Canada’s farm debt took a dramatic seven percent jump last year to a record $47.7 billion and farm leaders are beginning to see the mountain of obligation as a potential disaster.
Already, debt-servicing charges are one of the largest farm expenses, consuming more than $2.3 billion last year.
This year, with an extra $3.2 billion in accumulated debt to service, debt-carrying costs will be more than $2.5 billion.
“This is a huge problem that is almost always overlooked,” said Rod Scarlett, executive director of Alberta’s Wild Rose Agricultural Producers.
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“It is a huge burden, a huge cost and a huge risk.”
David Rolfe, president of Manitoba’s Keystone Agricultural Producers, said it is time to start worrying about a debt level that has been growing relentlessly since 1993. It was in the $23 billion range that year and had been there for the better part of the previous decade. However, farm debt began to escalate in 1993 and the pace quickened after 1995.
Rolfe said that was the year the federal Liberals and then-finance minister Paul Martin killed the Crowsnest Pass freight rate subsidy.
“Freight rates went up and after that, a unit train of grain would be leaving Souris and the extra freight was taking $500,000 out of this area,” he said.
“Often the only way to cover that lost equity was to borrow.”
Since then, there have been rising input costs, tighter margins, the BSE crisis and a general decline in farm sector income.
“There have been a series of things and the result has been steadily growing debt,” Rolfe said.
Statistics Canada figures show that the debt level has grown every year during the past decade and it does not get paid down.
In 2003, farmer debt to chartered banks increased more than $1 billion to $20.7 billion. Federal government agencies, mainly Farm Credit Canada, were the next biggest debt holder at close to $10 billion.
Credit unions were next at $7.6 billion and an increased use of cash advance loans added $200 million to the total in 2003.
“Bankers and lenders keep talking about this as good debt but when farm returns are as low as they are, this is just a burden to be accommodated,” Scarlett said. “And you have to keep in mind that farm numbers are falling and smaller farmers would not typically be accumulating a lot of debt so this is a huge debt burden on a smaller and smaller number of commercial farmers.”
He said debt servicing charges take money out of farmers’ bottom lines and leave many farmers vulnerable to fluctuating interest rates.
“It is interesting that the farm debt increased last year by $3 billion, roughly the estimated impact of BSE,” Rolfe said.
