The National Farmers Union (NFU) says Canadian farmers are in financial crisis, but Farm Credit Canada (FCC) is less pessimistic.
Farmers are facing tougher times, but not like in the 1980s, J.P. Gervais, FCC’s vice-president and chief agricultural economist, said in an interview Dec. 2.
“I wouldn’t call this a crisis,” he said.
After several years of strong earnings Canadian farm net cash income fell 20.7 per cent in 2018 to $3.9 billion due to lower crop prices and higher expenses, Gervais said.
“Overall I think the industry is still healthy, but there are some operations that are faced with some significant stress,” he said.
“The good news, I think, is that we are facing these headwinds from a position of strength, whereas that maybe wasn’t the case in the past.”
The NFU makes its case that there is a ‘farm crisis’ in its discussion paper proposing a new path for agriculture.
The document points to record Canadian farm debt of $106 billion. But Gervais said they also have record assets, due to high land prices.
The NFU’s paper says since 2000, farmers’ realized net income from the markets has averaged $1.5 billion per year, while debt increases at an average of $2.7 billion per year, and interest payments top $2.6 billion per year.
“… the Canadian farm sector may be insolvent,” the paper claims. “It appears unlikely that farmers can service their $106-billion debt without government/taxpayer assistance.”
But FCC says farmers are paying their loans.
“FCC has a healthy loan portfolio with the allowance for credit loss remaining steady, reflecting a strong and vibrant industry,” an FCC official wrote in an email Nov. 29. “Most Canadian farms continue to be in a very good financial position. The farm debt-to-asset ratio is lower than the 15-year average, and the net worth of Canadian farms has grown steadily over the past decade.”
The NFU uses realized net farm income, which is defined as the difference between cash receipts and operating expenses, minus depreciation plus income in kind.
But Gervais prefers farm net cash income, which is farm receipts minus operating expenses because it clearly shows what farmers have to pay debt.
Both measures showed a steep decline in 2018, with realized net income and net cash income down 45.1 and 20.7 per cent.
While 2018 saw the lowest Canadian realized net farm income since 2009, it was still higher when compared in constant dollars (adjusted for inflation) than most of the 1990s and between 2003 and 2007.
Canadian farmers, on average, could see higher net farm income this year, although still under 10 per cent, Gervais said, based on nine months of data recently issued by Statistics Canada.
“It’s not going to go back up to the level it was in 2017, ’16, or ’15… ” he said. “Now the big wild card I must say is we haven’t made any adjustments to the forecast relative to quality issues with crops. So a big caveat there.”
Tighter margins make it harder for farmers, especially those with new debt, he said. But he said judging the financial health of farmers requires seeing the whole picture.
“We’ve got to make sure we keep an eye on that relationship between debt, assets and income. Just to focus on debt to assets would be misleading, just as focusing just on debt to income would be misleading,” Gervais said.