From the late 1990s to date, some form of margin-based government program such as AgriStability has been in place. At all times and throughout the various five-year frameworks that have existed, the key principles of simplicity, predictability, bankability, transparency, responsiveness, timeliness, and decision and market neutrality have been the guideposts through which the original design and subsequent changes have been steered.
Since 2013 and the beginning of Growing Forward 2, however, the inclusion of the reference margin limit, or RML, within program parameters has been counter to those principles, and the program has never been more complex. Consequently, we are recommending that the RML be abolished immediately.
RML applies to individual producers and/or sectors where AgriStability allowable expenses are low in relation to AgriStability allowable income. In theory, it's where producers have a low-cost structure. If the allowable expenses on average are less than 50% of the allowable income, a producer will be limited and have an automatic and arbitrary reduction to their reference margin or support level under AgriStability.
Unfortunately, the RML has negatively impacted the effectiveness of AgriStability and the equitability of the program across many agricultural sectors, including cow-calf, organic crops, dairies, apiaries, bee pollinators, maple syrup producers and cranberry producers, to name a few.
For sectors impacted by the RML, the margin drop required to trigger benefits varies between 30% and 51%, compared to a standard 30% for sectors not impacted by the RML. This concept is illustrated in our submission, which includes case study examples.
That leads producers to face one of three potential scenarios. First, producers who are not limited will only require the 30% trigger point before the AgriStability benefit is activated. Second, fully limited producers will need to experience a 51% trigger point before an AgriStability benefit is activated. Third, producers who are partially limited will require a drop of between 30% and 51% in reference margin, depending on the degree to which they are limited.
These RML rules have resulted in a program that is less responsive and fundamentally unfair for many types of farms, even among farms in the same sector.
The CAP agreement, effective for the 2018 program year, put into effect a marginally positive change that increased, but did not restore, many limited reference margins. The examples I just mentioned are inclusive of this change, meaning that prior to 2018 some producers required a drop of even more than 51%.
Given that this change was layered upon the ill-understood complexities of the RML, it, too, is not well understood. Furthermore, the CAP changes to the RML failed to address the issue of the distortion of payment trigger points for certain sectors of agriculture. In the end, the systemic inequities and negativity towards the program remain, and national participation in AgriStability has yet to significantly recover. These are precisely the undesirable side effects of the RML that require its immediate removal from the AgriStability program parameters.
In the end, there are many opportunities to address the shortcomings and bolster the strength of AgriStability to simply and quickly support Canadian ag producers. MNP's recommendations in our written submission have been focused on fixing the timeliness, inequalities and complexity of the program. In our opinion, removing the payment cap and removing the RML would make for two significant strides towards this goal.