Farmers stay on top of debt

Farm debt continues to climb, but federal officials say assets are climbing much faster.

Tom Rosser, assistant deputy minister with Agriculture Canada’s strategic policy branch, told the House of Commons agriculture committee last month that average debt in 2015 was $600,000, but average farm assets were $3.4 million for an average net worth of $2.8 million.

Even though net income is projected to drop by $1 billion this year, it will still be the fourth highest year on record, he said.

Combine those factors with low interest rates and farmers are generally financially solid, Rosser said.

“The increasing debt levels that we see in agriculture are indicative of farmers using debt as a tool to increase their competitiveness and to grow,” he said.

Farm Credit Canada holds more than a quarter of Canada’s total farm debt, chief executive officer Michael Hoffort told the committee.

He said that the continued appreciation of farmland, which is farmers’ main asset, has been a key factor in staying on top of debt.

The most recent farmland value report showed an average increase of 7.9 percent as part of a 25-year trend. However, he said the substantial increases are losing steam, considering that this was the third consecutive year of declining growth rates.

“Strong income, increased profitability and low interest rates have pushed up asset values, which in turn drive up demand for credit,” Hoffort said.

“As a result, in 2015 we saw an increase in farm debt that for the first time in many years exceeded farm asset appreciation. Yet the ratio of debt to asset values in 2015 remains lower than the 10-year average.”

However, he said a low ratio is a secondary measure of debt repayment ability. The primary measure is income.

Although the income outlook is positive, he said farmers should stay on top of risk management.

“We are actively encouraging farmers to identify efficiencies in their operations to counter any potential drop in revenue and ensure the long-term profitability of their operations,” Hoffort said.

Rosser said federal-provincial business risk management programs have paid out $5.6 billion since 2013, even in relatively good times.

J.P. Gervais, FCC’s chief economist, said farmers and governments should have realistic expectations about the future.

“I think it’s more realistic to expect that the next 10 years will not necessarily look exactly like the past 10 years,” he said. “The past 10 have been influenced by really strong prices.”

Weaker prices mean growth in cash receipts and income will have to come from productivity.

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