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Total farm assets increased in 2007

NEWS HIGHLIGHT

Total farm assets increased in 2007
Farm assets rose more than liabilities in 2007 resulting in a 2.7 percent increase in farm equity. Rising farm real estate and the increased crop value helped this increase. However, debt-to-asset ratio rose as well meaning more farms are dependent on debt.


June 17, 2008
By Statistics Canada

June 17, 2008

Farm sector equity in Canada increased 2.7% in 2007 to $198.9 billion, as assets rose more rapidly than liabilities. The 2007 equity level was 6.2% above the previous five-year average for the period between 2002 and 2006. Provincially, farmers in Quebec, Ontario, Saskatchewan, Alberta and British Columbia recorded increases.

Total farm assets grew by 3.0% to $248.6 billion in 2007, 7.3% above the previous five-year average. The value of farm real estate, which accounts for almost two-thirds of total farm assets, was the primary contributor, increasing 3.8% to $154.7 billion and continuing the long-term upward trend seen since 1988. In addition to the increases in farm real estate and machinery, current assets edged upward as the increase in the value of crop inventories offset the decline in the value of livestock inventories. Assets grew in all provinces except Prince Edward Island and New Brunswick, where the value of crop and livestock inventories decreased significantly and land values were relatively flat.

Farm liabilities at the end of 2007 reached $49.7 billion, up 3.9% from 2006 and the 14th consecutive annual rise. Current liabilities advanced 6.3%, while long-term liabilities recorded an annual increase of 3.2%. Prince Edward Island was the only province to record a decrease in liabilities in 2007.

The assets and liabilities in the balance sheet of the agricultural sector include those of farm businesses and non-operator landlords (for farm real estate assets leased to farm operators and the corresponding liabilities), they exclude the personal portion of farm households. This most closely reflects the assets and liabilities employed in the production of agricultural products.

The debt-to-asset ratio progressed for a 12th consecutive year, climbing to a record 20.0% in 2007, above the previous record of 19.8% reached in 2006. This ratio measures the dependence of farm businesses on debt.

The current ratio (current assets divided by current liabilities) edged down in 2007 to 1.996, compared with 2.100 in 2006. The lower ratios recorded since 2003 mean that operators within the agriculture sector have a reduced ability to pay short-term debts compared with earlier periods. The previous 10-year average (1997 to 2006) of the current ratio was 2.465.

The interest coverage ratio assesses the ability to cover interest charges with the net income being generated (before interest and taxes). This ratio increased slightly to 1.670 in 2007, compared with the record low of 1.519 in 2006. The 2007 level remained below the previous 10-year average of 2.510.

Return on equity rose slightly to 1.0% in 2007. This was following two consecutive annual decreases after an 8-year high in 2004 (2.9%). The 2007 level remained below the previous 10-year average of 2.0%.

As a result of the release of data from the 2006 Census of Agriculture on May 16, 2007, estimates of the balance sheet of the agricultural sector at December 31 and other data contained in the Agriculture Economic Statistics series will be revised, where necessary. These revisions will be announced in a future release of the series in The Daily.