2007 Farm Financial Survey Highlights

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2007 Farm Financial SurveyHighlights

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Publication: 08-004EISBN: 978-0-662-47786-0 Catalogue: A36-1/2-2007E-PDF Project: 08-004-dp

Electronic versions of Research and Analysis publications are available on the Internet at:http://www.agr.gc.ca/pol/index_e.php

Aussi disponible en français sous le titre:« Enquête financière de 2007 sur les fermes - Faits saillants »

2007 Farm Financial Survey - Highlights

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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.

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Farm assets continue to increase, reflecting general optimism in the Canadian economy

• Average farm assets have shown a consistent increase since 2004.

– Average farm assets were $1,355,000 in 2006.

– Assets increased 6% from 2005.

• In 2006, the average market value of farmland and building ($775,000) which accounted for 57% of farm assets, increased by 8% from 2005.

• The market value of machinery was essentially unchanged from 2005 while the value of market livestock was down 7% in 2006.

• 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%.

Average total farm asset, Canada 2004 - 2006

0

200

400

600

800

1,000

1,200

1,400

2004 2005 2006

Thousa

nds

of $

Farmland and buildings Machinery and equipment

Market livestock Other farm assets

Average total farm asset, Canada 2004 - 2006

0

200

400

600

800

1,000

1,200

1,400

2004 2005 2006

Thousa

nds

of $

Farmland and buildings Machinery and equipment

Market livestock Other farm assets

Source: Farm Financial Survey, AAFC calculations

$1,134

$1,355$1,283

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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 2006.

Average total farm assets by provinceCanada, 2004-2006

0

300

600

900

1,200

1,500

1,800

2,100

2,400

Nfld. P.E.I. N.S. N.B. Que. Ont. Man. Sask. Alta. B.C. Canada

Thousa

nds

of $

2004 2005 2006

Average total farm assets by provinceCanada, 2004-2006

0

300

600

900

1,200

1,500

1,800

2,100

2,400

Nfld. P.E.I. N.S. N.B. Que. Ont. Man. Sask. Alta. B.C. Canada

Thousa

nds

of $

2004 2005 2006


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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 2005.

– 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%.

Average farm liabilities, Canada 1993-2006

0

60,000

120,000

180,000

240,000

300,000

1993 1995 1997 1999 2001 2002 2003 2004 2005 2006

$

Average farm liabilities, Canada 1993-2006

0

60,000

120,000

180,000

240,000

300,000

1993 1995 1997 1999 2001 2002 2003 2004 2005 2006

$


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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 2006.

• 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 2006.

• 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.

Average farm liabilities by farm typeCanada, 2004-2006

0

100

200

300

400

500

600

700

800

900

Beef Fruit &Vegetable

Grain &Oilseed

All FarmTypes

Greenhouse &Nursery

Hog Potato Dairy Poultry & Egg

Thousa

nds

of

$

2004 2005 2006

Average farm liabilities by farm typeCanada, 2004-2006

0

100

200

300

400

500

600

700

800

900


Grain &Oilseed

All FarmTypes

Greenhouse &Nursery

Hog Potato Dairy Poultry & Egg

Thousa

nds

of

$

2004 2005 2006

Farm debt as percent of farm asset, Canada, 2006

Farm type Debt to Asset ratio

Hog 33%

Greenhouse and Nursery 26%

Potato 25%

Dairy 22%

Poultry and Egg 19%

All farms 18%

Fruit and Vegetable 17%

Grains and Oilseed 16%

Beef 16%


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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 2006.

– 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.

Interest rates and interest as percent of farm cash receipts, Canada 1981-2005

0

5

10

15

20

1981 1985 1989 1993 1997 2001 2005

%

Interest Rate

Total interest expenses as percent of total farmcash receipts

Interest rates and interest as percent of farm cash receipts, Canada 1981-2005

0

5

10

15

20

1981 1985 1989 1993 1997 2001 2005

%

Interest Rate

Total interest expenses as percent of total farmcash receipts

Source: Farm Financial Survey, AAFC calculations and CANSIM table 002-0001, 002-0005

Interest expense as percent of farm revenue by farm type, Canada, 2006

Farm type Interest expense as percent of

farm revenue

Hog 9%

Fruit and Vegetable 8%

Dairy 8%

Beef 8%

All farms 8%

Grain and oilseed 7%

Potato 6%

Poultry and Egg 5%

Greenhouse and Nursery 4%


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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 2006.

• Potato, dairy as well as poultry and egg farms reported an average net worth of over $2 million in 2006.

• Hog farms also reported a high average net worth at $1.5 million in 2006.

• Beef farms reported the lowest average farm net worth at $831,000 in 2006.

– Beef farms however, had a 10% increase in net worth between 2005 and 2006.

Average farm net worth by farm type,Canada, 2004-2006

0

500

1,000

1,500

2,000

2,500

3,000


Grain &Oilseed

All FarmTypes

Greenhouse& Nursery

Hog Potato Dairy Poultry &Egg

Thousa

nds

of $ 2004 2005 2006

Average farm net worth by farm type,Canada, 2004-2006

0

500

1,000

1,500

2,000

2,500

3,000


Grain &Oilseed

All FarmTypes

Greenhouse& Nursery


Thousa

nds

of $ 2004 2005 2006

Source: Farm Financial Surveys and AAFC calculations

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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 2006.

– 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 2005.

– 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 2006.

– The 2006 average net operating income for hog farms was $58,000.

Average farm net operating income by farm type, Canada, 2004-2006

(10,000)

10,000

30,000

50,000

70,000

90,000

110,000

130,000

150,000


Grain &Oilseed

All FarmTypes

Greenhouse& Nursery


$

2004

2005

2006

Average farm net operating income by farm type, Canada, 2004-2006

(10,000)

10,000

30,000

50,000

70,000

90,000

110,000

130,000

150,000


Grain &Oilseed

All FarmTypes

Greenhouse& Nursery


$

2004

2005

2006


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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 2005.

• Program payments averaged $20,500 in 2006 compared to $19,000 in 2005.

Average net operating income by source Canada, 2004-2006

$32,800$33,210

$31,550

0

10,000

20,000

30,000

40,000

50,000

2004 2005 2006

$

Program Payments

Net Market Income

Average net operating income by source Canada, 2004-2006

$32,800$33,210

$31,550

0

10,000

20,000

30,000

40,000

50,000

2004 2005 2006

$

Program Payments

Net Market Income


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Overall, three quarters of Canadian farms were in a strong financial position at the end of 2006.

• 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 $20,0002.1%

(3,050)4.7%

(6,825)14.8%

(21,492)21.6%

(31,367)

$20,000 to $35,0000.8%

(1,162)2.3%

(3,340)7.8%

(11,327)10.8%

(15,683)

Greater than $35,0005.4%

(7,842)12.3%

(17,861)49.9%

(72,462)67.6%

(98,166)

All Cash flow8.2%

(11,908)19.3%

(28,027)72.5%

(105,281)100%

(145,215)


Significant financial stress

Moderate financial stress ( )

No financial stress

Estimated farm numbers

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The majority of hog farms in Canada entered 2007 in a strong financial position although in 2006 16.3% 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 2006.

– 11.7% were classified under moderate financial stress. – 72% were classified not under financial stress. Some of these farms decreased their farm

debtin 2006.

– A relatively high percentage of hog (28.2%) farms had equity level of less than 50%

Financial stress levels of hog farms, Canada, 2006


Cash Flow categories Less than 50% 50% to 75% Greater than 75% All equity

Less than $20,0007.0%(302)

5.5%(238)

10.7%(464)

23.2%(1,004)

$20,000 to $35,0003.8%(166)

1.0%(45)

5.5%(240)

10.4%(451)

Greater than $35,00017.4%(752)

18.0%(779)

31.0%(1,341)

66.4%(2,872)

All Cash flow28.2%(1,220)

24.5%(1,062)

47.3%(2,045)

100%(4,327)




No financial stress


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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




Less than $20,0001.0%(284)

4.9%(1,436)

19.9%(5,881)

25.7%(7,601)

$20,000 to $35,0000.8%(227)

2.3%(676)

10.0%(2,945)

13.0%(3,848)


(1,147)9.6%

(2,847)47.7%

(14,081)61.2%

(18,075)

All Cash flow5.6%

(1,658)16.8%(4,959)

77.6%(22,907)

100%(29,524)




No financial stress


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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




Less than $20,0002.4%

(1,232)4.5%

(2,263)14.7%(7,386)

21.6%(10,881)

$20,000 to $35,0000.7%(345)

1.5%(746)

6.7%(3,373)

8.9%(4,464)


(2,117)13.2%(6,642)

52.2%(26,296)

69.6%(35,055)

All Cash flow7.3%

(3,694)19.2%(9,652)

73.5%(37,055)

100%(50,401)




No financial stress


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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.

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For more information contact

• Fabrice Nimpagaritse at [email protected] or

• John Caldwell at [email protected]

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Documents

2007 Farm Financial Survey Highlights