Farm income stats misleading; farmers will lose money in 2008

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

But, a look at 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 both years, as for the last decade.

Farmers are losing millions of dollars each year by farming. But, as well as earning money from the market, farmers also get income support cheques from governments. It’s clear from the statistics these payments are the sole reason for those positive net incomes.

If all Ontario farmers had quit 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, farmers received about $600-million a year on average in government cheques. So even though they lost $300-million from operations, they had a resulting net gain of $300-million per year. (Multiply those numbers by about 6.7 to get corresponding numbers for all of Canada.) Averages can be misleading. Some farmers are doing well, especially those with skills in management, cost control, marketing, and innovating, or with low debt.

But that means many others are doing worse than average.

Farming was once profitable. When adjusted to 2002 dollars, from 1971 through 1986, Ontario farmers netted about $1.1-billion a year, not including $300-million per year they received in direct government support. It’s been steadily down hill since then.

Long-term trend lines indicate Ontario farm income in 2002 dollars has been declining at an average rate of about $50-million a year. That is with government payments.

So what about the future? For starters, there’s little reason to expect this trend to change. Crop prices are projected to be up in 2008, helped primarily by growing demand for renewable fuels, but expenses will also be up and income from beef and pork sales has plunged.

As long as the world’s ability to grow produce continues to increase faster than need for food – particularly in developed countries – the downward pressure on farm income will intensify, especially for those growing traditional farm commodities.

Some suggest 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 taxpayers continue to support this expenditure when the current cost is already so substantial?

There is evidence government payments actually serve to diminish profits from farm operations – by raising land costs – while also reducing the incentives for 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.

Submitted by Terry Daynard,

Managing Director, Ontario Agri-Food Policy