Farm debt climbing, but called OK

Farm debt is at an all-time high, but producers appear well equipped to handle the extra debt load, according to Agriculture Canada.

Total farm debt stood at a record $72.6 billion in 2012, up six percent from the previous year.

Aggregate farm debt has been growing steadily for decades, but there is another statistic that shows farmers are in good financial shape to service that debt.

The net worth for an average farm, which is the difference between total assets and total liabilities, is projected to be a record $1.9 million in 2013 and grow to $2 million in 2014.

The average farm is expected to have $2.4 million of total assets in 2014 and $400,000 in total liabilities.

Agriculture Canada considers it to be a healthy balance sheet, which continues to improve as land prices push up the value of total assets and strong incomes lead to improved ability to manage debt levels.

However, some farm leaders are worried about rising debt levels.

“A lot of that debt is not in assets that are marketable such as land and buildings,” said Keystone Agricultural Producers president Doug Chorney.

“A lot of it is quota. A significant amount of it is quota.”

As well, the value of quota has been declining in Manitoba because of the uncertainty over dairy supply management due to concessions the federal government made in the preliminary free trade agreement with the European Union.

“If we were to see a material loss on quota values, that will be hard to recover from because that’s an asset on the books that is not really worth anything other than to another dairy farmer,” said Chorney.

Humphrey Banack, vice-president of the Canadian Federation of Agriculture, worries about the long-term health of the industry when the average farm has $2.4 million of assets.

“To get that next generation coming in will be a challenge (for them) to come in and buy those assets from us,” he said.

An analytical paper published last week by Statistics Canada shows farms are getting bigger and farmers are getting older.

The average farm area increased from 198 to 778 acres between 1991 and 2011. Over the same period, the average age of farm operators increased from 47.5 to 54 years while the number of farm operators decreased from 390,875 to 293,925.

“The trends of fewer operators and fewer farms show no signs of reversing and could indicate significant turnover in farm assets in the future,” said Statistics Canada.

Chorney said the baby boom bubble leading to an aging farm population is a concern for agriculture.

The number of farms on which the oldest operator was 55 years or older was 55 percent in 2011 versus 38 percent in 1991.

“We aren’t seeing retiring farmers replaced by new farmers. That land is being farmed by the neighbour,” he said. “Farms are getting bigger. That’s a fact of life.”

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