Farmer Equity Rises in Canada

OTTAWA - Jun 20/07 - SNS -- Farm sector equity increased 2.7% to $195.2 billion in Canada last year, reports Statistics Canada. The value of farm real estate continued the steady growth started in 1988. It advanced 2.9% in 2006 and was an important contributor to the increase in assets.

Farm liabilities at the end of 2006 reached $48.0 billion, up 4.4% from 2005, the 13th consecutive annual rise. Current liabilities advanced 1.5%, while long-term liabilities recorded an annual increase of 5.3%.

The debt-to-asset ratio progressed for the 11th consecutive year, rising to 19.7% in 2006. This ratio, which measures the dependence of farm businesses on debt, reached a new record for the 1981 to 2006 period, slightly above the 19.5% reached in 2005. The lowest ratio occurred in 1981 at 12.4%.

After reaching its lowest level in 2005 since 1981, the current assets to current liabilities ratio edged up in 2006 to 1.991, compared to 1.962 in 2005. The lower levels recorded in the past four years meant 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, decreased to 1.725 in 2006, the second consecutive decline after the eight-year high of 3.434 in 2004. The 2006 level remained below the 10-year average of 2.735 (1996 to 2005).

Return on equity fell to 1.0% in 2006. This was likewise a second consecutive decrease following an eight-year high in 2004 (3.0%). The 2006 level remained below the 10-year average of 2.2%.

The value of agricultural production fell 4.3% in 2006 to $44.9 billion, as the value of inventory change continued to decline along with a slight drop in sales of agricultural products and lower program payments.

Sales of agricultural products edged down 1.2% to $38.3 billion. This was also 1.2% below the previous five-year average (2001 to 2005).

The average was dragged down by back-to-back droughts in 2001 and 2002, as well as by the closure of the US border to live cattle exports.

The slight increase in sales of agricultural products to sectors other than the agriculture sector between 2005 and 2006 was influenced by higher revenues from crop sales.

Total revenues from the sale of crops and livestock increased 1.8% to $32.4 billion in 2006. Crop receipts jumped 7.4% to $14.5 billion as prices recovered from recent lows. Stronger crop revenue helped offset declines in livestock receipts. Hog prices continued to languish, pushing livestock receipts down 2.4% in 2006.

After three consecutive years of increases, program payments declined 7.1% from the record level of 2005 to $4.6 billion. Despite the drop, the amount in 2006 was 4.7% above the previous five-year average.

Certain programs linked to cash flow problems and difficulties in the cattle sector were terminated in 2006, including the Farm Income Payment Program and bovine spongiform encephalopathy-related programs. However, new programs helped to prevent a precipitous fall in payments. These included the Grains and Oilseeds Payment Program and the Canadian Agricultural Income Stabilization (CAIS) Inventory Transition Initiatives, as well as other CAIS enhancements.

Crop insurance payments also played a role in the decline, falling 21.1% as a result of better growing conditions in 2006.

The value of inventory change decreased $616 million in 2006, the first decrease since 2002. Declining on-farm stocks of livestock were a major contributor to the negative value of inventory change in 2006. Cattle inventories fell 3.5% in the wake of renewed live cattle exports to the United States, while hog inventories declined 2.7%.

As well, the conversion of on-farm stocks of canola into market deliveries and lower stocks of feed grains were not fully offset by increased stocks of wheat (excluding durum), potatoes and soybeans.

As a result, the total value of agricultural production edged down to $44.9 billion. Nova Scotia, Ontario, Saskatchewan, Alberta and British Columbia recorded decreases in the total value of production.

Net value added, which is the value of production minus expenses on input, business taxes and depreciation, fell 14.3% to $8.7 billion in 2006. Interest charges accounted for 31% of net value added, while non-family wages accounted for 29%.