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Farmers will continue to lose money

Despite rising commodity prices, optimism among growers and producers, and a 20 percent jump in net farm income in 2007, figures from Agriculture and Agri-Food Canada suggest income support cheques from provincial and federal governments account for much of the increase.


March 7, 2008
By Agriculture and Agri-Food Canada

March 3, 2008

Guelph, ON -Some very positive messages about farm income accompanied a news release from Agriculture and Agri-Food Canada (AAFC) in early February: Canadian net farm income was up by 20% in 2007 -with another 16% projected to follow in 2008.

Unfortunately, a look at the actual numbers tells a much bleaker story. In reality, net income from Canadian farm operations – market receipts less operating costs and depreciation – will be solidly negative in 2007 and 2008 – as has been the case for virtually every year over the last decade. Farmers are losing hundreds of millions of dollars each year just by farming.

However, as well as earning money from the market, farmers also get income support cheques from the provincial and federal governments. And it's clear from the AAFC statistics that these payments are the sole reason for the positive net incomes they've reported. Indeed, if all Canadian/Ontario farmers had quit farming in 1998 – eliminating cash receipts, expenses and depreciation, while still receiving all of the government cheques – they'd have gained twice as much money in the years since. Over the past ten years, Ontario farmers received about $600 million/year on average in government cheques, and, even though they lost $300 million from farming operations, they still had a resulting net gain of $300 million/year. (Multiply these numbers by about 6.7 to get corresponding numbers for all of Canada.)

Averages can be misleading. Some farmers are doing well financially, especially those who have above-average skills in management, cost control, marketing, and innovating, or those with low debt loads and low interest costs. But this also means that many other farmers are doing worse than average. In total, it's not a pretty picture.

Farming was once quite profitable. When adjusted to 2002 dollars, over the 15 years from 1971 through 1986, Ontario farmers netted about $1.1 billion per year from operations, not including the $300 million/year they received in direct government support.

But it's been steadily down hill since then. Long-term trend lines indicate that Ontario farm income in 2002 dollars has been declining at an average rate of about $50 million/year. This is with government payments included. So what about the future? Well, for starters, there's little reason to expect this trend to change. Crop prices are projected to be up in 2008 -helped primarily by a growing demand for renewable fuels – but expenses will also be up dramatically and income from beef and pork sales has plunged. As long as the world's ability to grow farm produce continues to increase faster than need for food calories – particularly in developed countries -the downward pressure on farm income will intensify – especially for those growing traditional farm commodities for traditional food markets (the current enthusiasm for biofuels notwithstanding).

Some suggest that the answer lays in more government payments. But, based on long-term trends, another $50 million per year in Ontario may be needed just to stay even. Will tax payers continue to support this expenditure when the current cost to them is already so substantial? And there is evidence that government payments actually serve to diminish profits from farm operations – by raising land costs, for example – while also reducing the economic incentives for farmers to change.

Instead of spending more millions on support programs, why not spend more of the money developing and supporting new market opportunities? We need to create new solutions for society, including meeting consumer demands for better health and nutrition, cleaner environments, and renewable substitutes for oil-based plastics.

There are good reasons to be optimistic about the future of Ontario agriculture – but only if we get off the tread mill of losing money farming traditionally for traditional markets, and offsetting the losses using increasingly large government cheques.