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Agriculture in good shape, but risks exist High land values stabilize older farms, burden newer ones
by PETER MITHAM
REGINA – Farm Credit Canada says farm businesses need to remain vigilant and alert as interest rates rise, incomes flatten and land values increase less aggressively. “Canadian agriculture remains in a
strong financial position,” the federal farm lender said in its recent Outlook for Farm Assets and Debt report, released in September.
The warning repeated last year’s advice almost verbatim. “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.” FCC didn’t necessarily suggest any amendments this year, but it did advise farmers to review the overall financial health of their operations in view of rising interest rates. “Producers should use the recent rate
hikes by the Bank of Canada as a signal to evaluate various interest rate scenarios on their financial health,” FCC advises.
“Even though borrowing costs may soon be climbing, Canadian agriculture is in a financially strong position to handle an increase in interest rates.” Unlike last year, FCC stopped short of singling out specific provinces where special care is needed to weather financial challenges in the year ahead.
BC farms have low asset ratio A year ago, FCC ranked BC among the
provinces whose farmers had the least assets to cover their immediate obligations – 1.26, versus the national average of 2.38. The key asset available to farmers was land, but acquiring it is costly. According to FCC, BC has the highest
land-to-revenue ratio in Canada, with an acre costing 9.4 times what it generates in revenue in 2016. This compares to a 25-year average of 6.1. Alberta is second, with a ratio of 8.9 in 2016 and 5.5 historically. Nationally, the ratio was 6.7 in 2016 and 4 historically. “This suggests that land is expensive
from a historical standpoint, but other factors must be considered,” FCC observed. “The downward trend in interest rates over the last many years is
an important reason why the ratios everywhere are higher than their averages.”
This is because lower interest rates
allow people to either buy more land for the same price or, more frequently, outbid others for a tract of land they couldn’t afford if cash was more expensive. While stronger land values look good on paper, a decline in land values – something BC hasn’t seen on a consistent basis since 1998 – could catch farmers short. This is particularly true for those buying land at current values and trying to make a living in the current market. Speaking at the Pacific Agriculture
Show in Abbotsford last winter, farm business consultant Larry Martin recommended that farm debts be no more than thrice earnings before interest, taxes and depreciation. Many farmers operate with debts closer to eight times earnings. Given the cost of land, and its fundamental importance as an operating asset in farming, farmers need to pay close attention to its impact on their financial health.
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COUNTRY LIFE IN BC • OCTOBER 2017
New zone for hobby farms
by PETER MITHAM ABBOTSFORD –
Abbotsford is developing zoning to accommodate hobby farms on 121 properties on the west side of the city at Ross Road and Simpson. A new “Suburban Residential Hobby Farm” zoning aims to accommodate small- scale agriculture, consistent with the range of agriculture historically permitted in the area. Recent zoning changes inadvertently limited agricultural uses. The new bylaw specifically allows a range of activities. These include fruit and vegetable production, apiaries, no more than 20 poultry or rabbits per acre, and a maximum of four sheep or goats per acre. Buildings associated with the hobby farm are also allowed. The new zone would be a first in Abbotsford, which saw 2% growth in farm numbers in the recent federal census of agriculture. A total of 1,307 farms were recorded in the municipality last year, up from 1,282 in 2011. This compares with a 19% drop in Langley farm numbers. The federal census identifies farms as any operation growing food for sale. This is different from farm status, which gives property owners a break on taxes. To claim farm status, operators must generate $2,500 worth of on-farm revenue a year.
Some critics of the
bylaw change feel the new zoning will encourage hobby farms to cultivate farm status through creative book- keeping, costing Abbotsford revenue. Work on the new
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zoning coincides with a block application the city submitted to the Agricultural Land Commission in early August seeking the exclusion of 696 acres of land for industrial development. ALC staff said the commission has acknowledged the application but not yet considered it.
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