At first glance, it looks like economic nonsense, a statistician’s joke.
During 2003, the most disastrous farm income year in recorded Canadian history, a year in which farmers collectively recorded losses of more than $300 million and farm debt rose by $3 billion, the value of farm assets and farmer equity actually increased for the 17th consecutive year.
Statistics Canada reports that last year, the value of farm sector equity increased 1.3 percent, a $5.5 billion increase to $187.1 billion.
The equity increase was almost double the increase in farm debt, which reached a record $44 billion.
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Still, the debt-to-equity ratio reached 19 percent, the highest level in more than two decades.
Richard Gray, head of the agricultural economics department at the University of Saskatchewan, said the increase in farm equity value is not a sign of strength in the farm economy. It reflects the continued effect of Canada’s low interest rates.
“It really does not reflect income or the value of production from the land,” he said in an Aug. 13 interview. “Lower interest rates reduce carrying charges and result in increased asset values.”
In some areas, farmland prices are increasing because investors are buying property at more than its productive value.
Gray noted that near his family farm in Indian Head, Sask., land is being bought by people with money made in the oil industry, the financial sector or from European backers.
“For some reason, they’ve decided to spend that money on agricultural land,” he said. “Whether it’s a good investment or not, it does put pressure on land values in some areas.”
Assets included in the Statistics Canada calculations range from land and buildings to inventory and increasingly costly supply management quotas.
Gray said that while the value of farm assets has increased, asset values off the farm have increased more.
He said the federal report also contains evidence of an underlying weakness. Rising farm debt levels, doubled during the past decade, leave farmers susceptible to interest rate hikes.
