Alittle more than a decade ago, Corly Briltz inherited land in southeastern Saskatchewan when his parents died. After years in the city, he decided to go farming.
“It was a huge error,” says the 58-year-old, who also owns a body shop in Regina. “I thought there had to be money in it. I was wrong. We haven’t taken a dime out of the farm in the 10 years we have farmed.”
Instead, more than doubling the farm size to about 5,000 acres and buying the required equipment left Briltz deeply in debt with a farm cash flow that cannot pay the bills. Off-farm income has sustained the family through years of drought, grasshoppers and now low commodity prices.
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“I have lost money four out of the past five years,” he said. “We’ve had enough. Farming is the greatest addiction I’ve ever had in my life. How else can you explain always going back for more? But enough is enough.”
The land will be rented out, possibly sold.
Several thousand kilometres to the east, dairy farmer Norbert Dietrich can sympathize.
The 45-year-old from St. Agathe, Ont., still owes more than $1 million after spending $1.6 million five years ago to build a new dairy barn and buy enough quota to add more than 30 cows to his herd. He sees no end to it.
“I used to have a goal of having one month debt free before I retire but I realistically don’t see that happening,” Dietrich said. “Debt is such a cost in my business. Since 1976, I have spent over $1 million in interest, money out the door.”
These are two of the stories from the trenches as Canadian farmers run up the highest debt levels in history while coping with some of the lowest farm incomes.
Total farm debt that stood at $23.4 billion in 1993 is expected to have reached $50 billion in 2004, almost double the comparable farm debt held in the United States. By the end of 2004, U.S. farm debt stood at about $240 billion Cdn. While this is considerably higher than the Canadian debt, it translated into an average per farm debt of $113,000 in 2003, compared to an average per farm debt in Canada of almost $200,000 in the same year.
In 2003, Canadian farmers spent $2.37 billion to pay interest on the debt, one of their largest expenses.
Lenders insist the debt is healthy Ñ the relative cost of debt servicing compared to other expenses has dropped in the past decade because of low interest rates and most farmers are up-to-date with payments.
But farm leaders and agricultural economists see a darker side to the debt mountain.
They warn that the ever-growing debt makes Canadian farmers vulnerable to rising interest rates that could further stretch their budgets and hurt their competitiveness compared to lower-debt American farmers.
“There is a real risk here that people who are already operating very close to the line may slip over it if there was a jolt in interest rates,” said National Farmers Union president Stewart Wells.
He suggested more analysis and research is needed to determine who is carrying the debt, why it has accumulated, the impact of rising interest rates and farmer’s ability to cope.
“I think on the interest rate question, people’s memories are pretty short because they have been stable for awhile but history shows they can be volatile,” Wells said. “I think the debt should be understood and recognized as a vulnerability.”
In Ottawa, federal agriculture minister and former rural banker Andy Mitchell said he is not aware of a detailed departmental analysis of farm debt and its potential impact.
Debt, depending on the circumstances, can be a positive or a negative, he said.
“There is not an easy judgment and it depends on individual circumstances. The more highly leveraged a producer is, the more vulnerable he is and when farm income is low, debt servicing clearly becomes part of the issue.”
Canadian Federation of Agriculture vice-president Marvin Shauf said debt payments take several billion dollars from the farm bottom line each year and leave farmers at risk if interest rates rise.
“In our business, you need debt for investment and growth and it’s not unhealthy as long as you can service it and it is helping you make money but of course, with commodity prices and farm incomes where they are, it is a huge stress right now,” he said.
University of Guelph agricultural economist George Brinkman startled delegates at a CFA seminar on farm profitability late last year when he compared 2003 with 1975, one of the last great farm income years.
Using 2003 dollars, Brinkman said realized net farm income in 1975 was $3.3 billion while debt stood at $7.8 billion. In 2003, realized net income was a negative $26 million and debt was $47.7 billion.
“Canadian farmers are 5.2 times more vulnerable to rising interest rates than are American farmers,” Brinkman said.
Darrin Thul of Marquis, Sask., has watched debt pile up on his 10,000-acre farm northwest of Moose Jaw as bad weather, low prices and last year’s killer frost cut income.
“I’ve always been a bit of a risk taker but this is the worst I’ve ever seen it on the farm and the debt is definitely part of it,” he said. “Being debt-free is not my goal but making enough to afford my debt is and that is not happening.”
Added wife Georgia: “We’re teetering, wondering if it really is worth it, if this is the future. So many things are out of our control.”
The reasons for the debt explosion vary, but there are themes.
Interest rates have been near historic lows for several years and many farmers and lenders have built an assumption of interest rate stability into their business plans.
“I’m not sure how much of this debt would be serviceable if we returned to what have been normal interest rates, closer to 10 percent,” said Clarence Haverson, manager of the Ontario agriculture department’s agriculture and rural business development branch in Guelph.
Farms have been expanding and land acquisition costs have been rising. On the Prairies, the 1995 end of the Crow Benefit led to heavy investments in livestock.
In supply-managed sectors, quota values have soared. In many provinces, it costs $30,000 to buy quota for one cow.
As well, the farm population is aging.
“Part of it, at least in our area, is the transition to the next generation and that involves significant debt,” said KPMG office managing partner Dean Gallimore in Lethbridge.
Agriculture is one of the few industries that recapitalizes itself every generation, a point made recently as the federal Liberal party adopted as policy the need for intergenerational farm loans.
Despite rising farm debt, lenders say it does not present a crisis as it did during the high interest rate years of the 1980s. Lenders have become more cautious, assessing cash flow and debt servicing ability as well as asset values, while farmers are more diligent about creating business plans.
“Our portfolio is healthy and our problem loans are a very, very small part of our business,” Farm Credit Canada senior vice-president Greg Stewart said. “More farmers are doing well than you would guess from press reporting, that’s for sure.”
But back in the trenches, where many farmers struggle to service their debt with falling income, there is a less optimistic tone. Often they borrow just to pay operating costs.
Murray Clarke of Lemberg, Sask., has seen his operating loan double to more than $130,000 and his short-term debt soar to close to $400,000 in the past year.
“I have used debt to expand over the years,” said the 49-year-old former bank manager. “Debt servicing is probably not the biggest problem I have but it certainly contributes to a very stressful time.”
Norman Storch of Hanna, Alta., knows all about the stress of debt. After years of financing his farm with debt loads as high as $400,000, he decided in 1995 to concentrate on debt reduction. Now, he is almost debt free.
It has limited the 54 year old’s ability to expand, but he makes money from his cow-calf and feedlot operation and is content.
“I realize it is not a game plan or even an option for many, but it has made the stress side of our farm much less because there is nothing harder on a family than financial trouble and debt,” he said.
Living on borrowed money is a “mug’s game” that rewards the lenders and the companies that hold the debt, he said.
“I’ve never seen a Brink’s truck in a farmer’s funeral parade yet.”
