CAISP and Crop Insurance

[lakenheath]

Kevin Hursh wrote an article this morning stating that crop insurance participation could decline with the implimentation of CAISP. I disagree. The absolue maximum coverage a farmer can recieve from CAISP is 70% of a production margin decline.

I used an over-simplified example of a farm to see how this would work.

Mr. Farmer 1000 acres of durum:

REVENUES:

1000 x 40 bushels x $5.00 = $200,000

CAISP ELIGIBLE EXPENSES:

Fertilizer - 1000 x $25.00 = $25,000
Chemical - 1000 x $20.00 = $20,000
Crp. Insur - 1000 x $ 5.00 = $ 5,000
Salaries - = $10,000
Seed - 1000 x $ 7.00 = $ 7,000
Trucking - 40,000 x .12 = $ 4,800
Fuel - 1000 x $ 5.00 = $ 5,000

TOTAL = $76,800

REFERENCE MARGIN = $123,200

Let's assume the next year is a total crop failure and the producer opted out of crop insurance.

Maximum Government Payment -

$123,200 x 70% = $86,240
$ 76,800 x 60% = 46,080

Total = 132,320

Crop Insurance Would have Paid -

1000 acres x $120.00 = $120,000

The maximum government payment under the CAISP program is based on the mere assumption that loss ($76,800) are going to be covered by the program, as currently they are not.

This huge loss year now shows up on our refernce margin calculation as a poor year and will bring down your refernce margin for subsequent years.

To me it makes no sense opting out of crop insurance.

[cris]

I think one of the issues will be whether a farm stays at 80% coverage or drops off to 50%. In Sask 50 is rather inexpensive and 80% is rather expensive $8.18/ac on average accross our farm last year and we have a 8% experience discount. Anybody with sircharges could be quite expensive.

My thought are, if you have strong production margins, you can reduce your crop ins. significantly to a level that would cover neg margins. I think if you have strong margins, you may be able to ride out a bad year with little effect to your margin because the program removes the poorest year from your margin calculation. I have not seen my numbers yet to see were I fit in. The problem and challenge will be if the money would be responsive enough to actually act as a safety net. I would like to hear some more opinions on this.

[carebear300]

I just went to my first CAISP meeting last night. I don't think the program will respond quickly enough to a disaster type situation like BSE. I guess one thing that I did manage to pick up about the program is that it is designed to be firstly allowable under WTO rules and regulations first and common sense and good business sense are not a viable line of reasoning with the rules and regulations. It is likely as good as we are going to get so we better just bite the bullet and hope the accountant that we hire to fill out our income tax and CAISP form knows what he is doing, because us average every day farmers aren't ever going to be able to figure out all the little quirks of this new program. I don't know if I was of any help or not but I thought I would contribute my little bit for what it is worth.

[Yusishen]

In Manitoba at least, it still makes sense to me to carry crop insurance as well as CAISP. We've always only had crop insurance at 50% so even though it's more this year, it's still reasonable.

Crop insurance will pay out for a wreck on one particular crop no matter what your other crops do. For example, last winter we had very little snow and the winter wheat was destroyed. Crop insurance paid out. All other crops were decent (including that re-seeded on the WW field) so we are not in a CAISP claim position.

Crop insurance also pays out much closer to the loss time than CAISP. Finally, you can't get a spring cash advance without at least 50% coverage so if you count on that as part of your financing, you can't afford to drop CI (or "production insurance" as it's now called, in Manitoba anyway).

CAISP staff also recommend staying with crop insurance because payouts from that are considered allowable income and keep your reference margin high whereas a CAISP payout is not included.

The catch will be if CAISP figures out how to make sure that your crop insurance payout doesn't lower your potential CAISP payout. That's what they claim they are going to do but not sure how (something to do with making it "non-allowable" income for the claim year but "allowable" for reference years, I think). As far as I know, CAISP also won't penalize you if your margin loss is caused by insurable factors and you didn't carry insurance.