REGINA – A government survey shows more than half of prairie farms are not viable without off-farm income and government support.
The 1994 Farm Financial Survey, an Agriculture Canada analysis of farm finances from the late 1980s to 1993, suggests the general farm economy across Canada and on the Prairies is improving. But government analyst John Caldwell urges caution when looking at the numbers.
“Averages are not necessarily representative of the true picture,” he said.
On balance, Canadian and prairie farms were worth more in 1993 than they were in 1989. Average farm debts are down and the average farm across Canada is providing about $30,000 income per year.
Read Also
Petition launched over grazing lease controversy
Battle continues between the need for generation of tax revenue from irrigation and the preservation of native grasslands in southern Alberta rural municipality.
But a large part of these numbers is based on the biggest farms, which the survey shows to be most profitable.
The smallest farms, those with revenues of under $25,000 per year, aren’t even breaking even. Thirty-eight percent of Canadian farms are in this category, and their sales fall about two percent short of meeting their costs.
The next two categories of farms, those with revenues between $25,000 and $49,000 and between $50,000 and $99,000, barely break even on their farm sales. The prairie figures are similar.
Only on farms with more than $100,000 in annual sales does net farm income reach $20,000 or more. None of the income figures account for depreciation costs, which would have to be deducted from the net income figures.
The report says average Canadian farms with sales of less than $50,000 make only an average of $1,800 above costs.
Farms with more than $100,000 in sales make 77 percent of all sales and 80 percent of net cash farm income. Since only 27 percent of farms have more than $100,000 in annual sales, these farms have a vastly disproportionate share of sales and income.
Government programs
Farmers earning below $100,000 are able to keep their operations going because of government payouts and especially off-farm income.
For Canadian farms with sales between $25,000 and $49,000, off-farm income provides 73 percent of family income, or $24,000. For smaller farms, off-farm income provides virtually all family income.
Prairie figures are similar.
Government support program payments are relatively less important, but still crucial, Caldwell said.
“There’s probably guys in there (in the mid-sized farm category) who don’t have non-farm income, and these programs are very important to them,” he said. “The economies of scale of large farms allow some profit to be made from farm sales, and farm wages and government program payouts are comparatively larger.”
Caldwell said two features of farms are necessary to make them financially sound. They must have a good margin of return on investment and must be sufficiently large for the margin to mean anything.
A typical profit margin for grain farmers is 33 percent, and “if someone is getting a 40 percent margin, they’re doing pretty well. But the problem is that even with a 40 percent margin on (gross revenues of) $30,000, you can only net $12,000” which is too small to support most families, he said.
“Some of these farms are very efficient,” he said. “The only problem is that they just don’t have the volume to generate a living.”
Mid-sized farms are caught in the middle, between the large farms that can support themselves with farm sales and wages, and small farms that can rely on substantial off-farm income. Once farms are a certain size, it’s hard to work off-farm, but it’s not always possible to make enough market income from the farm to support a family.
Misinterpret statistics
While the situation of most farms may seem grim, Caldwell said the statistics may be misleading. Beginning farmers may start small and work off-farm until their farms are large enough to be self-supporting, while other farmers are aging and are slowly winding down their operations.
The profitability of large farm operations is made clear in the report. It shows that farms with sales over $100,000 in 1993 provide 80 percent of net cash farm income. This is an increase from 72 percent in 1991.
Large farms receive more government support payments than small farms, but get less per market dollar.
Large farms produce more than half of all farm sales and receive one-quarter of government support payments. The smallest farms, by contrast, receive 10 percent of government payments but only make four percent of farm sales.
Grain farms are the main beneficiaries of government support programs, receiving 55 percent of the total.
