OTTAWA (Staff) – With an industry-wide debt stuck at more than $23 billion for the better part of a decade, farming is a very interest-rate sensitive sector.
Yet it is not as vulnerable to short-term interest rate increases as the overall size of the debt might suggest, say farm economists.
Much of that debt carries fixed interest rates over medium or long terms. Short-term fluctuations only have a bearing on long-term debt if mortgage renewal negotiations are taking place when rates are soaring.
University of Manitoba agricultural economist Daryl Kraft said a rule of thumb is that 20 percent of the debt is short-term or line-of-credit debt used as cash flow in operations. Twenty percent is five-year money for such uses as machinery purchases.
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The remaining 60 percent is in the form of long-term mortgages.
It is the first 20 percent, or more than $4 billion, that is primarily affected by interest-rate fluctuations.
Agriculture Canada economist Garth Gorsky has a lower estimate of short-term debt vulnerable to interest rate increases. He said departmental estimates are that the average short-term farm debt was $13,800 last year or approximately $3.5 billion nationwide.
On average, it would be higher in livestock sectors. It is this debt that is vulnerable to interest rate fluctuations.
Recently, the Farm Credit Corporation rate on one-year money shot up almost a full percentage point to 105Ú8 percent.
If rates stay high, it will reverse a trend of falling debt servicing charges that has helped improve farm net income figures in recent years.
In 1991, the average debt servicing bill per farm was $8,300, according to Agriculture Canada.
By 1993, it had fallen to $6,500 and farmers recorded an improved bottom line despite falling market revenues per acre.
