Record debt levels Gerry Ritz said farmers must decide if they are over-extending themselves
Despite record Canadian farm debt that rises annually with ensuing increased debt-servicing charges and predictions of higher interest rates, federal agriculture minister Gerry Ritz does not see a problem.
“I am not concerned about the debt level because the asset level has also gone up exponentially,” he said.
“I compare the debt to asset ratio and that is healthy. Farmers make decisions based on their economy. Banks and lending institutions like FCC (Farm Credit Canada) are smart, won’t stick their neck out too far (and) everything is covered well.”
However, he said it will be an issue for farmers to deal with rather than government if a problem does develop.
“I’m a firm believer in the marketplace,” said Ritz.
“I think most farmers I have talked to are well aware of potential pitfalls. They’ve been through it before. They’ve seen 20 percent interest rates. They’re hopeful it is not going to happen but everyone is looking over their shoulder.”
Canadian farm debt has hit a new record level every year since 1993, tripling to more than $70 billion.
Statistics Canada calculations due next spring are expected to show debt levels at the end of 2013 approaching or surpassing $75 billion.
Some farm leaders and even a few lenders are voicing concern about farmer vulnerability when interest rates rise.
Even at current low interest rates, debt servicing is one of the fastest-growing farm expenses.
So are Canadian farmers running the risk of over-extending themselves on debt, which is now significantly higher than the U.S. average?
“That’s for farmers to decide,” said Ritz.
“I don’t think government can. We can disincent (more borrowing) but if we start to regulate more, that just adds to a farmer’s overhead and creates distortions in the business plan as well.”
He said farmers could handle a doubling of interest rates.
“At the end of the day, a rise to five percent, I think farmers can handle that,” he said.
“They’re good businessmen. They’ll see it coming because it isn’t going to happen overnight.”
Ritz said farmers’ best strategy for dealing with higher debt levels is the prospect of higher incomes by selling food to a hungry world.
“The ace-in-the-hole is that we have a growing hungry population looking for top quality Canadian product,” he said.
“The new reality is not that this is a bumper crop but this is the new reality. This is where we’re going to have to work our way to, producing these kinds of crops. There’s lots of work to do on logistics and efficiencies and I think we’ll continue to see our farming system mature and become more global.”