POP: New NISA Program

POP: Yes
Res #: POP 6-03A
Number: 6
Year: 2003
Midterm: No
Expired: Yes
Responses Received: No

Point of Privilege Resolution No. 6-03A

WHEREAS, we appreciate the commitment of funding to agriculture and the long term support of the Agriculture Policy Framework (APF); and

WHEREAS, the presentation at the March 12 workshop at the SARM convention lacked detail and explanation was not given; and

WHEREAS, the program is not bankable, and is too costly for producers; and

WHEREAS, there are too many unknown variables about the new NISA program and the federal government still has to finalize the details of the program; and

THEREFORE BE IT RESOLVED, that SARM lobby the Governments of Canada and Saskatchewan to design the new NISA program so that producers do not have to put up a large amount of cash upfront to get coverage (i.e. $14,000 to $26,000 to cover a $100,000 reference margin); and

BE IT FURTHER RESOLVED, that the Government of Canada not implement the new NISA program until all the details have been worked out, and the program meets producers’ needs.

Response from the Honourable Clay Serby, Minister of Agriculture, Food and Rural Revitalization:

The operational details of the New NISA program are still being finalized by the federal and provincial governments. One of the concerns being worked on is the inclusion of some mechanism to ensure the contribution required by producers is not onerous in the beginning years of the program, or in the year after a significant payout of producer and government funds is triggered.

Among the options being examined is requiring producers to deposit only one-third of the necessary contribution in the first year. Such a deposit formula could also take effect after a disaster year for which the payout of the contributions previously made is triggered. The federal government has taken the position that the current agreement on risk management programming, which expires March 31, 2003, will be replaced by business risk management programming under APF. The federal government continues to indicate that it will proceed with the New NISA program for the 2003 production year.

Both the federal and provincial governments recognize that additional details for the New NISA program need to be worked out. Producers do not submit claims in respect to the 2003 New NISA until the spring of 2004, at the earliest. Because of this time frame, the federal government feels it is able to proceed with NEW NISA and still have sufficient time to finalize the program details and provide the information to producers.

Response from the Honourable Lyle Vanclief, Minister of Agriculture and Agri-Food Canada:

With regard to your resolution on the Net Income Stabilization Account (NISA) program, I want to assure you that I have given careful consideration to your comments on this important issue. The current business risk management proposal for the new NISA-like program will allow margins of their farms.

The new program will provide integrated stabilization and disaster coverage. Individually, producers will be able to choose a level of coverage to suit the needs of their farms. A minimum coverage level to offset a disaster situation is being proposed. Producers will be required to initially deposit only one-third of the minimum requirement to get full disaster coverage. Payouts will be triggered when the current year production margin, which provides deeper coverage than the current gross margin, drops below the reference margin based on the Olympic average of the production margin for the previous five years, where the highest and lowest years are dropped.

For example, a farm with a reference margin on $100,000 would be required to initially deposit $4,667 as a minimum deposit. If the producer is required to finance this amount, the costs could be less than $300 per year. This does not take into consideration that the interest expense is also tax deductible and that the producer's refundable deposit will be earning interest. So, a producer with a $100,000 reference margin who selects the minimum coverage would put $14,000 on account. If the margin falls 40 percent, the program will bring the current year margin back to 100 percent, with a $26,000 payment from the government supplementing the producer's $14,000. The farther the margin falls, the more government money is leveraged. So if the producer's margin (in this example) had fallen to zero, that same $14,000 on account would have generated a payment of $56,000.

This design is affordable and allows farmers to choose the desired level of protection every year. It is not dependant on farmers depositing money over a number of years to build accounts to a level which provides their desired level of stabilization and disaster protection. Farmers will not have to be concerned about draining their accounts in one year and not having access to margin protection in the following year because of insufficient balances. The new NISA program is also very affordable for beginning farmers and offers effective protection for back-to-back disasters.