Talk to any farmer in the West, and chances are you’ll soon hear about farms being bought, sold, and bundled up into consolidated land.

In the last 20 years, there has been a significant drop in the number of farms in each western province, while the amount of land being used has stayed relatively stable.

The family farm, it seems, is slowly giving way to the mega-farm.

What is equally important to this drop in the overall number of farms is the reciprocal rise in overall farm debt. While the amount of farm debt accumulated across the West has varied, there is a clear rise across each of the four western provinces.

British Columbia has had the smallest rise in overall farming debt in the past 25 years. In 1991, its total farming debt was $1.2 billion; by 2015, it was close to $6.5 billion – an increase of more than $5 billion.

Alberta farmers, meanwhile, have shouldered the largest increase in overall farm debt. Between 1991 and 2015, Alberta’s provincial farm debt rose from $6.4 billion to more than $20 billion, an increase of more than $14 billion.

In Saskatchewan and Manitoba, debt increase between 1991 and 2015 was more than $9 billion and $10 billion, respectively.

It is important to note that this increase in debt has come with an increase in overall cash receipts. Yet, these cash receipts have not grown at the same pace as farming debt has for each province. In 1991, all of the western provinces’ farming industries were making more money than they had wrapped up in farming debt.

In 2015 this has changed dramatically for Alberta, British Columbia, and Manitoba, whose farmers are in the red $6.8 billion, $3.4 billion, and $2.6 billion respectively. The only exception to this is Saskatchewan, where cash receipts and debt have grown at about the same pace.

For farming, debt is often a necessary evil, and many farmers would be unable to operate without operating loans. An article from the Western Producer made the argument that lenders often see the rise of farming debt as the sign of an optimistic and healthy industry; for the industry to grow, it needs capital, and that is often in the form of loans.

Perhaps the most important factor when it comes to debt is the prime interest rate, and with it comes a note of caution. The prime interest rate is established by the Bank of Canada on eight predetermined dates per year. The goal of the Bank of Canada is to balance its long-term goal of avoiding inflation, and various short term goals, such as reducing unemployment. Therefore, even though farming can influence the prime interest rate, it has no greater influence than any other industry in Canada, and as such is dependent on many external factors. A crisis in another industry of Canada, for example, in manufacturing, could change the prime interest rate.

Since 1991, as the number of farms have decreased and the farming debt for each province has increased, we have had mercifully low prime interest rates. This has given farmers the ability to borrow more than they may have been able to in the past, and grow their operations.

Because the interest a farmer pays is typically based on their credit score and the prime interest rate, the historically low prime interest rates we have seen lately have been a blessing for farmers—and perhaps a curse. The prime interest rates being so low in the last 20 years have helped give farmers the confidence to borrow more than they would have in the past.

This is great if the prime interest rate stays where it is, but there is no guarantee that it will. In the late 1970s, prime interest rates were quite low—but as a result of several factors, skyrocketed in the early 1980s, reaching an average of 19.29 per cent by 1981.  This was an increase from 8.5 per cent only four years before.

While we will likely not see such a significant jump like that in the future, any substantial rise in the prime interest rate is likely to send many farmers reeling.

– Sarah Pittman is a research intern

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