Canadian farmers sank another $3 billion into debt last year, prompting farm leaders to worry about the implications.
With a record $33 billion farm debt at the end of 1998, Statistics Canada says debt servicing has become a $2 billion annual cost for farmers. It increased 11.2 percent last year.
“It’s a huge debt,” Manitoba farm leader Don Dewar said last week. “It is scary to see that kind of debt increase when farm incomes are going down.”
Ontario Federation of Agriculture president Ed Segsworth said it is a worrying trend, even if it is happening because farmers are borrowing to expand or diversify.
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“That kind of debt cost is a drag on the economy, particularly when you consider that commodity prices are going down. We are lucky interest rates are low but they could go up. I think many farmers will have to tighten their belt even more to handle this.”
It is a worry shared by opposition politicians but not by the government and many farm economists.
Federal agriculture minister Lyle Vanclief said higher debt may be bad news for some farmers. But overall increased debt can be a sign farmers are optimistic enough to put more money into their operations.
Agricultural economist Glenn Fox, at Ontario’s University of Guelph, said the increasing debt load also could reflect the changing face of farming.
“Increasingly, it is a more capital intensive business and I think the cycle we are in now is to make that capital investment,” he said. “I think we will see that stabilize when it reaches its equilibrium.”
He said some of the investment reflects prairie farmers moving out of straight grain and into diversified operations.
The Statistics Canada numbers do not break down by farm sector and do not offer an analysis of typical farmer debt and equity.
“It is the debt-to-equity numbers that would tell us more about whether debt servicing will be a problem,” said Fox. “But a loan is a transaction with two parties and my experience is the lender builds in a certain expectation of being paid back and checks that out before making the loan.”
Statistics Canada debt numbers show that total farm debt has risen more than 22 percent during the past year, by more than $6 billion.
Since the Liberals took office at the end of 1993, when debt had been relatively stable for several years, it has grown 41 percent
Although debt grew in all provinces, the increases have been most striking in Ontario and Quebec, which now have debt loads of $7.8 billion and $5.9 billion.
The province with the highest debt- just under $8 billion – is Alberta. In six years, it has grown by more than 25 percent.
