AgriInvest may be short-lived
AgriInvest could be a casualty as the federal government looks for places to cut spending. This caution isn’t based on any inside knowledge of government decision making. It’s more a recognition that the program has bad optics and is difficult to defend.
With decent grain prices, it doesn’t take a large farm to generate allowable net sales of $500,000. You deposit 1.5 per cent, $7,500, in an AgriInvest account and government matches the $7,500. As a farmer, what’s not to like?
Some people call the program NISA Lite. It’s modeled after the former Net Income Stabilization Account, but NISA allowed matching contributions of up to three per cent of allowable net sales, whereas AgriInvest is only at 1.5 per cent.
The other big difference is that producers can remove the money at any time. There’s no trigger. An income drop was required to access NISA money and there was interest rate bonus of three per cent to encourage producers to let the account build.
Even during tough times, many producers didn’t touch their NISA money and that led to the program’s downfall. How could you justify additional government assistance to farmers when they weren’t even accessing their NISA money?
AgriInvest has a different problem. It’s billed as protection for producers against small declines in income, but producers have unlimited access to the funds.
A lot of AgriInvest accounts at financial institutions earn only one per cent interest, so if you’re actually saving it for an income downturn, you might as well put it into some other safe investment where you can double the interest rate.
The program would accomplish the same result and require a lot less administration if the government just sent the 1.5 per cent directly to producers as a cheque. Perhaps requiring the matching producer contribution is meant to sanitize the subsidy, deflecting criticism from taxpayers.
The truth, however, is inescapable. Governments are paying hundreds of millions of dollars to producers each year whether they need it or not. In good income years, the money probably contributes to increased farmland values.
There may be 10 or 20 per cent of eligible producers who aren’t utilizing AgriInvest, but this is due to ignorance and neglect rather than any morals about taking government money. I feel a bit guilty getting AgriInvest money, but I’ll take mine as long as others are getting theirs.
How should non-farmers view AgriInvest? An unmarried wage earner making about $45,000 a year will pay about $7,500 a year in income tax, the same amount flowing to a farmer with allowable net sales of $500,000.
Government contributions to a producer are capped at $22,500 a year (allowable net sales of $1.5 million). You might be able to sell that to taxpayers and governments when farm income levels are ugly. How do you defend it when many of the recipients are having their best years ever?
With the other major farm safety nets, crop insurance and AgriStability, there’s a key difference. Payments only flow when a producer has a shortfall. AgriInvest is similar to some of the American farm programs we like to complain about – programs that pay out in good years and in bad.
There are producers with an entitlement attitude who believe that governments owe them a living. There will be some howls of protest if AgriInvest is slashed. Producer complaints over the loss of NISA led to the establishment of NISA Lite. Unfortunately, the current incarnation has again become difficult to justify.
(published in The Western Producer – Ap 19, 2012)