A glance at the latest farm income estimates shows the glass is either completely full or entirely empty.
Depending on how you view Agriculture Canada’s statistics, farmers may be either 100 percent worse off than they were in 2002 or 92 percent healthier financially.
According to the Feb. 6 document, Canadian farmers are likely to have a realized net income of negative $13.4 million in 2003, down from a $2.7 billion profit a year earlier.
But the same group had $2.45 billion in total net income last year compared to $1.27 billion the year before, a figure that would suggest a doubling of financial well-being on Canadian farms.
Read Also
Going beyond “Resistant” on crop seed labels
Variety resistance is getting more specific on crop disease pathogens, but that information must be conveyed in a way that actually helps producers make rotation decisions.
The difference in measurements is starkest in a province like Alberta where realized net income was an estimated $230 million in the red in 2003, but total net income was $648 million in the black.
So what accounts for the financial dichotomy?
The difference lies in the definitions of realized net income and total net income, said University of Saskatchewan agricultural economist Ken Rosaasen.
“Total net income has an inventory adjustment,” Rosaasen said.
“It measures whether your beef herd has increased or decreased, it measures whether the wheat in your bin is more or less. And it reflects your potential for next year.”
Rosaasen said the total net income figure reflects a sizable increase in Canada’s beef herd because the BSE crisis has stemmed sales of the animals.
The problem with that method is that it makes a false assumption about what those cattle are worth. Statisticians multiplied the change in herd size by the average cattle price throughout 2003.
“It means the BSE crisis creates a big positive value for the beef industry,” he mused.
Rosaasen said cattle were worth a lot less at the end of the year than they were at the beginning, so that inventory is valued too high.
“The realized net farm income is a much more accurate reflection of where (producers) are at,” he said.
It’s a measurement that best reflects a farmer’s cash position at the end of the year.
Lambert Gauthier, chief of Agriculture Canada’s income and program analysis section, said realized net income is the closest measure to what farmers would report on their income tax returns. And it is the one most commonly used by the industry.
But it is not without flaws. It can overstate the degree of hurt in the farm economy because it doesn’t take farm inventory into account.
“When they sell that inventory they have something to realize income in the future,” said Gauthier.
He also pointed out that inventory includes crops, poultry, pork and other animals, and is not simply a measure of cattle. So while the BSE crisis may have skewed the figure higher than it should be, a portion of that $2.45 billion is genuine.
For instance, producers harvested a bigger crop in 2003 than they did in 2002 and some of that is sitting in their bins waiting to be sold. It’s not cash in the bank, but it will be at some point.
Gauthier said there is no perfect measure. The most complete picture of the health of the farm economy comes from looking at both numbers.
