The reference margin limit (RML) of AgriStability was a feature put in place back in 2013 with Growing Forward 2, and since then has been a confusing and misunderstood feature of the program.
The recent agreement to business risk management program reform has caused quite a stir, but what does the RML removal mean for producers? Who wins?
Steve Funk, director of ag risk management resources at MNP, thinks that the removal of the limit is positive, as it reduced the benefits for a lot of producers in certain sectors such as grains and oilseeds, cow/calf operations, and hog farrowing operations.
Since the RML feature wasn’t well understood and was therefore under utilized, Funk thinks that a lot of other producers maybe felt that it affected them too, which overall made the feature “less predictable, less bankable, less transparent, and certainly very complicated.”
“It’s a little disappointing that the contribution rate wasn’t agreed upon, but it is encouraging that that’s still being considered, because that’s something that would give a little bit extra to any producer to qualify for AgriStability benefits,” says Funk.
RML removal was something that the cattle sector really lobbied for, and now that it’s happened, it should make it an easy decision to sign up for the program. Funk adds that extending the deadline from April 30 to June 30 is generous, and will give people extra time to think about it and be able to make the best decision for them.
Producers in regions where weather and cost of production driving the decisions will also win with the RML removal — for example in Southern Saskatchewan or Alberta. Funk clarifies this saying that it’s all based on cost structure — not the entire income statement, but the direct input costs that make it into AgriStability eligibility.
“If you compare those AgriStability eligible items in a reference margin to eligible income that’s in that reference margin, anyone who had a ratio of eligible expense to eligible income of less than 0.5 would’ve been limited,” says Funk.
Intensive livestock operations like feedyards generally have a high cost structure and wouldn’t have limited margins, and therein lies some disappointment says Funk. For the hog sector, the farrow-to-finish would be similar to the feedyard high cost structure, but the farrow-to-wean operation might be limited, which could be a bit of a win for the pork sector.
Producer groups will need to consider what’s happened and regroup to determine how they’re going to move forward for the upcoming framework, says Funk. “One of the things I’ve encouraged them to consider is the language in which they’re speaking to the government and to these administrations,” he says.
Government and administrations tend to think in terms of the fiscal year and in crude financial statements. and when these organizations are lobbying for changes to the program, it’s best to speak to them in those terms, Funk advises. Instead of a per acre or per head basis, translating those numbers into the terms of a crude financial statement, which the government is more used to looking at and will understand in relation to the programs that are currently there, says Funk.
Listen to the full conversation between Funk and RealAg Radio host Shaun Haney below: