Managing financial risk during uncertain times
By Steve Funk
Why this general-purpose business risk management tool could be your best best.
By Steve Funk
When asked the question of which COVID-19 programs are most applicable to greenhouse growers, my first response is: AgriStability. This might be thought of as an odd response given that AgriStability is not a COVID-19 program, but rather a general-purpose business risk management tool for all types of farming.
The problem is that in 2020, COVID-19 related risks are compounding upon regular ongoing risks that greenhouse operations have always faced. Some of the risks that may be specifically caused or impacted by COVID-19 are:
- Suppliers going out of business and/or supply chain interruptions, which could result in negative impacts to production
- Customers being unable to pay for product delivered, which could result in significant bad debt losses
- Cancellation of orders, limited access to markets, loss of processing capacity, and changes in consumer preferences as discretionary income levels drop due to mandatory workplace closures could all negatively impact prices
- Supply shortages could increase the cost of inputs like seed, fertilizer, and chemical; there may not be a readily available work force as there has been in past years
AgriStability provides protection against losses relating to falling production and commodity prices, and rising input costs, including all the COVID-19 related factors mentioned. For 2020, the result may be a scenario where AgriStability benefits are easily triggered, and the resulting payments would likely be greater than the sum of all other specific COVID-19 support programs that greenhouses would be eligible for. This doesn’t mean that COVID-19 programs should be ignored. It just means that signing up for AgriStability, by the now extended deadline of July 3, 2020, needs to be a priority for all greenhouse operators.
The most important thing that greenhouse growers need to understand about AgriStability is how much their revenue needs to drop before AgriStability triggers the 30% margin drop and starts to pay benefits. For all of agriculture in Canada, the answer to that question ranges between slightly less than 2% up to about 40%, depending on the type of farm and cost structure. For greenhouse growers specifically, the revenue drop is probably in the range of 7.5% to 10%, again, dependant on cost structure. Any cost increases would also weigh favourably towards triggering AgriStability benefits.
AgriStability has always been a potentially beneficial program for greenhouse growers. With the added COVID-19 factors coming into play for the 2020 year, any growers who are not currently in the program should be signing up to ensure that they benefit from proper risk management in addition to any COVID-19 specific support they might qualify for.
Here is an overview of potential COVID-19 programs applicable to greenhouse operations:
Canada Emergency Wage Subsidy (“CEWS”): Partial reimbursement of remuneration is paid to arm’s length employees (up to 75%) who have seen a substantial decrease in revenues as a direct result of COVID-19 to a maximum of $847 per week per employee. This can apply to non-arm’s length employees as well in certain circumstances. Eligible entities must experience a decline in revenues of at least 15% in March 2020 (30% in April and May) when compared to March 2019 or an average of monthly revenue earned in January and February 2020.
Temporary Wage Subsidy (“TWS”): Eligible employers are able to reduce the amount of payroll deductions remitted to the Canada Revenue Agency (“CRA”) by up to 10% of the remuneration paid to employees to a maximum of $1,375 per employee, and a maximum of $25,000 per employer.
Temporary Foreign Workers (“TFW”): Provides eligible employers with $1,500 per temporary foreign worker as a means to help employers through the worker’s 14-day self-isolation period upon arrival to Canada, as required under the Quarantine Act.
Canada Emergency Business Account (“CEBA”): $40,000 interest-free loans available for qualifying businesses. 25% of the loan is eligible for forgiveness if the balance is repaid by December 31, 2022. To qualify, businesses will need to demonstrate that they paid between $20,000 and $1.5 million in total payroll in 2019, and that the funds were used to pay non-deferable operating expenses. Applications are done through financial institutions.
BDC Financing: Loan guarantees for small- and medium-sized businesses whose access to financing has become restricted. Access through financial institutions.
Saskatchewan Small Business Emergency Payment (“SSBEP”): Provides eligible small- and medium-sized businesses ordered to temporarily close or substantially decrease operations as a result of the Public Health Order pertaining to COVID-19. Provides a one-time payment of 15% of the business’ monthly sales revenue based on April 2019 or February 2020 revenues. Maximum payment of $5,000 per business.
During constantly evolving situations like the COVID-19 pandemic, it’s critical that you have access to the most reliable, relevant and up-to-date information and strategies.
We’re here to help you navigate these uncertain times and keep your operation on a safe pathway through disruption. If you have any questions or concerns about what to do next, please reach out to your local business advisor or farm management consultant.
Steve Funk is the national lead for farm income programs at MNP. He can be reached at email@example.com.
Note: Due to evolving benefits, credits and support payments as part of the government’s response to the COVID-19 global pandemic, the information presented here is subject to change at any time.