CAIS 101 – A glossary of terms
If you’re wondering what the difference is between a production margin and a reference margin or what a margin decline is, here are some definitions to help guide you.
PRODUCTION MARGIN
CAIS program benefits are calculated using the production margin which is arrived at by subtracting expense items directly related to primary production of agricultural commodities on the farm (feed costs, fertilizer, pesticides, etc.) from allowable income from commodity sales for each fiscal year.
Allowable commodity sales –
allowable expenses = production margin
A production margin is used because it gives a more accurate picture of the farm’s primary production activities by focusing on variable and unpredictable costs such as fuel and fertilizer. With the subtraction of fewer expenses, a production margin gives the producer a higher margin and provides more protection when income drops.
ALLOWABLE AND NON-ALLOWABLE INCOME*
Allowable Income
- Agricultural commodity sales
- Rebates for eligible expenses
- Wildlife damage compensation payments
- Crop/production insurance proceeds
- Insurance or other proceeds for allowable income and expense items
Non-Allowable Income
- Agricultural contract work
- Other program payments
- Rebates for non-allowable expenses
- Interest
- Trucking
- Leases
- Risk management and disaster assistance payments
- Patronage dividends
- Gravel
- Machinery rental
- Re-sales of commodities purchased
ALLOWABLE AND NON-ALLOWABLE EXPENSES*
Allowable Expenses
- Commodity purchases
- Fertilizer and lime
- Insurance premiums (crop)
- Minerals and salts
- Electricity
- Freight and trucking
- Arm’s length salaries
- Prepared feed
- Insurance or other premiums for allowable income and expense items
- Containers and twine
- Pesticides
- Veterinary fees, medicine fees, A.I. fees
- Machinery (gasoline, diesel fuel, oil)
- Heating fuel
- Storage/drying
- Futures Transaction Fees
Non-allowable Expenses
- Machinery repairs
- Advertising and marketing costs
- Agricultural contract work
- Membership, subscription fees
- Other insurance premiums
- Legal and accounting fees
- Office expenses
- Small tools
- Licenses/permits
- Land clearing and draining
- Property taxes
- Rent (land, buildings, pastures)
- Gravel
- Motor vehicle interest and leasing costs
- Capital cost allowance
- Mandatory inventory adjustments – prior year
- Optional inventory adjustments – prior year
- Machinery Lease/Rental
- Building and fence repairs
- Non-arm’s length salaries
- Motor vehicle expenses
- Soil testing
- Telephone
- Interest (real estate, mortgage, other)
- Quota rental (tobacco, dairy)
- Purchases of commodities resold
- Allowance on eligible capital property
*Source: Canadian Agricultural Income Stabilization Program Handbook
Reference Margin
The reference margin, which is used to calculate the program’s options and benefits, is an average of the producer’s margin history. It is calculated using the Olympic average which takes the last five years of a producer’s margin, eliminates the highest and lowest margins within that time frame and averages the remaining three years.
Sample Calculation of Reference Margin
using the Olympic average, the highest and lowest margin years are dropped from the calculation
The program year margin is measured against the reference margin to see if there has been a margin decline. It is calculated by adjusting the producer’s cash margin for changes in purchased inputs, accounts receivable, accounts payable, crops and livestock inventory.
Reference margin – program year margin
= margin decline
A margin decline occurs when the producer’s program year margin drops below the reference margin.
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