The farm income cash crunch is just starting to show up in tax filer data, which until recently had reflected a steady rise in farm profitability.
Federal statisticians have released the final estimate for 2003 and according to tax return information, the average net operating income for Canadian farms was $25,567 after expenses were subtracted from revenues.
That is 15 percent lower than 2002 and three percent down from the previous five-year average, which isn’t surprising given that 2003 was the year Canada discovered BSE in an Alberta cow.
People shouldn’t read too much into the specific numbers because multimillion-dollar operations at one end of the scale and small hobby farms at the other can skew the averages one way or the other, said David Culver, chief of Agriculture Canada’s farm data and analysis section.
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It is valuable to analyze the trend line, which only recently began reflecting what farm leaders have been telling government officials for years.
“That’s the first significant decline in 10 years,” he said.
The data from 2003 breaks a trend of stable or rising average farm incomes, even in the difficult drought years of 2001 and 2002.
That may sound surprising given that farm groups have long complained about falling incomes, but there are some possible explanations for the disparity between what is being said to the public about the big picture crisis and what is showing up on individual tax returns.
“To some degree the per farm income has trended up better than aggregate sector level income. Part of the reason for that is the decline in farm numbers,” said Culver.
In other words, while the aggregate farm income picture isn’t that rosy, there are fewer farmers splitting up the pie, which pushes up the average income number.
Another factor to consider is that net operating incomes are being propped up by government payments. If those subsidies were removed, farm incomes would have remained relatively static between 1999 and 2002.
Canadian Federation of Agriculture president Bob Friesen contributed a few other points to ponder.
By selling reserve supplies of grains and oilseeds during the drought years, farmers may have boosted operating revenues in 2001 and 2002, disguising the level of hurt in the farm economy. A more important consideration is that capital cost allowances are left out of the net operating income calculations. Factoring in that depreciation expense would drop 2003 average farm income to $6,823 from $25,567.
“Those two things right there are big,” said Friesen.
Culver said while it is true that including depreciation expenses dramatically decreases average income figures, it has no impact on the look of the trend line. That line began tracking down in 2003 and will likely continue to drop once the 2004 numbers are compiled.
“Based on the trends with aggregate farm income estimates, I certainly wouldn’t expect them to go up. They are probably going to trend down even further,” said Culver.
Friesen expects more of the same for 2005 judging by farm income estimates calling for a 34 percent drop in Canada-wide realized net farm income. He said that should show up in tax filer data and every other measure of profitability.
“We absolutely think it is going to get worse,” he said.
