Canadian Farm Debt Rises

OTTAWA - Jun 15/05 - SNS -- Canadian farm debt posted its eleventh consecutive annual increase in 2004, finishing the year up 4.9% at CDN $44.9 billion, according to Statistics Canada.

Current liabilities increased 8.1% while long-term liabilities were 4.0% higher compared with a year earlier.

Farm sector equity in Canada edged up to $183.4 billion in 2004, as both assets and liabilities increased. The value of farm real estate continued the steady growth started in 1988 with a 1.8% advance in 2004, and was the main contributor to the increase in assets.

The debt-to-asset ratio increased for the ninth consecutive year to 19.7% in 2004. This ratio, which measures the dependence of farm businesses on debt, reached a new record for the 1981 to 2004 period, edging up from 19.0% in 2003. The lowest ratio (12.4%) occurred in 1981.

After reaching its lowest level since 1981 in 2003, the current assets-to-current liabilities ratio edged up to 1.981 in 2004. The lower levels recorded in the past two years mean that operators within the agriculture sector had a lower ability to pay short-term debts compared to the 1981 to 2002 period.

The interest coverage ratio, which indicates the ability to pay interest charges and to protect creditors from interest payment default, reached 3.176 — the highest level since 1996 and well above the previous 10-year average (1994 to 2003).