Cheap Loans Buoy Canada Farmers In Recession

Canadian farmers have survived a year of recession with the ratio of debt to equity little changed and optimism still in place, said a key official with Canada’s top farm-lending institution.

Cheap access to credit in Canada, in contrast to that in the United States, has been the key to the relatively buoyant agriculture economy, said Don Stevens, vice-president and treasurer of Farm Credit Canada (FCC), a government-owned lender.

“We’re actually lucky,” he said in an interview with Reuters. “It’s a good-news story when you frame (Canadian agriculture against) how things are going in other parts of North America.”

Low-interest loans have kept some farmers in business and helped others expand, he said. The loans are cheap because Canada’s central bank has kept its benchmark rate low.

BULLISH

Farmers and farm-related businesses borrowed a record $6 billion from FCC in the 12 months ending Oct. 31, up from about $5 billion the year-earlier period. Stevens said that suggests to him that the industry is taking advantage of low interest rates to expand.

“I think there is optimism out there. The last few years, we’ve had some really good crops and the guys who have done really well at risk management are bullish.”

At year-end 2008, farm equity totalled $265 billion, with farm debt of $58 billion. Figures are not yet available for 2009, but both farm debt and equity are likely to continue rising, with no significant change in the ratio, Stevens said.

“That’s not highly leveraged at all,” he said, adding that most of farmers’ equity is in their land.

How well farmers do in 2010 hinges on whether the Bank of Canada raises its benchmark rate, Stevens said.

“There’s always folks who are going to be struggling and there’s always going to be folks doing really well. Some of the friends I have who are farmers haven’t felt the recession at all,” he said.

Those farmers are cashing in on low rates to buy things like machinery, he said.

But many of those who are struggling are losing it all.

The hog industry is undergoing a massive downsizing to reflect years of low prices, a volatile Canadian dollar and pressure on exports from the H1N1 flu scare and the United States’ restrictive food-labelling law.

Statistics Canada reported recently that farmers had earned four per cent less revenue through September from the same period a year earlier.

TRADE BARRIERS

The most worrisome part of the industry is non-tariff trade barriers, Stevens said, such as Chinese restrictions against canola with blackleg disease and the trade-killing discovery of genetically modified material in flax.

Exports have also come under pressure from the Canadian dollar’s rising strength against the U. S. currency, considering Canada’s trade dependence on the United States, Stevens said.

Farmland continues to rise in value, despite the recession, because of agriculture’s importance by nature, Stevens said, offering one measuring stick of industry optimism.

“Eating is something that no one puts off during a recession,” he said.

About the author

Comments

explore

Stories from our other publications