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
Comments
I'm willing to bet that of the 971 farmers completing the survey, 950 of them represented FCC's target market, supply managed farmers who, of course, think everything is rosy.
A FCC survey about the future of Canadian farming, is about as reliable as a survey of foxes about the future of the chicken house - all it does is ensure that FCC escapes scrutiny from those who would otherwise do so.
It is natural for some farmers to get forced out. That is how capitalism works. The beef industry has been hard hit for years and yet beef breeding stock sellers continue to sell animals for thousands of dollars each when their meat value is very little. Statistics are easily manipulated to serve any purpose. Without a doubt if interest rates sky rocket as they did in the 1980's many farmers will be totally obliterated. Throughout history farmers have survived best by keeping capital costs at rock bottom and operating with little or no debt. To do otherwise is where the risk comes in and puts one in a vulnerable situation. Wage earners are just as vulnerable mired in debt and with absolutely no job security. The days of job security like we had in the 50's and 60's is over and may never return.
Why did FCC support the escalation of quota prices? It provided them with a very easy method of increasing their portfolio.By increasing everyones balance sheet,they enabled farmers to acquire considerably larger amounts of credit. Then by using this new value as the CENTRAL item of security,FCC greatly increased the farmers ability to borrow.In 2002 a young FCC employee told me,we just seem to be lending as much against the quotas as possble and a little for the farm. The leveraging against quota values seems to be the dirty secret no one wants to talk about. If interest rates do rise more than expected will FCC just increase values,,but wait a minute, didn t someone just tell DFO to cap and slowly lower quota prices.So in time farmers balance sheets will drop,,slowly,,with limited chances to increase cash flow because there is no new quota available for FCC and our great bankers to finance. What if Canada has to accept some loss of markets to imports in a trade deal.Has FCC forced the government to save the canadian market to avoid a financial disaster? It s going to be interesting to see how it plays out.
The second dirty secret may just be FCC's program to reward employees who lend the most money. When FCC borrowed Wall Street's bonus system for rewarding top performers, they also seemed to have borrowed the idea of over-lending on financial instruments (quota) rather than on tangible assets.
I have no use for FCC or anything connected to government. Years ago as a young man starting into farming I went to FCC to get financing and they refused me saying I was too poor. Ten years later I went back to try them again and they refused me on the grounds I was too rich. Even today I think a lot of their money goes to the wrong people.
FCC and banks like to help the rich get richer. I would like to see them take more risk and help the poor get rich.
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