When farm leaders from across Canada met March 9 with federal finance minister Ralph Goodale to make a pitch for 2005 farm aid, they offered startling figures comparing Canadian and American farm debt.
Average farm debt in the U.S. last year was slightly more than $113,000 Cdn, said the analysis presented by the Canadian Federation of Agriculture. Average U.S. farm income was more than $43,000.
The debt in Canada was a little less than $200,000 in 2003. Average farm income in 2004 was less than $25,000 and in Saskatchewan, Ontario and Prince Edward Island, it was a negative.
Read Also
Interest in biological crop inputs continues to grow
It was only a few years ago that interest in alternative methods such as biologicals to boost a crop’s nutrient…
“Clearly, this is a disadvantage for Canadian farmers compared to their American competitors,” CFA president Bob Friesen said.
Canadian agricultural economists support the conclusion.
Borrowed to own
George Brinkman of the University of Guelph has compared farm debt levels in Ontario to those in Great Lakes states.
The comparison was striking. U.S. debt compared to income and equity was far less onerous than in Ontario and Canadian farmers typically had much more capital
tied up in their farms.
“These ratios should generate serious concern for Ontario farmers as our debt-to-income ratios typically have been three to five times higher than comparable ratios in the U.S. in recent years and our levels of capitalization typically
Ken Rosaasen, a University of Saskatchewan agricultural economist, said the same debt-related competitive disadvantage likely exists between prairie farmers and their northern plains competitors, although detailed comparisons have not been done.
“My suspicion certainly is that the debt is worse here than there, and therefore the cost of servicing that debt would be greater and it would be a cost Canadian farmers face that American farmers do not,” he said .
“If costs are higher here, obviously that is a competitive issue.”
Between 2001 and 2004, American farm debt rose 18 percent. In Canada, it jumped 22 percent on a higher per capita debt load.
In February, U.S. Department of Agriculture debt specialist James Ryan told the USDA agricultural outlook conference that despite the expected rise in debt this year, it will be manageable.
“Debt levels are not likely to be a problem.”
Canadian econo-mists and farm management officials offer various reasons for the uneven comparison across the
Decline in U.S.
Brinkman’s study noted that U.S. farm debt fell almost 30 percent in the 1980s as lending institutions and the government wrote off tens of billions of dollars of debt. In Canada, debt grew slowly but steadily during that period.
“In the neighbouring Great Lakes states, debt levels in 2001 were nearly the same as in 1981 compared to Ontario, where they were double the 1981 level,” he wrote.
American farmers also received higher federal payments and higher market returns.
At the Ontario agriculture ministry, Clarence Haverson offers some additional reasons.
The OMAF manager of client services in the agriculture and rural business development section said Canadian farmers have some costs Americans do not face.
Billions of dollars of the Canadian debt are accumulated to buy quota under supply management programs. The U.S. has no comparable programs.
Also, American farmers are more likely to rent their land, he said. “In Canada there is much more of a tendency for farmers to own their land and that involves debt to buy the asset.”
Whatever the reason, U.S. farmers typically spend much less of their income servicing debt.
“That has to be a competitive advantage,” said Rosaasen.
Federal agriculture minister Andy Mitchell is not sure it is that simple.
He said the competitive implications of higher debt in Canada depend on why the debt is building. Perhaps American farmers are not investing as much in their businesses.
“It can be an advantage if you have lower debt servicing charges but if it indicates that Canadians are making investments and acquiring assets that will give them increased income, having debt may be a competitive advantage,” he said.
