OTTAWA — Farmers are in a healthy position to service increasing farm debt levels, said the deputy assistant minister with Agriculture and Agri-Food Canada.
That’s what Tom Rosser told the federal standing committee on agriculture and agri-food at its April 11 meeting about the effects of debt in the agriculture sector.
“The increasing debt levels that we see in agriculture are indicative of farmers using debt as a tool to increase their competitiveness and to grow,” he said. “With good income, increasing profits and low interest rates, farm businesses have been investing in their operations, including purchasing farmland to expand their operations. Producers’ ability to manage their debt depends on their income. Given increases in farm incomes and low interest rates, we see that farms are generally in a very healthy position to service their debt.”
Michael Hoffort, president and CEO of Farm Credit Canada, told the committee that rising farmland prices has helped farm asset appreciation mostly keep pace with farm debt levels.
“Strong income, increased profitability and low interest rates have pushed up asset values, which in turn drive up demand for credit,” he said. “As a result, in 2015 we saw an increase in farm debt that for the first time in many years exceeded farm asset appreciation. Yet the ratio of debt to asset values in 2015 remains lower than the 10-year average.”
Total outstanding farm debt was an astounding $91.8 billion in Canada in 2015, Statistics Canada reported. According to a Dairy Farmers of Ontario project of 15 of the top Ontario dairy farms in 2015 had an outstanding debt of almost $4 million each.
“For farmers in general and young farmers in particular, incurring debt allows them the opportunity to undertake enterprises that could not be financed by personal wealth,” Brady Deaton, professor of food security at the University of Guelph, told the committee. “The current debt reflects in part the capital cost of being a competitive farm operation in today’s agricultural sector.”
Paul Glenn, former chair of the Canadian Young Farmers’ Forum, said higher debt loads, rising costs of production, variables on crop sales, and retirement planning for the exiting generation are making succession plans difficult.
“People are living longer and need more income to retire, which adds complexity to transitions and requires extensive planning to complete successfully,” he said.
“The ability to grow current operations is also tough because of increasing land input, equipment costs, and lower margins, which make debt servicing more difficult. Young farmers are diversifying their agribusinesses to help stabilize income streams. That is why supply-managed sectors are typically very attractive to young farmers, but they are very capital-intensive.”