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Country Life in BC • October 2016 BC farmers on watch list as on-hand assets drop


Farm Credit Canada report says prudence and flexibility needed to manage debt ratio by PETER MITHAM


ABBOTSFORD – Farm Credit Canada is advising BC farmers to plan carefully to avoid financial trouble as liquidity in the province’s agriculture sector drops.


“Overall, Canadian farmers are in a strong position to service short-term obligations,” the federal agricultural lender states in its recent Outlook for Farm Assets and Debt report, released in early September.


Producers had, on average, assets worth 2.38 times the value of their immediate obligations in 2015. But not everyone did. “The current ratio is nearing one in Newfoundland (1.01), Nova Scotia (1.06) and British Columbia (1.26) – which suggests careful planning must be exercised, especially if production issues arise in 2016,” FCC said.


FCC points to real estate as playing a critical role in farm finances, possibly allowing producers to carry more debt


BC net farm income remains negative Net farm income in British Columbia, 1981-2016 ($000s)


than they can service should financial trouble hit.


It reports that the debt-to- asset ratio is about 14% in BC, versus 15.5% for Canada as a whole. The average consumer is carrying debts worth 17.1% of their total assets.


“Provinces that hold a high percentage of total assets in land … have seen the ratio of debt to asset decline the most in recent years,” the report states.


However, in BC the ratio bucked that trend, climbing from the long-term average of about 12.6%.


This may be due to rising real estate values, a phenomenon Country Life in BC has reported on several times over the past decade. Since 2006, real estate has accounted for 90% or more of total farm capital in BC; in 2015, it represented 91.3% of farm capital. Put in real terms, that’s a staggering $35 billion out of a total capital base of $38.3 billion.


While farm debts increased 5.7% in 2015 over 2014,


slightly faster than farm capital, the actual numbers show that farmers had nothing to worry about. Debts increased by approximately


$350 million, while the real estate anchoring those debts rose by $1.4 billion, or four times as much.


Yet with debts accounting


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for a greater percentage of BC farm assets, FCC isn’t about to let farmers rest easy – and it has backing from the people charged with monitoring the financial health of the country’s farms.


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Agriculture and Agri-food Canada forecasts BC net farm income to be in the red this year even as total farm revenues post new records. Statistics Canada reports that farmgate sales in BC approached $3.1 billion last year, while overall agri-food sales topped $13 billion in 2015. The biggest chunk of those revenues is from value- added products, at $9.1 billion.


BC agriculture minister Norm Letnick says the record figures have put BC farmers in a strong financial position, one that will only strengthen as the province’s agri-food exports increase.


Nevertheless, federal


forecasts call for slightly lower farmgate revenues in 2016, driven in part by lower prices for grains, oil seeds and livestock. Pushback from major retailers such as Loblaw Companies Ltd., which applied a discount of 1.45% to suppliers’ invoices beginning in September, will likely have a knock-on effect on growers. “The balance sheet of agriculture is healthy, but could face some challenges as farm income flattens and land appreciation slows,” FCC states. “It remains prudent for agricultural operations to be flexible enough to amend business plans.”


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