As a part of the Canada West Foundation’s series on debt in agriculture, we asked the farming community to provide its thoughts on the growing level of debt in the industry. This is a guest blog submitted in response to our call for comments and represents the views of the writer. You can read our survey results here.

I have farmed for 20 years.

To get my start, I received help from my dad in the form of exchanging use of equipment for labour provided. I needed to raise my own capital to invest in land and equipment.

In my experience, it is difficult to grow the farm and take capital for living at the same time. Especially early on when every dollar was so important and the base from which I started so small.

In order to help raise the needed capital, I chose to work off farm for the first 16 years. The last eight were in the financial industry dealing directly with farm lending. I started lending in 2006 just as we were coming out of some really tough years on the farm. Commodity prices had been low for awhile. In 2004, we had a mid-August killing frost; in 2005, we had so much rain it drowned the entire crop.

In the spring of 2006, the only conversations farmers seemed to have was how to get out of the industry. Lending was difficult, mostly extending operating funds. Some farmers were only able to make the interest portion payment on their debt.

That year we had a fantastic crop. However, prices were still not high enough to generate much of a profit. In 2007, this all changed when commodity prices spiked. In the following years, many farms generated more money then they ever had year-over-year. We have had several large crops with good-to-fantastic prices.

In the past 10 years, the story when talking with farmers has changed. It is no longer “How can I get out of the industry?” but “How can I borrow more money to grow my operation?” We have an entire generation of farmers who have come into management in the past decade who have not been required to navigate through tough times on the farm.

I believe what has happened is the generation that came through the 1980s is either no longer with us or no longer making decisions on the farm. It is their children, I being one of them, that now manage these farms. The individuals that have created the bulk of this new debt in the past few years have not paid interest rates of more than 6%. Nor do they believe that interest rates in time will work their way back to over those levels.

The bulk of their experience has been in the best farming years we have seen in the past 40. In recent years, it seemed as though you basically couldn’t make a mistake – everything has turned a profit. Many have not been required to work off farm to raise capital. There has been enough money around to pay their salaries and service the farm’s ever-increasing debt.

Commodity prices have held, which has allowed farms to pay more in rent. As land has come up for sale, the competition to buy has become incredible. When going back to the 1980s, the run-up in prices began in the later 1970s. By the mid-1980s, the farm debt review board was busy. Farm Credit Canada and the like were forced to collect on many loans as farmers had overextended.

Back to today, many farms have a net worth larger than ever thought possible. In recent years, the net worth of Canadian farms has grown year-over-year. However, most of that growth has been from simple inflation.

Unfortunately, the debt carried per acre on many farms exceeds a sustainable level from a historic prospective. Recently, a lot of debt has been taken on with no capital investment. What lenders have done is taken the inflated value of the land bought and paid for in tough years and financed the new debt with this so-called equity.


Many purchases today happen with no down payment whatsoever. Back to my lending experience where I dabbled in commercial lending, there is no other business where borrowing without capital investment is possible. Generally the big difference between commercial lending and farm financing is how the lender views the business. Commercial lenders are primarily concerned with cash flow, or the ability to repay debt. Collateral is looked at as a secondary issue. Farm financing, however, is often done strictly on collateral. In time, the debt servicing requirements of borrowing funds without a capital investment begin to overwhelm. You have to consider why there is no down payment available. I believe It is due to the farm’s inability to create the additional capital. Instead what was used is the equity created by inflation that has not been earned.

In time, the increased capital that is now required with the higher debt service will become suffocating. The commodity cycle that we have come through these past 10 years will take a downturn. If you don’t believe me, look at gold or oil. Take a look at what has happened to Barrick Gold Corporation. Had I offered you an over/under of $50 a barrel for oil two years ago, you would have been “foolish” to take the under.

To be clear: I am not opposed to debt or growth. You have to have a farm base that is sustainable. Equipment to match that land base. To achieve this, you need to borrow money.

I carry debt just like most every other farm. It is a fantastic tool when used properly. The advice I received from my father was, if you can’t come up with a down payment it’s just not meant to be. The advice I received from a long time farm lender was, net worth cannot make payments.

– Nathan Elias is a Manitoba farmer