Farmers’ equity, cash flow improve: StatsCan

Equity in Canada’s farm sector increased 4.9 per cent to $264.5 billion from 2007 to 2008, as a gain in assets more than offset a rise in liabilities, Statistics Canada reported Thursday.

The federal statistics agency also reported Thursday that the ratio of loans outstanding to cash income, which reflects the burden of farm debt on farm cash income, also fell for the second consecutive year, to 4.8 in 2008.

Ag equity

Equity rose in every province, with increases ranging from 0.4 per cent in Newfoundland and Labrador to 8.5 per cent in Saskatchewan.

The value of farm assets increased five per cent to $317.7 billion, while the level of farm liabilities reached $53.2 billion, up 5.3 per cent. Both assets and liabilities increased in every province.

The main contributor to the growth in assets was the value of farm real estate, which rose 5.6 per cent to $213.2 billion. This increase accounted for three-quarters of the growth in total farm assets in 2008, while the growth in the value of crop inventories accounted for the bulk of the remainder. Either of these two factors was more than enough to offset the decline in the value of poultry and market livestock inventories.

Current liabilities increased seven per cent, while long-term liabilities were up 4.8 per cent.

The debt-to-asset ratio was 16.7 per cent in 2008, unchanged from 2007. This ratio, which measures the dependence of farm business on debt, was at its lowest level in nine years.

The ratio of current assets to current liabilities rose from 2.24 in 2007 to 2.32 in 2008, its highest level since 2002. This suggests an improvement in the ability of agricultural operators to pay short-term debts.

The interest coverage ratio reached a record high of 3.77 in 2008 after falling below 2.00 in 2006 and 2007. This indicates an improvement in the ability of agricultural operators to cover interest charges with the net income they generate before interest and taxes. Interest expenses declined 3.9 per cent in 2008.

Return on equity advanced to three per cent in 2008, the highest it has been since 1996.

Cash flow

Cash income for Canadian farm businesses rose by $1.5 billion, or 17.5 per cent, to $10.4 billion from 2007 to 2008, despite declines in four provinces. This was the second consecutive annual increase.

Strong grain and oilseed prices more than offset a significant increase in operating costs.

Cash sources increased 12.1 per cent to $48.2 billion, while cash uses increased 10.8 per cent to $37.8 billion.

Cash income fell in Newfoundland and Labrador, Prince Edward Island, Nova Scotia and Manitoba, where large increases in expenses on inputs outpaced gains in sales. In contrast, cash income rose in the remaining provinces.

Cash available to producers through borrowing increased in 2008 as both current and long-term liabilities increased. There was a net increase of $2.6 billion in loans outstanding in 2008.

The amount of cash available for investment or withdrawal (cash income plus the net change in loans outstanding) increased 15.8 per cent to $13 billion.

The ratio of loans outstanding to cash income, which reflects the burden of farm debt on farm cash income, fell for the second consecutive year to 4.8 in 2008.

Notes: Assets and liabilities in the agriculture sector’s balance sheet include those of farm businesses and non-operator landlords (for farm real estate assets leased to farm operators and the corresponding liabilities) and exclude the personal portion of farm households. This most closely reflects the assets and liabilities used in the production of agricultural products.

While similar to the farm income data released on May 25, 2009, StatsCan’s cash flow account is a summary of cash flow in and out of farm businesses over the calendar year. The basic function of the account is to provide information on the financial position of farm establishments (that is, the amount of cash available to farm establishments to meet current obligations). Specifically, only cash flow pertaining to farm operators is included. Cash income and expenses of non-operator landlords and the personal portion of households are excluded. This series does not include data on depreciation.