and adoption of stewardship practices and deserve to be congratulated. These activities are critical to ensuring the long-term efficiency and productivity of Ontario's agricultural sector locally, nationally and abroad.
The OFA is the signatory to the agreement on behalf of the Ontario Farm Environmental Coalition (OFEC). OFEC represents more than 50 farm organizations in the province, with leadership provided by OFA, Christian Farmers Federation of Ontario (CFFO), Agricultural Groups Concerned About Resources and the Environment (AgCare) and the Ontario Farm Animal Council (OFAC).
OFA is contracting with the Ontario Soil and Crop Improvement Association (OSCIA) to manage the delivery of the program. More than 27,000 Ontario farmers have participated in previous editions of EFP workshops and voluntarily committed time and resources to stewardship projects.
OSCIA has qualified local program representatives to deliver the EFP workbook and workshops that will be hosted across the province. Trained facilitators and technical assistants will be available at these sessions to help producers complete their risk assessments and action plans. Once producers have a peer-reviewed environmental farm plan, they are eligible to apply for financial assistance under the Canada-Ontario Farm Stewardship Program to help with the implementation of specific beneficial management practices (BMP's).
In Ontario, producers can choose from 25 categories of BMP's designed to reduce environmental risks. The program will cost-share either 30 or 50 percent of eligible costs of implementation depending upon the BMP, up to a maximum of $30,000 per legal entity. The program is set to run until March 31, 2008.
The delivery of the EFP program will be coordinated with other related federal and provincial environmental initiatives, including Ontario's $20 million Nutrient Management Financial Assistance Program (NMFAP).
Investment in Ontario Seed Corn Production
In an announcement this spring, AgReliant Genetics, a parent company of Pride Seeds, made a significant investment in Ontario seed corn production by purchasing a seed corn processing facility near Chatham, Ontario. The facility was formerly owned by Limagrain Genetics and will complement the company's other processing facility located outside of Pain Court, Ontario. It is anticipated that the combined operation will be used to handle seed corn destined for both Canadian and US producers.
Jim Simon, President of AgReliant Genetics Inc., noted that the plant purchase demonstrates a long term commitment to the Canadian market and to seed corn production in Ontario.
AgReliant Genetics is a leading breeder and marketer of corn, soybean and forage crop varieties that are sold in Canada through the Pride Seeds brand. AgReliant Genetics features one of the largest corn breeding and testing programs in North America with production facilities located throughout the US Mid-West and Canada.