AgriStability protects you when your net farming income falls below 70% of your recent average. To determine if you have a decline in your net farming income, two margins are calculated.
AgriStability is a vital part of a farm's risk management plans, especially in times of disaster. If you are new to AgriStability, rejoining or already enrolled, check out the following slide show for an overview of how the program works and the benefits of participation.
Calculating your production margin
Transcript
Agricorp presents… AgriStability Video Shorts
Understanding elements of the program.
This video short focuses on…
- Allowable income
- Allowable expenses
AgriStability protects you when your net income falls below 70% of your recent average income.
Allowable income and allowable expenses are directly related to agriculture production. This is so the program works as intended. Supporting farmers when disasters affect their bottom line.
Income and expenses not directly related to agriculture production are non-allowable under AgriStability, like…
- Building and machinery repairs
- Investment income
- Capital expenses
- Rent
- Interest
So what is allowable income under AgriStability? Things like…
- The sale of agriculture commodities
- Production Insurance payments
So what is an allowable expense under AgriStability? Things like…
- Feed
- Seed
- Fertilizers and soil supplements
- Pesticides and chemical treatments
- Containers and twine
- Heating fuel
- Electricity
- Freight and shipping
- Arm’s length salaries
- Storage and drying
- Fuel for machinery
Farming is a complex business.
Every farm is unique
For questions specific to your farm, contact Agricorp and read the AgriStability publications on agricorp.com.
We’re here to help.
Production margin = Allowable income – allowable expenses + inventory adjustments
Allowable income and expenses are directly related to the production of a commodity. The income and expenses reported on your tax form are used to calculate your net income (production margin).
To reflect any changes in the value of your inventory, inventory adjustments are calculated and added to your production margins. Fair market values are used to value your inventory adjustments.
Calculating your reference margin
Transcript
Agricorp presents… AgriStability Video Shorts
Understanding elements of the program
This video short focuses on Production margin and Reference margin
In general terms, AgriStability protects you when your net income falls below 70% of your recent average income.
In AgriStability terms:
- your net income in a year is your Production Margin
- your average net income is your Reference Margin
Production Margin and Reference Margin are terms unique to AgriStability.
Knowing them can help you better understand the program.
Let's replace general terms with AgriStability terms: AgriStability protects you when your net income Production Margin falls below 70% of your recent average income
Reference Margin
Now we’ll take a look at how these margins are calculated
What is a Production Margin based on? Allowable income minus allowable expenses
A single year's business information
Tax information
Info you submit on AgriStability forms
Your inventory adjustments (ending minus opening)
How is the Production Margin calculated?
Let's use the 2023 program year as an example:
2023 allowable income
- (2023 allowable expenses)
+ 2023 inventory adjustments
= 2023 Production Margin
So what is a reference margin based on?
Before we get into that, remember...
AgriStability protects you when your Production Margin falls below 70% of your Reference Margin
So what is a Reference Margin based on?
(Example)
- Your 5 most recent years
- The corresponding Production Margin
- The low and high values removed
- An average of the remaining numbers
- This is called an Olympic average
New to farming?
| Years of farming |
Your Reference Margin is based on |
| 3-5 |
Your last 3 Production Margins |
| Less than 3 |
Industry averages |
Those are the basics on Production Margin and Reference Margin
But how are they used in AgriStability to quantify a loss?
Watch our video on how payments are calculated.
Farming is a complex business.
Every farm is unique.
For questions specific to your farm, contact Agricorp and read the AgriStability publications on agricorp.com
We’re here to help
Your reference margin is your historical average of net farming income. It is calculated based on an Olympic average of your last five production margins (dropping the highest and lowest values).
New to farming?
| Years of farming | Calculating your reference margin |
|---|
| Three to five years | Your reference margin is based on your previous three production margins. |
| Less than three years | Industry average margins (per unit) are used to construct up to three production margins for your operation. Your reference margin is the average of these three production margins. |
Changes in your operation?
If you significantly change commodities, expand or downsize your operation, you can expect your net income (production margin) to be different. In that case, your historical production margins are also adjusted, and then your average net income (reference margin) is calculated using these adjusted figures. This ensures an accurate comparison between your farm's current year and previous years. If you expand your farm, your reference margin is increased. If you downsize, your reference margin is decreased.
Triggering payments
If your net income (production margin) is less than 70% of your average net income (reference margin), you trigger a payment.
How your payment is calculated
Transcript
Agricorp presents….AgriStability Video Shorts
Understanding elements of the program
This video short focuses on How payments are calculated
AgriStability protects you when your net income falls below 70% of your recent average income
So how are payments calculated? It's simpler than you might think
But before we get into that, it's good to know AgriStability actually works a lot like other insurance you may have
- You insure something valuable
- you have a coverage level or deductible
- and you get a payment if a loss triggers it.
What's unique about AgriStability?
Instead of covering 1 commodity at a time, AgriStability helps cover income loss of the whole farm, when disasters happen.
When you compare AgriStability to another program you may know, Production Insurance you'll see they share the same insurance basics.
Now that we see AgriStability works a lot like other insurance, let’s get back to our original question…
How do payments work?
What you’re insuring is your average net income (reference margin)
- Your coverage level is 70%
- When shortfalls trigger payments
- Your payment trigger is your coverage level
- You have this year’s net income (production margin)
- And an income shortfall (margin decline)
- Your payment is your shortfall x the compensation rate
The compensation rate is 10% higher!
Sidebar: if you know Production Insurance
Showing the same insurance basics at work
What you’re insuring is your average yield
Suppose you have a coverage level of 70%
When shortfalls trigger payments
You have a payment trigger (guaranteed production)
If this year’s yield has a yield shortfall, your payment is your shortfall x the claim price
Let's add example numbers
Average net income: $200,000
Payment trigger: $140,000
This year's net income: $100,000
Net income shortfall: $40,000
$40,000 shortfall X
80% compensation rate
Payment of $32,000
Starting with the 2023 program year, the government increased the compensation rate to 80%
So that’s how payments are calculated and how AgriStability can help protect your farm's income
Farming is a complex business
Every farm is unique
For questions specific to your farm, contact Agricorp...
and read the AgriStability publications on agricorp.com
We’re here to help
Your payment trigger is 70% of your average net income (reference margin). If your net income in a year falls below your payment trigger, AgriStability will pay you 80% of the difference.
The example below assumes an average net income (reference margin) of $200,000, a corresponding payment trigger of $140,000 and a net income (production margin) of $100,000.
Payment = (Payment trigger – Production margin) x 80%
= ($140,000 – $100,000) x 80%
= $32,000
For more information,
call Agricorp to speak with an AgriStability specialist.
The maximum payment you may receive under AgriStability in a program year is $3 million.
AgriStability estimator tool
To help farmers understand how AgriStability works, Agriculture and Agri-Food Canada (AAFC) has developed an AgriStability estimator showing how program benefits are calculated and how different scenarios can affect a farmer's operations.
To use the estimator, farmers can enter high-level estimates. These estimates can be drawn from the Statement of Farming Activities that farmers file each year to the Canada Revenue Agency, or farmers can also use information from their previous AgriStability Calculation of Program Benefits statements.
For answers to questions about the estimator, visit the help guide on the AAFC website.
