MONCTON, N.B. – It was a tale of two farm debt outlooks.
Faith Matchett, Farm Credit Canada’s vice-president for Atlantic Canada, appeared before farm leaders July 31 with what she said was good news: Canadian farm debt is at record levels, rising four percent last year to $54.2 billion.
“By and large, what we are seeing is an increase in what I consider good debt,” she told the summer meeting of the Canadian Federation of Agriculture.
Good debt is investment that increases farmers’ ability to make more money in future from expansion, modernization or diversification. Farmers are more optimistic,” she said.
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“We are optimistic. We really do see a strong and bright future for agriculture.”
The farm leaders listening to her had a less optimistic view. Record farm debt means high interest payments and the worry of rising interest rates.
Record farm debt also means record exposure.
“When you talk about farm loans being up, that’s also scary,” Robert Speer of the Agricultural Alliance of New Brunswick told her.
“We’re living on low interest rates.”
Pierre Lemieux from Quebec’s Union des Producteurs Agricoles said he did not recognize the sector she was describing.
“You paint a very rosy picture, but I wonder if I am living in the same world you are,” he said.
“That is not what I see from producers.”
Robert McLean, a member of Manitoba’s Keystone Agricultural Producers, said he was more optimistic six months ago when crop prices were rising than he is now, when he sees how much input costs have risen.
“I didn’t know the input suppliers were going to suck as much of the profit out of our sector as they did.”
Matchett assured farm leaders that she understands many farmers are in tough times, and debt can be a problem for them. FCC is sensitive to and flexible about individual farmer problems, she added.
However, Matchett said debt levels are not something that concerns the FCC because the crown corporation makes sure the farm operation is strong enough to cope with a small interest hike before money is loaned.
“Higher debt levels doesn’t scare us because we see it as good debt.”
Just 2.6 percent of FCC accounts are in arrears, she added.
However, FCC executives revealed under questioning that the arrears number would be higher if farm loans that were restructured to avoid problems were included.
That is particularly true in a troubled sector such as the hog industry.
Canadian Pork Council president Jurgen Preugschas wondered what the arrears rate would be in his red-ink industry without special arrangements to restructure debt or to offer a principal repayment holiday.
Matchett said that during the past year of industry losses, $370 million out of $1.2 billion in hog industry loans had been restructured.
“That is much more than any other sector,” she said.
