CAIS Program Information

by 5m Editor
10 March 2004, at 12:00am

CANADA - Canada and Ontario have signed an agreement to implement the Agricultural Policy Framework (APF). The APF provides a new approach to safety net programs in Ontario.

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The APF also recognizes the need for industry innovation, environmental responsibility, safe food, consumer confidence, marketing, production, and business management to all work together in order to develop and sustain a viable agri-food sector over the long term. The overarching goals of the APF are to bring financial stability to the industry through an integrated approach where business risk management programs are complemented and supported by initiatives designed to enhance the competitiveness of Ontario's agri-food sector in global markets.

The Canadian Agricultural Income Stabilization (CAIS) program is part of the Business Risk Management section of the APF. CAIS combines income stabilization assistance (formerly Net Income Stabilization Account (NISA)) and disaster assistance (formerly Ontario Farm Income Disaster Program (OFIDP)) into one program. This will allow Ontario farmers to protect their operations from large and small income declines. One of the advantages is that one application now covers you for both programs.

CAIS is built on the philosophy that governments and producers share in the cost of replacing lost income. For smaller losses, producers and governments will equally share the burden. As losses deepen, the share of government funds increases to four times the amount the producer shoulders, or four dollars to every one dollar the producer contributes.

Figure 1 illustrates this point. It shows the cost share between the producer and government as the Claim Year Margin declines below the Reference Margin. If a producer's income drops less than 15% (between 85% and 100%), for every $1 they deposited the government provides $1. Income drops between 70% and 85% will see the government paying $2.33 for every $1 deposited. Once the margin drops below 70%, which is considered the disaster level, the government will provide $4 of support for every $1 dollar deposited.

Figure 1: Cost Share as Claim Year Margin declines below Reference Margin

CAIS will use a calculation known as a production margin when determining reference and claim year margins. The production margin is calculated by subtracting production expenses from farm revenue. Only income and expenses, like fuel, fertilizer, pesticide and feed costs, directly related to the production of a commodity are included. These margins will be used to determine whether or not a payment will be triggered in the claim year. The reference margin is the average margin of the previous five years with the best and worst of those years excluded from the equation. The reference margin will establish the minimum and maximum deposit levels for the farm operation.

A new CAIS program account can be opened at any participating financial institution. A minimum deposit equal to 14% of the producer's reference margin is required to participate. At least the minimum deposit must be in the CAIS account by April 30, 2004 to be eligible for 2003 and 2004 coverage. About 74% of Ontario farms in NISA have enough in Fund 1 to meet the minimum deposit. To ensure maximum coverage in the event of a complete production loss, a deposit of 26% of the reference margin is required. 65% of Ontario farms in NISA have enough in their Fund 1 to provide full coverage for 2003 and 2004.

Starting March 31, 2004, current NISA accounts will be required to be withdrawn over the next 5 years. There is an option available for the Fund 1 (producer) balance to be rolled into a new account to be used for CAIS. Your Fund 2 (government) balance on March 31, 2004 determines your minimum withdrawal each year. Equal amounts will be withdrawn from Fund 1 and Fund 2 unless one of those funds has no balance remaining or the excess withdrawal from Fund 1 is rolled into your CAIS program account.

Table 1 works through an example of how payments are made as income declines. In 2003 the production margin dropped to $65,000 which is a 35 % drop in margin when compared to the reference margin of $ 100,000. The producer deposited $26,000 into their CAIS account or their maximum deposit of 26% of their reference margin. This deposit level ensures that in the event of an income decline, CAIS payments will take the claim year margin back up to 100% of the reference margin or $100,000. To do this CAIS uses the cost sharing levels outlined in Figure 1. CAIS payments at the end of the day then total $35,000, $13,000 coming from the producer's CAIS account and $22,000 from the government. This combined with the producer's 2003 margin of $65,000 brings them back up to the $100,000 reference margin.

The CAIS program will also require producers to submit accrual information for their operation on an annual basis. This information consists of inventory and production records, accounts receivable and accounts payable. This is the same type of information that was collected for the Ontario Farm Income Disaster Program over the past five years. Accrual information is collected at the end of your farm business' fiscal year end. For example, since most farmers have a calendar year end, inventory collection should be recorded in the first few days of January.

It is important to note that the producer deposit is not a premium. The deposit belongs to the producer at all times. Unused funds in the account can be rolled forward to future years.

How do you participate:

  1. Review your Deposit Options Notice (DON). The following producers will receive a personalized DON package in the mail: 2002 NISA participants, 2002 OFIDP applicants, producers who were not in NISA in 2002 but were a participant in 2001 and producers that applied to the Ontario BSE Recovery Initiative Phase 3 (b) program. The information supplied by the producer under these programs will be used to calculate their deposit requirement. If you have not received a DON by mid February 2004, please contact CAIS administration at 1-877-838-5144.

  2. Open a CAIS program account at a participating financial institution.

  3. Deposit into your account at least the minimum deposit, as outlined on your DON by: April 30, 2004

  4. Complete and submit the following information by April 30, 2004:

    • Joint 2003 and 2004 CAIS program application form
    • 2003 Schedule 2 - inventory, receivables and payables

  5. Submit your 2003 farming income (or loss) for tax purposes on a T1163 by June 15, 2004 if you are an individual or June 30, 2004 if you are a business entity.

Source: Ontario Pork - 8th March 2004

5m Editor