It is becoming a familiar song for Canadian agriculture – another year older and deeper in debt.
Last year, Canadian farmers added more than $2 billion to their already record farm debt load for a 3.9 percent increase to $54.3 billion, according to Statistics Canada.
Since farm debt levels began to soar in 1994 after more than a decade of relative stability, Canadian farm debt levels have climbed 132 percent from $23.4 billion.
While farm asset values also have increased considerably during those 14 years, the federal agency said debt servicing charges were one of the fastest growing expenses last year, costing Canadian farmers $2.9 billion. Only fertilizer, feed costs and insurance premiums rose as much.
Read Also
More factors affecting winter weather
When you combine a weak La Niña, early Siberian snow, and a warm northern Pacific, it’s easy to see why long-range winter forecasting is so complex.
Bernie Rosien from Statistics Canada’s agriculture division said the $200 million increase in debt servicing costs last year were a result of both a larger debt to service and interest rate increases, particularly in debt held by private lenders.
Chartered banks held 41 percent of the debt, followed by close to 25 percent by Farm Credit Corp.
Lenders typically see this as a sign of a healthy industry with farmers borrowing to expand or increase productivity and debt-to-asset ratios positive.
But University of Saskatchewan agricultural economist Richard Gray also sees a huge potential problem.
“It is a reflection of farmers using cheap money but in the economic turmoil we are in, it is really impossible to predict what will happen over the next while to interest rates so I see this as a very scary situation,” he said. “An interest rate escalation on a debt this size would have a major impact on farm operations.”
Part of the concern is that while debt servicing charges remain constant or increase, farm income is volatile.
A built-in $2.9 billion debt service cost that is rising saddles Canadian farmers with much higher proportionate costs than their American competitors. Farm debt in the United States has not been increasing as quickly or as steadily.
“That is where this becomes a competitiveness issue as well,” said Gray. “Canadian farmers are hugely exposed.”
Ron Bonnett, Canadian Federation of Agriculture vice-president, said Nov. 28 the debt level and farmers’ ability to service it is a “critical concern.”
His home province of Ontario has seen the sharpest debt level increase in the past 14 years increasing to more than $13 billion last year from less than $5 billion in 1993.
“I think there is a tremendous vulnerability in these numbers,” he said. “That’s why it is important that we have farm programs that work for farmers. That is also why it is important to have the FCC in the market because it offers lower rates in many cases.”
The province with the sharpest proportionate increase in debt during the past 14 years was Manitoba, where debt levels increased 182 percent to $5.7 billion.
Alberta farm indebtedness reached $11.9 billion last year and in Saskatchewan, farm debt reached $7.57 billion.
In all three prairie provinces, debt rose sharply after the 1995 abolition of the Crowsnest Pass grain transportation freight subsidy.
