Scott Dickson

The new nature of AgriStability

Thursday, February 21, 2013 by Scott Dickson

 

AgriStability is changing; the nature of this government program and the logistics of what it offers producers are being substantially altered in a way that will affect current and future participants. And while there has been media coverage of the changes, and information released directly from the government, the sheer bulk of that information, heavily weighed down by percentages and opinions may make it hard for many producers to decipher the best course of action for their operations. Especially since much of the media coverage has been negative.

Yes, producers need to understand fully the changes and how they affect them but what is critical to understand is that the whole nature of these programs has shifted.

The reality is that the programming is evolving from a government subsidy that producers have come to rely upon and now more closely resembles an insurance or risk management product. This will require a shift in producers' thinking. Instead of thinking that they need to get more money (in some cases a lot more) out of the program over time than they put into it (the government subsidy view), they will need to consider the size of the reference margin they are protecting and whether they have the resources to survive significant drops in their current performance and continue to keep their businesses afloat in the process (the insurance view).

Producers have to understand that for some industries (grain and beef especially) reference margins have increased significantly over past two or three years. As a result, even though the coverage has been reduced from 85% to 70%, they have much larger program margins that they are protecting.

Producers on the grain side will argue that they already have protection through production and hail insurance; however, they have to look at their specific margin and understand that, generally, Agristability may cover significant drops in their profits not just their production.

In the livestock industries, there are very few insurance products out there and AgriStability may be their only way to ensure they are protected from future significant losses.

In other words, AgriStability is in place to recover from a financial wreck, not small reductions in profit. And while these changes won’t be welcome by everyone (in my personal opinion, they have downgraded a great program to one that is merely good), the benefits of participation still exist for many producers.

The deadline for applying for 2013 AgriStability is April 30, 2013. The best advice is to take time to work with your advisor and determine how this program fits in with your risk management strategy.

To read more on Growing Forward 2: AgriStability and AgriInvest, check out Steve Funk's article in the Western Producer here.

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