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Farmers’ net income has rebounded in 2007

Rising grain and oilseed prices have offset large increases in operating costs and lower reciepts for hog and cattle producers resulting in an overall increase in Canadian farmers' net income in 2007.


May 26, 2008
By Statistics Canada

May 26, 2008


Despite declines in most
provinces, realized net income for Canadian farmers rebounded
in 2007 after falling sharply the two previous years. The impact of
rising grain and oilseed prices more than offset large increases in operating
costs and lower receipts for hog and cattle producers.

Realized net income (the
difference between a farmer's cash receipts and operating expenses, minus
depreciation, plus income in kind) rose from $771 million
in 2006 to $1.7 billion in 2007.

The 2007 level was
2.0% above the previous five-year average (2002 to 2006), which
included the bovine spongiform encephalopathy (BSE) period and two years of low
grain prices.

Provincially, only farmers
in
Quebec and the Prairie provinces recorded gains. In British Columbia, Ontario and the Atlantic provinces, realized net income dropped to
extremely low levels. This diversity was largely due to the wide range of crops
and livestock produced across
Canada.

 

Note to readers

The release on farm
income has been expanded to include data from the agriculture value added
account, providing a broader picture of the agriculture sector.

Net value added measures agriculture's
contribution to the national economy's production of goods and services
created in a particular year. It is derived by calculating the total value of
agricultural sector production, including program payments, and subtracting the
related costs of production (expenses on inputs, business taxes and
depreciation). Net value added is distributed to the various factors of
production, including rent to non-operator landlords, interest to lenders,
wages and profits.

Net cash income measures farm business cash flow
(farm cash receipts minus operating expenses) generated from the production
of agricultural goods. Net cash income represents the amount of money
available for debt repayment, investment or withdrawal by the owner.

Realized net income measures the financial flows,
both cash and non-cash, attributable to the farm businesses, similar to an
income statement (net cash income minus depreciation plus income in kind).
Realized net income represents the net income from transactions in a given
year in that it includes the sale of commodities regardless of the year they
were produced.

Total net income measures the financial flows and
stock changes of farm businesses (net cash income minus depreciation plus
income in kind and value of inventory change). Total net income values
agriculture economic production during the year that the agricultural goods
were produced. It represents the return to owner's equity, unpaid labour,
management and risk.

As a result of the
release of data from the 2006 Census of Agriculture on
May 16, 2007, estimates of farm cash receipts, operating expenses,
net income, capital value and other data contained in the Agriculture
Economic Statistics series are being revised, where necessary. The complete
set of revisions is planned to be released in the
November 24, 2008 version of The Daily.

 

Realized net income can
vary widely from farm to farm because of several factors, including
commodities, prices, weather and farm size. This and other aggregate measures
of farm income are calculated on a provincial basis, and employ the same
concepts used in measuring the performance of the overall Canadian economy.
They are measures of farm business income, not farm household income.

Today's release on farm
income has been expanded to include data from the agriculture value added
account. Net value added measures agriculture's contribution to the national
economy, providing a broader picture of the agriculture sector.

Data on the financial
performance of various types and sizes of farms for 2007 will be
available later in 2008.

Higher grain, oilseed
prices boost market cash receipts

Market cash receipts,
revenues from the sale of crops and livestock, increased 12.3%
in 2007. Crop receipts jumped 24.8%, the largest annual increase
in 13 years. Livestock receipts edged up 2.2%
to $18.2 billion as higher dairy and poultry revenues more than
offset declines in hog and calf revenues.

Market cash receipts fell
in
Prince
Edward Island
and New Brunswick, where potato revenues declined as
prices tumbled. Farmers in the
Prairie provinces experienced double-digit increases
in cash receipts, mainly the result of rising crop prices.

Grain and oilseed prices
have been increasing since the fall of 2006, boosted by growing food
demand in large, emerging economies of
Asia and expansion in the biofuel
sector. Since that time, weather-related production issues in many of the
world's major producing countries have tightened supplies, pushing prices to
levels not seen since 2002.

Supply-managed commodities
(dairy, poultry and eggs) experienced an 8.5% jump in revenues, the
largest percentage increase in over 20 years. This occurred as prices
rose to help cover mounting production costs.

Receipts for cattle and hog
producers were adversely affected by the combination of reduced prices
resulting from the appreciation of the Canadian dollar and higher feed costs.
With more animals shipped to the
United States for cheaper feeding, domestic
slaughter decreased in 2007.

Program payments well
below previous five-year average

Program payments amounted
to $4.1 billion, a 9.8% decline
from 2006 and 9.5% below the previous five-year average. This
was due in part to improved prices in the grains and oilseeds sector.

Despite this decline, total
farm cash revenue, which includes both market receipts and program payments,
increased 9.6% to $40.5 billion in 2007.

Soaring feed, fertilizer
prices produce fastest growth in expenses since 1981

Producers faced
an 8.2% jump in farm operating expenses in 2007 as feed and
fertilizer prices soared. This rate of growth, the fastest since 1981,
pushed farm operating expenses to $34.2 billion, 14.0% above the
previous five-year average. Operating costs increased in every province.

Other factors in the jump
were rising interest expenses, labour costs and machinery fuel expenses, which
increased 6.0% from 2006, thanks to rising diesel and gasoline
prices.

The surge in grain and
oilseed prices hit livestock producers hard, as feed costs leaped 21.8%.
Fertilizer price hikes, fuelled in part by increased ethanol production in the
United States, sent fertilizer costs
up 21.9%. One year increases of this magnitude have not been seen since
the late 1970s.

While gains in interest
rates and debt were not large compared with those of the recent past, they
translated into a 10.6% rise in interest expenses. Labour costs continued
to rise, reaching $4.2 billion in 2007. However, two-fifths of
these wages were paid to family members of farm operators and as such, form
part of a farm family's overall income.

Total net income up
despite lower farm inventories

Total net income climbed
from a negative value in 2006 to $369 million in 2007,
as the increase in net cash income more than offset the negative impact of
falling inventories.

Total net income adjusts
realized net income for changes in the value of farmer-owned inventories of
crops and livestock. It represents the return to owners' equity, unpaid labour,
management and risk.

The value of inventories
fell $1.3 billion in 2007, the second consecutive year in which
farmer-owned stocks have declined.

Three factors contributed
to this decline: crop producers drew down farm stocks to meet demand and
capitalize on stronger prices; decreases in yields lowered crop production in
the
Prairie provinces; and livestock numbers declined as
more animals were shipped to the
United States for cheaper feeding.

Increase in agriculture's
net value added to the economy

Agriculture's net value
added rose 12.3% to $9.2 billion in 2007, though it remained 5.6%
below the previous five-year average.

Net value added measures
agriculture's contribution to the national economy's production of goods and
services. It is derived by calculating the total value of agricultural sector
production, including program payments, and subtracting the related costs of
production (expenses on inputs, business taxes and depreciation).

Income earned from
production activities in the farm sector is distributed among producers for
their contributions of land, labour, capital and management, and to other stakeholders
in the form of interest charges, wages paid for non-family labour and rental
payments to non-operators.

At the national level,
about three-quarters, or $6.9 billion, of net value added was paid to
other stakeholders, up 7.8% over 2006. Those involved in agricultural
production received the remaining $2.2 billion, up 29.2%
over 2006.

The total value of
agricultural production grew 5.4% to $48.5 billion. In addition
to total farm cash revenue, this measure of gross output includes sales to
other farms, custom work receipts, farm land rent, income-in-kind and the value
of inventory change.


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