LEAVE IT to mainstream commentators to take Monday’s farm income numbers from Statistics Canada as a sure sign that all is well in farmer land.
Realized net farm income in 2007 (receipts minus costs and depreciation) more than doubled to almost $1.7 billion, buoyed mainly by increases in grain, oilseed and supply management prices.
The farm economy is booming and farmers are getting rich, proclaimed many economists.
What’s with the $4 billion plus in subsidies last year anyway? Other than the fact that they prevented a $2.3 billion negative income?
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Leave it to an agricultural newspaper commentator to see little but bad news in those glowing Statistics Canada numbers.
The overall federal numbers report an astounding resurgence in prairie crop receipts that masks serious problems in livestock sectors, in part because of those high grain prices.
The federal numbers, read only globally, mask the fact that five of Canada’s 10 provinces recorded negative realized net farm income last year and Ontario, the largest agricultural province, recorded a realized net farm income of less than $100 million from overall receipts of $9.3 billion.
The overall federal numbers, so comforting to economists, mask the seeds of some serious farm sector financial problems in the not-too-distant future.
None of these points, by the way, suggest Statistics Canada has tried to mask the bad news. It is all there in the May 26 publication of 2007 and first quarter 2008 farm income results but the gory background is easy to ignore in the face of the positive global numbers.
The background embedded in the numbers will haunt the industry in future years.
Grain and oilseed prices rise (hello 1975, 1996) and fall (hello most of the years outside those dates) but input price increases tend to be forever.
So while prices are at record highs, fertilizer, fuel and other input costs are racing to catch up.
In Saskatchewan, for example, fertilizer costs were up a record 34 percent last year and machinery costs were up more than seven percent.
In Manitoba, operating costs increased almost 10 percent, the highest increase in 13 years, led by a 31 percent increase in fertilizer costs and a 13 percent increase in debt servicing charges.
In Alberta, input cost increases of 8.5 percent were the highest in 14 years.
Across the board, transportation costs increased. High Canadian feed costs meant more livestock went south to be slaughtered, damaging the ability of the Canadian packing industry to survive.
Someday, not so far away, grain prices will fall from their unrealistic levels. Will input costs fall in line?
And then there is the issue of Canada’s farm debt. It has decreased in the United States. Last year it reached a record $54 billion in Canada and has increased by more than 150 percent since 1993.
Interest rates are low but that too changes. The debt level only grows.
Someday soon, farmers will be servicing a record debt with reduced incomes.
Beyond the good news farm-income-up story line, Statistics Canada exposes a number of time bombs in the farm economy waiting for the right moment to explode.
