Survey results reflect interest rate worries say two farm leaders

Friday, March 26, 2010

by SUSAN MANN

Two Ontario farm leaders say a Farm Credit Canada national survey on the spending plans of producers and agri-businesses show people are worried about interest rates shooting up this year.

The Farm Credit survey found that 49 per cent of Canadian producers, agri-businesses and agri-food operators who responded plan to pay down debt this year, while 29 per cent say they won’t spend much differently compared to 2009 and 22 per cent say they’ll seek more financing. In 2009, 52 per cent planned to pay down debt, 23 per cent planned for similar spending to the previous year, and 24 per cent said they would seek more financing.

Henry Stevens, president of the Christian Farmers Federation of Ontario, says some people have come to realize that their debt loads are far too high and he agrees.

Sean McGivern, newly elected Ontario coordinator for the National Farmers Union, says there is a lot of concern in the countryside about potential interest rate increases. “A lot of people are familiar with what happened back in the 1980s with interest rates.”

McGivern, a mixed farmer from Desboro in Grey County, says he doesn’t expect rates to rise as sharply as they did in the 1980s when operating lines of credit were in the 20 per cent range. “I do think that we’re going to see them rise into the fall. With the low margins or no margins most of our producers are experiencing currently they can’t take any kind of a hit with any interest rate rises at all.”

Bank of Canada governor Mark Carney has said the interest rate, currently at 0.25 per cent, could rise by mid summer or sooner. He told Canadians an increase is likely, now that the economy is recovering from recession. Some bank economists say the Bank of Canada rate could hit two per cent by the end of the year.

Prof. Alfons Weersink of the University of Guelph’s food, agriculture and resource economics department says if the Bank of Canada rate climbed to two per cent commercial bank rates would go up by the same amount.

It’s hard to know what impact an interest rate increase would have on farmers, he says, noting current rates are at record low levels. The more heavily in debt a farmer is the more impact interest rate increases will have. But “it won’t have a devastating impact on the whole (agricultural) sector.”

It wouldn’t surprise Stevens if the rate climbed to two per cent by year’s end. “I think an interest rate increase is inevitable. I’ve been saying that since they (the government) did their stimulus spending.”

With the specter of rising interest rates, Stevens says he has a gut feeling “that’s why some farmers are getting rid of debt.” He adds while he’s not overburdened with debt his financial plans this year include paying it down.

Of the surveyed farmers who said they plan to seek more financing, poultry producers are significantly more likely to consider more financing than producers from most other sectors, according to Farm Credit. Stevens, a chicken farmer, says that concerns him. “Between the lines, I read that to mean they’re going to pay more for quota. For the industry in the long term, it’s not a good thing.” 

This is the second year Farm Credit surveyed primary producers, agribusinesses and agri-food operators to understand how external factors, such as the global economic situation, affect spending decisions. The crown corporation concludes the results show many respondents haven’t altered their plans much from 2009.

The corporation’s president and chief executive officer Greg Stewart says in a press release that the survey results indicate, “respondents haven’t been as greatly impacted by the economic conditions as some might have believed they would be.”

Ontario Federation of Agriculture president Bette Jean Crews disagrees. She says she’s mostly getting calls from people who are desperate because they’re losing their farms.

“We are still in the same crisis that we were in last year only worse,” she says. “That’s what people call me about. They don’t call me worrying it’s going to cost them more interest to keep on farming. They’re worried about losing the farm.”

The survey was sent to 2,646 producers, agri-businesses and agri-food operators in late November 2009. Of those 1,172, or 44 per cent, completed it. Of the people completing the survey, 971 were farmers, says Farm Credit research specialist Nicole Janeczko. BF