dp 2007 Farm Financial Survey Highlights

dp 2 Publication: E ISBN: Catalogue: A36-1/2-2007E-PDF Project: dp Electronic versions of Research and Analysis publications are available on the Internet at: Aussi disponible en français sous le titre: « Enquête financière de 2007 sur les fermes - Faits saillants » Farm Financial Survey - Highlights

dp 3 Introduction The 2007 Farm Financial Survey (FFS) was conducted by Statistics Canada and was funded by Agriculture and Agri-food Canada. The survey was carried out in April 2007 and collected data for the 2006 reference year. The results are based on a sample of 15,000 farms with gross revenue of $10,000 or more from all provinces and farm types. The FFS was first conducted in 1981 and is currently an annual survey. The survey collects data on assets, liabilities, investment as well as data on farm and family income.

dp 4 Farm assets continue to increase, reflecting general optimism in the Canadian economy Average farm assets have shown a consistent increase since –Average farm assets were $1,355,000 in –Assets increased 6% from In 2006, the average market value of farmland and building ($775,000) which accounted for 57% of farm assets, increased by 8% from The market value of machinery was essentially unchanged from 2005 while the value of market livestock was down 7% in Higher asset values, however, are making it more difficult for young farmers to enter the industry as farm assets have generally increased more rapidly than farm income. –Between 1997 and 2006, average farm assets increased by 74% while the average net operating income increased by 4%. –In the case of dairy farms, the average value of quota increased by 220% between 1997 and 2006 while their average net operating income increased by 88%. Source: Farm Financial Survey, AAFC calculations $1,134 $1,355 $1,283

dp 5 Average farm assets have increased in all provinces but at different rates The value of farmland and buildings are correlated to the growth in the general economy. –Provinces with the highest growth in GDP also reported the highest growth in farm assets values. The largest increase in farm assets (14%) was in Newfoundland. British Columbia and Alberta followed with increases of 12% and 9% respectively. British Columbia at $2,136,000 had the highest average assets per farm in Source: Farm Financial Survey, AAFC calculations

dp 6 Farm liabilities continue to increase as result of farm expansion, investment and low borrowing rates In 2006, average farm liabilities were $253,000, up 2% from –This rate of increase was the lowest for the last 10 years. Larger farms are investing and expanding and hold the majority of the farm debt. –In 2006, 70% of the farm debt was held by farms generating gross revenues of $250,000 and over. –Over the last 9 years, these farms were operating 10% more land on average, while smaller farms have decreased operating land by 1%. Source: Farm Financial Survey, AAFC calculations

dp 7 However, certain farm types have on average relatively higher farm liabilities compared to other farm types In 2006, potato farms reported the highest average farm debt at $900,000. Farms producing supply managed commodities reported the second highest average farm debt in In 2006, beef farms reported the lowest average farm debt at $146,000. Dairy, fruit and vegetable as well as greenhouse and nursery farms have decreased farm debt, while all other farm types increased their farm debt between 2005 and In 2006, hog farms reported the highest debt to asset ratio at 33% followed by greenhouse and nursery and potato farms with 26% and 25% respectively. Farm debt as percent of farm asset, Canada, 2006 Farm typeDebt to Asset ratio Hog33% Greenhouse and Nursery26% Potato25% Dairy22% Poultry and Egg19% All farms18% Fruit and Vegetable17% Grains and Oilseed16% Beef16% Source: Farm Financial Survey, AAFC calculations

dp 8 Despite increasing farm liabilities, interest expense as a percent of revenue has remained relatively constant during the past decade The downtrend in interest rates has allowed producers to take on more debt without increasing interest expenses. –Producers can service more debt with the same income. Interest expense expressed as a percentage of farm revenue is one measure of farms ability to service debt. –On average interest expense was 8 cents per dollar of farm revenue in –Hog farms reported the highest interest expenses per dollar of revenue at 9 cents. –Greenhouse and nursery farms reported the lowest expenses per dollar of revenue at 4 cents. Source: Farm Financial Survey, AAFC calculations and CANSIM table , Interest expense as percent of farm revenue by farm type, Canada, 2006 Farm type Interest expense as percent of farm revenue Hog9% Fruit and Vegetable8% Dairy8% Beef8% All farms8% Grain and oilseed7% Potato6% Poultry and Egg5% Greenhouse and Nursery4% Source: Farm Financial Survey, AAFC calculations

dp 9 Farm net worth has increased to over $1.1 million per farm in 2006 Average farm net worth has increased by 6% from 2005 to $1,103,000 in Potato, dairy as well as poultry and egg farms reported an average net worth of over $2 million in Hog farms also reported a high average net worth at $1.5 million in Beef farms reported the lowest average farm net worth at $831,000 in –Beef farms however, had a 10% increase in net worth between 2005 and Source: Farm Financial Surveys and AAFC calculations

dp 10 Net operating farm income varies among farm types which reflects scale of operation and operating margins Grains and oilseeds farms reported a 44% increase in average net operating income between 2005 and –The increase was the result of higher program payments and grain prices. Potato farms had another good year in 2006 with an increase of 12% from –Potato farms reported the highest average net operating income at $148,000. Higher feed costs due to higher grain prices has decreased farm income in the livestock sector. –The hog sector for example reported a 34% decrease from 2005 to –The 2006 average net operating income for hog farms was $58,000. Source: Farm Financial Survey, AAFC calculations

dp 11 Program payments have contributed to the stability of farm incomes in recent years In 2006, the 8% increase in program payments partially offset the decline in average net market income. Net market income at $12,302 was down on average by $2,000 from Program payments averaged $20,500 in 2006 compared to $19,000 in Source: Farm Financial Survey, AAFC calculations

dp 12 Overall, three quarters of Canadian farms were in a strong financial position at the end of Financial stress is determined by cash flow and equity levels. Among Canadian farms: –7.6% were classified under significant financial stress. –17.1% were classified under moderate financial stress. –75.3% were classified not under financial stress. Financial stress levels of Canadian farms, Canada, 2006 Equity classes in percentage Cash Flow categories Less than 50%50% to 75%Greater than 75%All equity Less than $20, % (3,050) 4.7% (6,825) 14.8% (21,492) 21.6% (31,367) $20,000 to $35, % (1,162) 2.3% (3,340) 7.8% (11,327) 10.8% (15,683) Greater than $35, % (7,842) 12.3% (17,861) 49.9% (72,462) 67.6% (98,166) All Cash flow 8.2% (11,908) 19.3% (28,027) 72.5% (105,281) 100% (145,215) Source: Farm Financial Survey, AAFC calculations Significant financial stress Moderate financial stress ( ) No financial stress Estimated farm numbers

dp 13 The majority of hog farms in Canada entered 2007 in a strong financial position although in % were classified as under significant financial stress Financial stress is determined by cash flow and equity levels. Among hog farms: –16.3% were classified under significant financial stress. Some of these farms increased their farm debt in –11.7% were classified under moderate financial stress. –72% were classified not under financial stress. Some of these farms decreased their farm debt in –A relatively high percentage of hog (28.2%) farms had equity level of less than 50% Financial stress levels of hog farms, Canada, 2006 Equity classes in percentage Cash Flow categories Less than 50%50% to 75%Greater than 75%All equity Less than $20, % (302) 5.5% (238) 10.7% (464) 23.2% (1,004) $20,000 to $35, % (166) 1.0% (45) 5.5% (240) 10.4% (451) Greater than $35, % (752) 18.0% (779) 31.0% (1,341) 66.4% (2,872) All Cash flow 28.2% (1,220) 24.5% (1,062) 47.3% (2,045) 100% (4,327) Source: Farm Financial Survey, AAFC calculations Significant financial stress Moderate financial stress ( ) No financial stress Estimated farm numbers

dp 14 The majority of cow calf farms in Canada were in good financial shape at the end of 2006 Financial stress is determined by cash flow and equity levels. Among cow calves farms: –6.7% were classified under significant financial stress. –22.2 % were classified under moderate financial stress. –70.1% were classified not under financial stress. Financial stress levels of cow calf farms, Canada, 2006 Equity classes in percentage Cash Flow categoriesLess than 50%50% to 75%Greater than 75%All equity Less than $20, % (284) 4.9% (1,436) 19.9% (5,881) 25.7% (7,601) $20,000 to $35, % (227) 2.3% (676) 10.0% (2,945) 13.0% (3,848) Greater than $35, % (1,147) 9.6% (2,847) 47.7% (14,081) 61.2% (18,075) All Cash flow 5.6% (1,658) 16.8% (4,959) 77.6% (22,907) 100% (29,524) Source: Farm Financial Survey, AAFC calculations Significant financial stress Moderate financial stress ( ) No financial stress Estimated farm numbers

dp 15 With improving grain prices, more than three quarters of grains and oilseeds farms were in a good financial shape at the end of 2006 Financial stress is determined by cash flow and equity levels. Among grains and oilseeds farms: –7.6% were classified under significant financial stress. –16.2% were classified under moderate financial stress. –76.2% were classified not under financial stress. Financial stress levels of grains and oilseeds farms, Canada, 2006 Equity classes in percentage Cash Flow categoriesLess than 50%50% to 75%Greater than 75%All equity Less than $20, % (1,232) 4.5% (2,263) 14.7% (7,386) 21.6% (10,881) $20,000 to $35, % (345) 1.5% (746) 6.7% (3,373) 8.9% (4,464) Greater than $35, % (2,117) 13.2% (6,642) 52.2% (26,296) 69.6% (35,055) All Cash flow 7.3% (3,694) 19.2% (9,652) 73.5% (37,055) 100% (50,401) Source: Farm Financial Survey, AAFC calculations Significant financial stress Moderate financial stress ( ) No financial stress Estimated farm numbers

dp 16 Observations The continued rise in farm asset values and net worth may reflect general optimism in the Canadian agricultural sector in the long run. However, higher asset values could make it more difficult for young farmers to enter the industry, as farm asset values are increasing faster than incomes. Low interest rates have allowed producers to take on more debt in order to invest and expand their farm operation. As interest rates rise, however, high debt levels may increase vulnerability. The vast majority of farms do not have debt problem. However, one quarter may be experiencing some financial stress while 8% of Canadian farms could be under significant financial stress. The hog sector shows indications of significant financial stress and may be experiencing difficulty in servicing debt. Program payments contributed to the stability of farm incomes in recent years.

dp 17 For more information contact Fabrice Nimpagaritse at John Caldwell at

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