COVER

The squeeze on indebted farmers

Garry Moir March 4 1985
COVER

The squeeze on indebted farmers

Garry Moir March 4 1985

The squeeze on indebted farmers

CANADA

Garry Moir

Just over five years ago, when inflation was driving up food prices and Canadian agriculture was prospering, Brian Ash borrowed $65,500 from the federal Farm Credit Corp. (FCC) and another $50,000 from a bank to help buy and operate a 150-acre hog and dairy farm near Owen Sound, Ont. But by the time Ash’s first hogs were ready for market seven months later, pork prices had dropped by more than 15 cents a pound to less than 50 cents—well below the break-even point for Ash’s farm. During the following two years things went from bad to worse. While interest rates soared, pushing up Ash’s debt costs, pork and dairy prices stagnated. And as the agriculture sector declined along with the rest of the Canadian economy in the early 1980s, the value of agricultural land slumped. The combined effect of these blows devastated Ash’s hopes. “There was no cash flow,” recalled Ash last week, “and as land prices dropped, our equity dropped and the bank got really nervous and quickly pulled the plug on our operating loan.” Across Canada hundreds of farmers like Ash find themselves face to face with ruin, enmeshed in the nation’s worst agricultural crisis since the Great Depression of the 1930s. Increasingly, Canadian farmers—like their counter-

parts in the United States—are trapped in a vicious squeeze exerted by high interest rates, declining land values and low prices for their crops. In many instances the combination has pounded farmers so hard that in the end they have succumbed to bankruptcy and foreclosure. Some authorities believe the crisis reflects fundamental changes in Canadian farming away from family farming toward corporate agriculture and possibly to an increasing incidence of tenant farming.

In Ash’s case, he and his wife, Nancy, hung on for two years after the bank called in their loan. Ash then declared personal bankruptcy late in 1984. When the FCC took steps to seize their farm, Ash fought, and lost, his case before the Supreme Court of Ontario. Finally, last month bailiffs and police officers arrived at the Ash farm, and, when Nancy Ash tried to barricade herself in her house, police forced their way in and dragged her to a cruiser. By the time her husband arrived on the scene, the house had been formally seized and locked by the bailiffs.

While more and more farmers struggle to avoid Ash’s fate, the provinces have sought to tackle the crisis with a patchwork of programs. But Ottawa so far has relied mainly on economic forces to determine which farmers will survive or fail. As a result, inefficient, unlucky

and financially overextended farmers will likely continue to go under. In the view of Wayne Easter, president of the 8,000-member National Farmers’ Union (NFU), the situation is so grave that “if things don’t improve, the family farm operators will be on the scrap heap of history.”

Federal statistics tell the story of farm failures in numbers, though not in human desperation and despair. During the past three years a total of 1,449 Canadian farms—out of 228,000—have gone bankrupt, as compared to 125 farms in 1979. Virtually no part of the country has escaped. While 174 Quebec and Maritime farmers were forced out of business in 1984, another 154 went broke in Ontario, and 223 declared bankruptcy in the four western provinces —for an unprecedented total of 551. According to an FCC survey released in late 1984, as many as 55,000 of Canada’s farmers are experiencing serious financial difficulties, and about 1,700 of them could go under if market prices do not radically improve in 1985.

Glenn Flaten, past president of the Canadian Federation of Agriculture (CFA), the nation’s largest agricultural lobby group, representing 200,000 farmers, notes that many of the farmers “under severe financial stress are our most productive and innovative farmers.” That is borne out by the FCC survey,

which showed that while one-third of Canada’s farmers carry some 80 per cent of the $20.73-billion farm debt, these same farmers produce almost half the nation’s crops.

One result of the attrition rate in farming is that, as smaller farmers go broke or sell out, the average agricultural holding is getting larger—and the share of farm output controlled by corporate “agribusinesses” is increasing. Over a 10-year period ending in June, 1981, the size of the average Canadian farm increased by 14 per cent to 528 from 463 acres. At the same time, while the number of farming operations owned by corporations grew marginally, their share of farm sales increased to 3.5 per cent of $15.8 billion in 1981 from 2.4 per cent of $4.1 billion in 1971.

The roots of today’s farm crisis reach back to the early 1970s, when food prices were strong and farmland values climbed rapidly as Canadian and foreign investors bought up prime farmland as a hedge against inflation. At the same time, many farmers borrowed heavily to expand their holdings. But the bubble burst in the early 1980s when soaring inflation simultaneously pushed up production costs and interest rates. As the farm economy declined steeply, so did agricultural land values. As a result of these changes in the economic equation, farmers who raised

money in the past on the strength of their valuable properties and buoyant agricultural prices now must pay back high-interest loans at a time when commodity prices are low. And farmers who seek additional loans are having difficulties because their properties are in many cases worth far less than they were under a decade ago. Said Jim Collins, a grain farmer in British Columbia’s Peace River district who works part-time as an agricultural consultant to keep his farm solvent: “Many farmers wish they could get out. But they’re stuck because nobody wants to buy farmland.”

Clay Gilson, a University of Manitoba agricultural economist, told Maclean's that the current economic crisis will not necessarily speed up the nonfamily corporate consolidation of land ownership. “Farmers are starting to find part of their way around the problem by renting land,” he said. “In the future land capital may have to come from somewhere else than the farmer— that is, from landlords.”

For many farmers the worst may be yet to come. With inflation under control and farm output plentiful, Agriculture Canada foresees no increase in net farm incomes this year. Moreover, Canadian agricultural experts fear that similar financial hardship in the huge U.S. agricultural sector could lead to

price-cutting in overseas markets and result in even lower prices for Canadian grain and other agricultural products overseas. Nearly half Canada’s farm income comes from overseas markets.

The crisis on Canada’s farms poses a formidable challenge to federal Agriculture Minister John Wise and his colleagues in Prime Minister Brian Mulroney’s cabinet. But even though Wise, a dairy farmer from southwestern Ontario, regards farm income and credit as the government’s “number 1 problem and our number 1 concern,” he insists that Canadians would not sanction spending the estimated $3 billion needed to save the nation’s most troubled farmers from bankruptcy.

In the meantime, Ottawa has extended various forms of limited relief to farmers. Partly in fulfilment of an election promise, the Mulroney government late last year introduced a rebate on farm fuel, a move that is expected to save farmers $160 million this year. As well, a $123-million payout was authorized last November under the western grain stabilization program, with a promise of more to come before spring seeding. But government efforts to ease the credit crunch have been limited to the operations of FCC, the Crown corporation that serves as a major creditor to about 80,000 farmers at an interest rate last year of 14 per cent on five-year

loans, compared to bank rates for shortterm loans ranging from 13 per cent to 18 per cent. On Nov. 5 Wise ordered a freeze on FCC foreclosures to Jan. 15 of this year, and since then the agency has reduced its interest rate to 12% per cent, an adjustment that will cost the federal government $80 million over the next five years. But Wise has ruled out any large-scale assistance program. “Even if we didn’t have a deficit,” says Wise, “there just isn’t enough money to dump into an area of this kind to save all the farmers.”

That approach does not please many farmers, nor some of Wise’s provincial counterparts. “A national program is essential,” says Manitoba Agriculture Minister Billie Uruski. “If not, we’re heading for disaster.” Many farmers contend that the government must either relieve farm debts—or permit agricultural marketing boards to significantly increase the prices that Canadians pay for food. Agricultural experts point out that Canadians spend only about 15 per cent of their disposable income on food. That is a little more than the comparable 11 per cent in the United States, but it is a far cry from the situation in the countries of western Europe, where food purchases account for more than a quarter of all disposable income.

In the meantime, the provinces are

doing what they can to help. The most dramatic action has come in Saskatchewan, where Premier Grant Devine’s Tory administration—in the face of protests from the chartered banks—passed a law in December that imposed a 12month freeze on all farmland foreclosures. Manitoba is considering a debt adjustment program of its own, and Quebec’s ministry of agriculture is planning a farm summit meeting in the spring.

But short-term financial aid is unlikely to achieve anything more than a temporary respite for Canada’s troubled farmers. Faced with the prospect of continuing high interest rates and low food prices in the coming year, Canada’s farmers can only hope for good growing conditions next summer and bountiful harvests this fall that will allow them to hang on for another year. But Ottawa’s apparent refusal to consider any sweeping measures to aid beleaguered farmers is seen by some as a sign of an ungrateful nation’s indifference to the plight of its food producers. Farmers, notes an embittered Brian Ash, “are only four per cent of the population. It’s the other 96 per cent that votes in the government.”

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