“The industry will die if people cannot afford it.”
“Good operators will and should take good calculated risks on debt.”
“Once interest rates start to climb, we’re in big trouble.”
As a part of our series on debt in agriculture, we asked the farming community to provide its thoughts on the growing level of debt in the industry.
The responses were wide ranging and thought-provoking.
We heard from farmers who are taking jobs off site to make ends meet, who feel pressure to grow bigger and try new technologies to try to turn a profit. A few said their debt load will force them out of the industry. There was optimism, too. Some farmers we heard from say they’re not in debt. As for what to do about it, some said the government must intervene. Others argued that government involvement would be disastrous.
Here is some of what the farmers we heard from said:
How do you manage farm debt?
The largest proportion of responders manage their debt by working off the farm. This lines up with recent findings from Statistics Canada, where more and more farms rely on off-farm income. About one-third, however, said they do not operate with farm debt. This response shows how the story behind the numbers can be more nuanced than statistics suggest.
For some farmers, the worry persists. It is important to note the one option that was not selected: “I continue to add to the operating loan. Interest rates are low, so why not?” It is clear that the growing levels of debt are troubling to some farmers.
Should the government do anything about farming debt? If so, why?
“The farmers need to work it out.”
Overwhelmingly, survey respondents felt the government should not do anything about farming debt. For the respondents who felt the government should step in, exactly what that intervention looked like varied greatly.
The explanations given by those who selected “No” were diverse. Some people argued that the debt farmers are in is not necessarily negative.
“Good operators will and should take good calculated risks on debt.”
One commenter suggested that farmers need to “learn from their poor decisions” on debt.
Another person noted that government intervention into the economy can do more harm than good:
“When, and if, governments try to intervene usually by injecting money, or imposing some sort of tariff, great distortions occur and the house of cards [the supply and demand cycle] crumbles.”
The same commenter also brought non-farmers into the equation, because financial support for debt would be drawn off all taxpayer dollars.
“When the government spends money as an aid to farmers everyone else has to pay, and I’m not sure everyone else particularly likes that!”
There were also several comments that explained ways that the government could potentially help.
“The government can help by supporting farm-friendly lenders, such as ATB in Alberta. We need patient lenders who won’t foreclose unless absolutely necessary.”
Another person observed that the debt that is required to build a successful farm would be daunting, putting it simply:
“The next generation has to be able to farm.”
This sentiment was echoed in another comment:
“The government shouldn’t be expected to take care of the debt people already have, for the choices they have made. They should however look into a capping process within the agriculture industry so young farmers have a chance at continuing on the industry for the Canadian economy.”
What is the future of farming debt in western Canada?
Most respondents argued that, so long as interest rates stay low, the farming industry will be fine. A smaller but still significant portion of respondents argue that the western Canadian farming industry is going downhill. One-fifth of respondents had a different answer.
Among some respondents, there was a positive approach and an expectation debt will level off.
Others were not as optimistic. One said that farming debt in western Canada “will collapse under its own weight.” And another:
“It will get worse until there is a correction. Then it will get worse again.”
One farmer who believes as long as interest rates stay low, things will work out, argued that the government will intervene to keep rates low. Another respondent described the need to stay up to date as a farmer – including going into debt to acquire the newest technologies.
“Larger farms with improved methods of production constantly require the newest technology, whether that’s in equipment, seed or livestock. To be efficient producers, there is a need to keep up with that technology, in order to keep up with growing global food production needs. Investments will continue to be needed, and that can work as long as interest rates stay relatively low.”
Among those feeling less hopeful about managing debt in the future, there is the belief that bigger is not always better.
“When these massive farms pile up a few bad years, when interest rates rise like 3% it will spell disaster for some operations. They have had a good run over the last 8 years or so and have gotten into the habit of buying any land that comes up for sale.”
One commenter focused on the importance of low interest rates and what those mean for debt.
“Low interest rates allow people to take on debt they cannot sustain at other times. Once interest rates start to climb, we’re in big trouble.”
Canadian farm debt is severe and statistics show it is growing larger every year. For farmers, it’s about more than just the numbers, as the responses to our survey show. It is their livelihoods. Farming is a crucial part of the West’s economy and identity, and it is essential that the threat of growing debt in farming is addressed. Those who responded to this survey are helping to start that conversation.
Thank you to everyone who took the time to complete the survey.
– Sarah Pittman is a research intern at the Canada West Foundation
Read our guest blog from a Manitoba farmer on the next generation of farmers and their response to interest rates and debt
*Please note this survey is a sampling of opinion and is not intended as a quantitative research tool