Despite declines in most provinces, realized net income for Canadian farmers rebounded in 2007 after falling sharply the two previous years, Statistics Canada reported Monday.

The impact of rising grain and oilseed prices more than offset large increases in operating costs and lower receipts for hog and cattle producers, the agency said.

Realized net income (the difference between a farmer’s cash receipts and operating expenses, minus depreciation, plus income in kind) rose from $771 million in 2006 to $1.7 billion in 2007.

The 2007 level was two per cent above the previous five-year average (2002-06), which included the bovine spongiform encephalopathy (BSE) period and two years of low grain prices.

Provincially, only farmers in Quebec and the Prairie provinces recorded gains in realized net income. In British Columbia, Ontario and the Atlantic provinces, realized net income dropped to extremely low levels. This diversity was largely due to the wide range of crops and livestock produced across Canada.

Realized net income can vary widely from farm to farm because of several factors, including commodities, prices, weather and farm size. This and other aggregate measures of farm income are calculated on a provincial basis, and employ the same concepts used in measuring the performance of the overall Canadian economy. They are measures of farm business income, not farm household income.

Data on the financial performance of various types and sizes of farms for 2007 will be available later in 2008.

Crops boost receipts

Market cash receipts, revenues from the sale of crops and livestock, increased 12.3 per cent in 2007. Crop receipts jumped 24.8 per cent, the largest annual increase in 13 years. Livestock receipts edged up 2.2 per cent to $18.2 billion as higher dairy and poultry revenues more than offset declines in hog and calf revenues.

Market cash receipts fell in Prince Edward Island and New Brunswick, where potato revenues declined as prices tumbled. Farmers in the Prairie provinces experienced double-digit increases in cash receipts, mainly the result of rising crop prices.

Grain and oilseed prices have been increasing since the fall of 2006, boosted by growing food demand in large, emerging economies of Asia and expansion in the biofuel sector. Since that time, weather-related production issues in many of the world’s major producing countries have tightened supplies, pushing prices to levels not seen since 2002.

Supply-managed commodities (dairy, poultry and eggs) experienced an 8.5 per cent jump in revenues, the largest percentage increase in over 20 years. This occurred as prices rose to help cover mounting production costs.

Receipts for cattle and hog producers were adversely affected by the combination of reduced prices resulting from the appreciation of the Canadian dollar and higher feed costs. With more animals shipped to the U.S. for cheaper feeding, domestic slaughter decreased in 2007.

Program payments

Program payments amounted to $4.1 billion, a 9.8 per cent decline from 2006 and 9.5 per cent below the previous five-year average. This was due in part to improved prices in the grains and oilseeds sector.

Despite this decline, total farm cash revenue, which includes both market receipts and program payments, increased 9.6 per cent to $40.5 billion in 2007.

Soaring expenses

Producers faced an 8.2 per cent jump in farm operating expenses in 2007 as feed and fertilizer prices soared. This rate of growth, the fastest since 1981, pushed farm operating expenses to $34.2 billion, 14 per cent above the previous five-year average. Operating costs increased in every province.

Other factors in the jump were rising interest expenses, labour costs and machinery fuel expenses, which increased six per cent from 2006, thanks to rising diesel and gasoline prices.

The surge in grain and oilseed prices hit livestock producers hard, as feed costs leaped 21.8 per cent. Fertilizer price hikes, fuelled in part by increased ethanol production in the U.S., sent fertilizer costs up 21.9 per cent. One-year increases of this magnitude have not been seen since the late 1970s.

While gains in interest rates and debt were not large compared with those of the recent past, they translated into a 10.6 per cent rise in interest expenses. Labour costs continued to rise, reaching $4.2 billion in 2007. However, two-fifths of these wages were paid to family members of farm operators and as such, form part of a farm family’s overall income.

Total net income up

Total net income climbed from a negative value in 2006 to $369 million in 2007, as the increase in net cash income more than offset the negative impact of falling inventories.

Total net income adjusts realized net income for changes in the value of farmer-owned inventories of crops and livestock. It represents the return to owners’ equity, unpaid labour, management and risk.

The value of inventories fell $1.3 billion in 2007, the second consecutive year in which farmer-owned stocks have declined.

Three factors contributed to this decline: crop producers drew down farm stocks to meet demand and capitalize on stronger prices; decreases in yields lowered crop production in the Prairie provinces; and livestock numbers declined as more animals were shipped to the United States for cheaper feeding.

Net value added

Agriculture’s net value added rose 12.3 per cent to $9.2 billion in 2007, though it remained 5.6 per cent below the previous five-year average.

Net value added measures agriculture’s contribution to the national economy’s production of goods and services. It is derived by calculating the total value of agricultural sector production, including program payments, and subtracting the related costs of production (expenses on inputs, business taxes and depreciation).

Income earned from production activities in the farm sector is distributed among producers for their contributions of land, labour, capital and management, and to other stakeholders in the form of interest charges, wages paid for non-family labour and rental payments to non-operators.

At the national level, about three-quarters, or $6.9 billion, of net value added was paid to other stakeholders, up 7.8 per cent over 2006. Those involved in agricultural production received the remaining $2.2 billion, up 29.2 per cent over 2006.

The total value of agricultural production grew 5.4 per cent to $48.5 billion. In addition to total farm cash revenue, this measure of gross output includes sales to other farms, custom work receipts, farm land rent, income-in-kind and the value of inventory change.