Despite rising asset values, Canadian farmers increasingly depend on debt to finance their businesses, according to recently released Statistics Canada data.
In 2006, the value of farm equity in Canada rose 2.7 percent to $195 billion, said the federal agency. The equity mainly is land value although quota and equipment assets also are big factors.
But at the same time, farmers’ debt-to-asset ratio increased for the 11th consecutive year to 19.7 percent in 2006, a record of indebtedness compared to assets. Statistics Canada said the lowest debt-to-asset ratio was recorded in 1981 at 12.4.
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“This ratio, which measures the dependence of farm businesses on debt, reached a new record for the 1981 to 2006 period,” said the agency analysis.
In 2006, the average farm return on equity fell to one percent, one of the lowest returns in the business sector.
Statistics Canada also reported last week that farm cash income in 2006 was well below the five-year average at $7.3 billion and that resulted in farmers borrowing more to keep their operations afloat or expanding.
Most of the farm assets recorded last year were in the form of land and machinery.
However, the value of supply management quota also increased sharply last year despite doubts about whether the system would survive a World Trade Organization deal that almost certainly would cut over-quota tariffs and increase guaranteed import competition through tariff rate quota expansion.
Statistics Canada says quotas for dairy, chicken and egg production were valued at $29 billion in 2006 compared to $26.3 billion in 2005 and $18.7 billion in 2001.
