Farm lessons from the 1980s

Roger Pelissero remembers when the 1980s farm crisis dominated headlines in newspapers and the evening news, although he didn’t need to read the paper or turn on the television to know that farmers were in trouble.

“We had friends in Western Canada growing commodities and grain who had to give up their land,” recalls Pelissero, owner of Pelissero’s Farm in St. Ann’s, Ont., and chair of Egg Farmers of Canada. “Back then, farmers were walking into banks and handing them the keys.”

During the 1980s farm crisis, interest rates spiked and values of land and commodities plummeted. Wheat prices, which had soared as high as $18 per bushel between 1920 and 1985, now plunged to $5. Beef prices sank under $130 per hundredweight for the first time since 1942, and the number of farms declined eight per cent in just five years.

Could it happen again? It feels like we’re miles away from anything that severe, but with bad weather, interest rates expected to rise, the COVID-19 pandemic raging on, and trade wars with China blocking exports, it’s no surprise farmers are asking themselves if another farm crisis may be looming.

Whatever your politics, this recent statement from the National Farmers Union rings true: “In addition to a climate crisis, we also have a farm crisis … High input costs, low margins and net incomes, and expensive land and machinery have led to an expulsion of farm families from the land, with one-third leaving in just the past generation.”

It brings back memories for Pelissero. “The swings of the 1980s came in so fast and so hard, no one was prepared.”

If there is a new crisis, say survivors of the ’80s, this will be the key. Farmers can’t be unprepared again.

Keep debt in check

With a significant percentage of revenue allocated to the high interest loan, the couple looked for opportunities to save on other expenses to keep their overall debt down. One of their strategies was to share equipment with another producer.

“We weren’t too small to have a combine but we were too small to maximize its use,” Manson explains.

The farm has grown and now consists of a 2,400-acre grain operation (and a combination of owned, mortgaged and leased land) but Manson still prioritizes keeping debt down and continuing to share equipment with other producers.

“These are conscious measures to make sure the farm would succeed,” she says.

In the event of another farm crisis, Manson adds, “I’m not sure how the largest, most indebted farmers would stay in the game.”

In 2021, outstanding farm debt increased 5.9 per cent to $121.9 billion and the debt-to-asset ratio (or the proportion of assets financed with debt) increased 4.4 per cent, the highest level since 2009.

Even modest interest rate hikes could increase the cost of production and reduce farmland values, increasing debt-to-income ratios and making it harder to break even.

Minimizing debt could be essential for protecting against economic turmoil.

Marriott secured a loan with a 12.5 per cent interest rate to start raising beef cattle, finish hogs and grow wheat and corn in 1980. He thought “it was a bargain,” he remembers, but he knew the rate was too high to take on more debt and fund an expansion.

So, Marriott, who served on the Canadian Farm Debt Mediation board, a federal program established to review the financial affairs of struggling farmers and provide assistance negotiating with creditors, put his expansion plans on hold.

“In the end, it was such a smart move,” he says. “I saw a lot of farmers who had to downsize or sell out. By the upper 1980s, the price of land had fallen back down to less than half of the peak … and I expanded when no one else was able to buy land because I had saved hard and paid down debt during that turbulent time.”

Prepare for the worst

“A lot of the younger generations that are coming back to the farm haven’t had to deal with rates that are even as high as eight or nine per cent, never mind 18 or 19 percent,” he says. “There are a whole bunch of commodities that will be in trouble if interest rates jump, so you want to make sure you’re in a position that you’re not overextending yourself.”

In the 1980s, land prices were low, input prices were low and interest rates were high. Now, the situation is the opposite. Manson notes that the current environment has created a generation of farmers who are “more aggressive and confident borrowers” but as debts climb, it gets harder to cover the payments.

“Big companies have risk management departments,” Manson says. “You have to ask, ‘What would it look like if we had a bad year?’ You have to make a plan before you make a payment.”

In addition to reducing debt, look for opportunities to reduce expenses: Invest in soil tests to avoid over-fertilizing (and overspending on inputs), consider selling unused or underused assets now while prices are high. Shop around for lower prices on inputs, make bulk purchases, lock in lower interest rates and reduce the number of farm tasks that are hired out. All these can also reduce debt, according to Marriott, and they can make it easier to ride out turbulent times.

“If interest rates are going to rise, now is the time to get your financial house in order,” he says.

Planning for a worst-case scenario could also include strategies like securing an off-farm job or selling land to reduce debt and increase cash on hand.

Manson, who served on the NFU board during the farm crisis and helped producers facing financial hardships to think through their options, explains that putting a plan in place now is easier than making decisions during a crisis.

After all, what’s the downside? If your worst-case-scenario plan gets tucked into a drawer and is never needed, that’s your best case too.

Sometimes, investing in upgrades is the smartest option for addressing a possible worst-case scenario. Pelissero sees opportunities to keep future costs down, and suggests investigating the potential benefits of LED lighting and solar power, for instance, or precision mapping technologies that monitor plant performance and save on inputs per bushel.

“Most producers are very forward thinking,” he says. “We need to ask how we can learn from history and have the right tools and practices in place that will lead to success.”

Ask for help

Organizations including federal and provincial governments, farm organizations and credit unions helped farmers during the 1980s farm crisis by providing services ranging from decision-making support and mediation to loan refinancing.

“It wasn’t an easy time for farmers,” Manson recalls.

She adds that the organizations that brought organizational capacity and experience “did a tremendous service” for farmers who needed help developing a plan to overcome financial hardship.

Marriott helped struggling farmers with free financial counselling and mediation services offered through the Canadian Farm Debt Mediation board but admits, “By the time producers were in front of the board, it was too late.”

Although there are few projections that another farm crisis is looming, it’s always difficult in agriculture to separate short-term from long-term trends. Are recent farm incomes a blip?

The risks are real, say American researchers at Ohio State University: “Trends in declining net farm income, increasing debt use, and declining land values are projected to continue … and pose a problem to the agricultural sector … These factors place financial stress on farms, which may or may not be able to sustain these levels of stress.”

Reaching out for help early, Pelissero believes, could help farmers avoid financial disaster. In other words, don’t try to hide, or just grunt your way through. Instead, if times get tight, call input suppliers and ag lenders to ask about opportunities to reduce costs and make payments more manageable, especially if higher interest rates will make it difficult to meet monthly obligations.

“Ag lenders are very collaborative and open to conversations about ways to sustain rural communities,” Pelissero says.

Help is also available to address the mental health aspects of farming.

“Back in the 1980s, if you were a farmer, you were supposed to be tough and be able to handle things,” Pelissero says. “Now we recognize the importance of mental well-being and it’s a far more open conversation than it was in the 1980s.”

It might be impossible to predict the confluence of factors that would recreate a 1980s farm crisis, but restructuring debt, creating contingency plans and addressing mental health issues now could increase the likelihood of surviving such a downturn.

“What’s been in the news over the last few months has been a lot better than what we experienced in the 1980s,” Marriott says. “But don’t get too comfortable with the current situation; take heed of warnings of higher interest rates and be aware of what could happen.”

– This article was originally published at Country Guide.