:
Thank you, Mr. Chairman. It's a pleasure to be here this morning to appear before the committee.
I want to make a few comments. I'll try to keep them very brief. I think the committee members were provided with a package yesterday with some background to the program and details on it. I hope you have that with you.
Thank you for inviting us to speak on behalf of Agriculture and Agri-Food Canada about the Canadian farm families options program. As you know, Canada's new government committed to reducing the pressures on low-income farm families in budget 2006. This commitment involved putting in place the options program with a $550 million federal investment. The program was announced nationally on July 31 and delivery began immediately, with the exception of Quebec, where a delivery of the options program began on August 16.
While a number of business risk management programs address income drops, some farm families are continuing to experience serious and continuing income pressures. The program is designed to encourage low-income farm families to pursue options that will help them to improve their longer-term prospects for on- or off-farm income.
The options program is a pilot program, a new program comprising two components. The first part of the program provides and encourages applicants to participate in farm business assessments and skills development training services that will be available to them until 2009. The second part is an income payment component that is in operation this year, in 2006, and next year, in 2007.
A new and innovative approach was adopted in the options program by coupling the farm business assessment and training in order to develop the skills, knowledge, and tools farm families may need to earn a better living either on or off the farm. The income payment is designed to help them take advantage of this opportunity--in essence, to give them some breathing space while they consider their options.
Eligible applicants, or those eligible for an income payment, are required to commit to participating in the farm business assessment or skills development services within 24 months of their application to help them identify longer-term income opportunities. As I mentioned, these activities include completing a farm business assessment or an individual learning plan detailing skills development, training, or an equivalent activity.
While establishing the eligibility requirements for the options program, a number of parameters were examined to ensure that those in greatest need would receive assistance. Eligible applicants must meet all the eligibility requirements to receive an options income payment. They must be actively farming in the year of application, 2006 for this year; they must have a minimum gross farm income, reported in 2005, of $50,000; and the income from all sources must be less than $25,000 for a farm family or $15,000 for an unattached individual.
The $50,000 gross farm income requirement was established to direct payments to those low-income farm families whose operations are commercial farms. The $15,000 or $25,000 income threshold is designed to ensure that the options program is targeted at individuals or families most in need. When combined with the gross farm income threshold, the targeted families are trying to make a go of commercial farming but are not making very much net income.
The rural low-income cut-off levels, or the LICO levels, published by Statistics Canada were considered as we developed the program parameters, but in the options program, the income threshold for a farm family of two or more is increased to $25,000, and individuals to $15,000, slightly higher than the rural LICO levels used by Statistics Canada.
We estimate that about 26,000 farm families across the country would be eligible for the program. Corporations, cooperatives, and communes are not eligible for options payments. However, individual farmers and farm families who own at least 20% of the farm corporation are eligible to apply.
To ensure that the program addresses those in greatest need, shareholders of closely held corporations are eligible. The options payment is made to the individual shareholder rather than the corporation.
Applicants receive the difference in the payment between the threshold amount of the $25,000, or $15,000 for an individual, and their total incomes for each year from all sources, including other program payments.
The farm business assessment, administered by the Canadian farm business advisory services of Agriculture and Agri-Food Canada, helps farm families set goals for their business and develop plans to meet their goals. Eligible applicants are provided with up to five days of professional consulting services and follow-up services resulting in each family receiving a business profile, statement of assets and liabilities, and an analysis of their operation.
The CASS, Canadian agricultural skills service, is the other program that helps options participants. CASS involves a skills assessment process and the development of an individual learning plan. Financial assistance is provided to eligible clients with an approved learning plan to support training in areas such as agricultural business management, accounting, finance, human resources management, training for other employment off-farm, or training to acquire skills for starting a new business.
Eligible CASS costs include tuition fees, textbooks, and travel while attending training away from home. The level of financial assistance can be up to $16,000 per participant according to net family income levels.
Options applicants who have completed the farm business assessment or have participated in CASS within the previous 12 months of their application are deemed to have met their commitment upon evidence being submitted to the department. Based on the applications we have so far, it appears that roughly 12% of the participants in the program have already met those requirements.
Participation in these services is gradually increasing as more options applicants meet their commitment to complete the requirement. As of November 5, 2006, there have been 13,460 applications submitted and entered into our processing system, with 5,732 payments distributed already, representing $59.7 million, almost $60 million, in payments to families and individuals.
When we developed the program, we set an income payment processing standard of 30 days from the receipt of a completed application and we are successfully meeting this standard. The reason we did that was to get the payments out as quickly as we could to families who need these funds.
With that, Mr. Chair, I will close my comments. I appreciate being here and will welcome your questions. Thank you.
:
The number sounds quite large, but I'm not sure if we have a number.
You're correct, it is a pilot program, and there will be an advisory committee set up with stakeholders and academia and so on to consider and evaluate the program and see how effectively it helped address the low-income challenges of these farm families.
For the people who did not qualify, perhaps because their levels were below $50,000 for gross farm income, they still can access the other services. Quebec has services that are part of the agricultural policy framework in Quebec. The province actually delivers the farm business assessment service in Quebec, and there has been participation in that. Those services would be available.
It would be a policy decision down the road as to whether or not the $50,000 level was changed. The other thing to consider for farm families that.... There are people operating farms with less than $50,000. On average, there is rarely any positive income, so most of their income now would be coming from off-farm sources. With that size of operation, it's very difficult to make much in the way of net income.
But you're absolutely correct, these are things that would be considered, I'm sure, by an advisory committee. That's part of the commitment to the program, that this committee will be established to look at the results of the program and consider its future. That information would then be provided to the minister.
:
Thank you, Mr. Chair, and good afternoon. I guess we just made it. Good afternoon to the committee, and thank you for the invitation to meet with you once again on the CAIS program.
As you are aware, federal, provincial, and territorial ministers agreed this past June in St. John's to take the steps necessary to implement a new margin-based program and to create a new disaster assistance framework, something separate from income stabilization.
Ministers also tasked officials with reviewing production insurance and reporting back in the fall with options on expanding production insurance to better include livestock and other commodities such as fresh horticulture. As Minister Strahl indicated about a week ago in front of this very committee, he will be meeting with his provincial and territorial colleagues next week in Calgary to discuss the work of officials and industry on these three fronts, those being the new income stabilization program, production insurance, and disaster relief.
In the meantime, the CAIS program. I made sure this was the topic of discussion for the committee before I made up my presentation. The CAIS program continues to operate and pay out significant assistance to producers. The deadline for information for the 2005 stabilization tax year was September 30, and as I have mentioned to the committee many times before, this is the busiest time for program administrators as the bulk of applications received are received close to the application deadline.
To date, over 31,000 producers have received close to $600 million in payments for the 2005 program year, and we are forecasting that once all processing is complete, some $1.6 billion will be paid out, bringing total payments for the first three years under the program to well over $4.5 billion. That's just under the CAIS program, and these numbers do not include the $900 million federal inventory payment announced this past spring to help producers transition to a better method of measuring their income, or the $755 million grains and oilseeds payment program, which was paid out earlier this year.
Now under the inventory initiative, CAIS participants for the 2003, 2004, and 2005 program years are having their CAIS program benefits automatically recalculated using the better method of inventory valuation commonly referred to as the P1-P2 hybrid method. If the numbers show that the producer would have received a higher payment using the new method of inventory valuation, then the producer will get an additional benefit. To stay within the $900 million funding, inventory payments for 2003 and 2004 are being pro-rated at 50%, with payments for 2005 pro-rated at a percentage to be determined once the 2003 and 2004 processing is complete.
Payments under the inventory initiative are currently being processed where Canada delivers the CAIS program, which you may recall is B.C., Saskatchewan, Manitoba, Nova Scotia, New Brunswick, and Newfoundland, as well as Alberta and P.E.I. Ontario is expecting to begin within the next month, and we are finalizing the agreement with Quebec for the transfer of funds to La Financière agricole du Québec. We expect the bulk of payments related to the 2003 and 2004 program years to be completed by the end of this year for all jurisdictions, and payments for 2005 will go out early in the new year.
While the special inventory payment is separate but related to the CAIS program, the improvements to the rules around the eligibility for negative margin coverage that were announced at the same time as the inventory payment announcement require an amendment to the CAIS program agreement with provinces and territories. This change will see more producers qualify for negative margin coverage under CAIS and it is estimated the cost will be some $80 million, cost-shared on a 60-40 basis with provinces, for the 2005 and 2006 program years. So approximately $50 million of that $80 million would be from the federal government for just those two program years.
This assistance will flow to producers as their 2005 and 2006 CAIS applications are processed. So once again, there's not a separate process or separate application for that additional assistance. These federal budget initiatives are initial investments to facilitate the transition to the new income stabilization program agreed to by ministers, and that's, again, federal, provincial, and territorial ministers, at their June meeting in St. John's.
For the 2006 stabilization year, the sign-up deadline--that's the year we're in right now obviously--for CAIS was September 30, 2006, and we are estimating, based on our preliminary numbers, that over 140,000 producers will be in the program protecting over $11 billion in margins.
As you may recall, effective for the 2006 program year, the deposit requirement under CAIS has also been replaced by a fee of $4.50 per $1,000 of coverage. The deadline for the payment of the fee is December 31, 2006.
As far as payments to producers for 2006 go, to date over $32 million has been paid out to over 500 producers, primarily in the form of interim payments. There may be some producers who have already received their final payment because their tax year-end has finished for 2006. They could have a June 30, 2006, tax year-end and they would be eligible for a final 2006 payment.
I realize I've thrown a lot of numbers at you in the last few minutes, and trust you've been provided with the latest summary of program payments. Many of the numbers I've mentioned in my opening remarks are reflected in that document. But if there are any questions for clarification, I'd obviously be pleased to provide them.
I'll leave it there. Along with my colleague Rosser Lloyd, I'm prepared to take your questions. Thank you.
:
Thank you, Mr. Chair, a.
And thank you, Danny. I know you really work hard at this program and sometimes I think you're the only guy in the country who really understands it.
First, on the inventory initiative, I'm getting a number of calls from producers who are confused over that, especially from the livestock industry. I guess one simple question would relate to the inventory initiative. Where are most of the payments going? Are they going to the livestock industry versus the grain cash crop industry? Do you have any breakdown on that?
I'm also told by some producers that a payment came out recently. One individual who called me received a statement saying that on re-evaluation the individual owed money to the CAIS program . When he called, they said, “Don't worry, out of the next program there may be money owing to you.” That's the January one, I assume. If that's the case, I don't think it's wise to send out those letters. The producers are already under enough stress and if they're wondering how in the heck they are going to come up with $30,000 or so.... Why not leave it until the final calculation is in and then do what you have to do then?
Could you respond on that point first?
:
On inventory evaluation, which I know is quite surprising because everybody thought this was really going to benefit the cattle sector, it's clear it does. But it also reflects the fact that grain prices were declining over those three years, so the vast majority--and I'm talking upwards of 80% of those payments--will be going to those two sectors.
We don't like to give the sector breakdown, because we always try to protect ourselves from a trade standpoint, but that is the order. Those two sectors clearly are getting the vast majority of payments.
With respect to the actual payments going out to producers, as I mentioned in my opening remarks, we have started processing payments in all jurisdictions except Ontario, and there will be a transfer of funds to Quebec. If you recall, the minister placed a moratorium on where we deliver the CAIS program, placed a moratorium on the collection of overpayments under the CAIS program against other program payments. The grains and oilseeds payment program is an example. He placed a moratorium on that until the CITI payment started to go out to producers. That moratorium is basically on until January 2007, but if a producer is eligible for a CITI payment, then the overpayment will be clawed back against that CITI payment.
That was made clear in terms of the original announcement. The idea here was that the minister didn't want to be giving money with one hand then taking it back with the other. He said to wait until the CITI payment comes out, then do the offset against the CITI payment.
I don't know the specifics, Mr. Chair, but it could be a situation where the producer still has an overpayment remaining after the offset against the CITI payment. When I say “CITI”, I'm referring to the inventory payment.
:
It's a very good question.
Clearly what ministers have agreed to is to separate out disaster relief programming from income stabilization programming, and looking at CAIS, or a margin-based program, as dealing with the income stabilization component.
In terms of disaster relief, whether it's a disease situation or whether it's flooding—and potato nematode would fit the circumstances of a disaster because it is a disease situation—really what we're looking at is providing assistance to help producers resume their business operations or mitigate the impact of the disaster as quickly as possible. But when we're looking at what needs to be done under a disaster relief framework, we also have to look at what existing programs are there. We're not there to try to substitute for what's available under existing programs, and of course, our two major programs are production insurance and, currently, the CAIS program.
So when we look at the disaster situation, we'll be looking at what programming is available, and then we'll look at what are the losses and costs that producers are incurring to deal with the disaster. If the existing programming is not responding, or can't respond, in dealing with those disasters, then that's what we envisage the disaster relief program will help producers with, to fill those gaps with the existing programs, to help them resume their operations, and also to mitigate the impact of the disaster. So if they're incurring, as an example, extraordinary costs because of the disaster that aren't covered under existing programming, then that's a potential area where we can provide assistance under our disaster relief program.
These are concepts that we've talked about with the National Safety Nets Advisory Committee, several national organizations, and it's the type of thing that ministers are going to be talking about next week in Calgary, in terms of a recommended disaster relief framework to deal with gaps in the current programming to help producers get back up on their feet.
:
We're certainly fully aware of the CFA's proposal with respect to a NISA-like, contributory-style savings program as a top-up companion program to deal with regional flexibility, etc. When ministers tasked officials to come up with addressing the issue of a separate income stabilization program and disaster relief program, they did form a task team of producers and officials to look at what the options were to have a better income stabilization program. One of the options considered was a NISA-style program. The task team concluded that a better margin-based program was the way to go.
So NISA was considered, and we're very aware that the industry still very much wants to have a NISA-style program on top, if you will, of a margin-based program. But in terms of the process that we went through, we worked with producers to actually build the program options that we're now taking to ministers next week.
So we started with producers right from the ground floor. It was a small set of producers, mind you, but they were all recognized, well-respected producers who actually worked with officials to say, here's the program, here are the options, and here's our recommended program. We took those recommendations through the various consulting bodies, like the National CAIS Committee, the National Safety Nets Advisory Committee, and the national organizations, and said, this is what's being recommended. They actually supported the direction on all three fronts—disaster relief, production insurance, and margin-based. But as you have alluded to, they've said there's still more that needs to be done, and the NISA-style program is an option.
:
The simple answer for the last example you used is that it would be producers who have basically lost their whole crop. They know their revenue is zero and they know what their expenses are; they can very quickly calculate what their margin is for the current year. They know what their historical margin is and can calculate a payment.
That's a very simple example. The producer in that situation would say he has no revenue, that he knows what this number is, and he would probably be pretty close to being able to estimate what his payment is.
Predictability, bankability has been the issue with the program. A number of things we're doing will help address that.
I don't want to underestimate the impact of that inventory change, in terms of producers being able to say they are getting money when they should be getting money for a drop in price on their inventory. That's a major change.
As well, with the online calculators and all the service improvements we're making to the program to help producers and—more important—accountants actually calculate the payments, there is a lot of work going on with the administrators.
In fact, today in Calgary we have the subcommittee of the National CAIS Committee meeting to deal with another issue that really drives the predictability and bankability issue, and that's called structural change. When farms change the operation, whether it's the commodity mix or the size, we have to adjust their reference margins. That was a major challenge in predictability terms under the program. The National CAIS Committee has formed a subcommittee, and they're looking at this. We'll be coming back with recommendations on how we can better do the structure change calculations for producers so that they can have a more predictable and bankable program.
So we are making a number of changes. I met with the minister the first week, and the example you used is the example we discussed: why can't you fill in your form like income tax, put in a bottom line number of $10,000 and know that, plus or minus 10%, you are going to get that number? That's where we're going with the new margin-based program.
:
Definitely, one of the key principles in the design of the program is the trade issue, minimizing the risk of countervail for our programming, because clearly making payments just to have that clawed back—I'll use that term—by countervailing duties is not going to get us anywhere because of the size of our agricultural export industry. That continues to be one of the key principles in terms of designing new programming.
As far as disaster relief goes, and disaster programming, basically we've looked at all the disasters that have taken place in the country over the last 10 to 15 years at least, and we did the analysis of those and asked, where are the gaps with our existing programming and what do we need to do to better respond to disasters? We came up with a framework. It's a framework; it's not a program. It's not prescriptive in terms of saying that if you declare a disaster, producers are going to get $1,000 an acre. You have to design the program on a case-by-case basis so it's event specific.
The industry groups have been very supportive of this framework approach. What they've said to us is that they agree with the framework, they agree with the guidelines, they agree with the principles that we've come up with, but we're going to need to be clearer on what the process is, what actually happens--steps one, two, and three--so that we can put the disaster response in as quickly as possible. That's something we'll have to do if ministers agree next week in terms of the disaster framework.
So in terms of disaster relief, we looked at what has happened over the last number of years and asked, what would be the best possible response mechanism to those types of things?
We've certainly looked at the U.S. style of programming. There's lots of money there going to five commodities, but there are lots of downfalls on that. Do you want to be paying producers who are no longer producers? It's simply because they own the land that they're getting assistance payments. So there are those types of things, and we do look at other country models as well, on all types of programming, not just disaster relief.