How Canadian farmers manage financially with low returns on assets

Comments are often made about rich farmers, but just how do farm profits stack up by investing in the farm?

In 2017, the average return in farm assets in Canada was 1.54 per cent – $8,193 billion on $531 billion assets. Return on assets is a key measure of profitability. Return on assets in only three provinces – Ontario, Manitoba and Saskatchewan — exceeded the national average, based on Statistics Canada data. Saskatchewan has the highest return on assets in the country with an average 2.73 per cent return. Falling in second place was Manitoba at 2.66 per cent, while Ontario with a 2.1 per cent return was third. Neighbouring Alberta farmers had a 1.28 per cent return on assets.

Quebec farmers averaged .84 per cent return, less than Newfoundland and Labrador at 1.89 per cent.

The potato province, P.E.I., averaged 1.42 per cent return on assets, while New Brunswick averaged .34 per cent.

Nova Scotia farmers lost about one per cent on assets, while British Columbia farmers had less than one-hundredth of one per cent return. If farmers earned just a bit more than Government of Canada bonds, how do they survive?

The answer lies in a charge on income called depreciation. Depreciation is a tax-free allowance on income of all businesses for wear and tear on buildings and machinery.

In 2017 Canadian farmers had $7.58 billion in depreciation, almost doubling the cash they had after expenses. In Saskatchewan, that cash from depreciation amounted to $1.78 billion, a substantial increase in cash to live on and grow the operation.

Alberta farmers led in depreciation at $1.87 billion while Quebec was third at $1.63 billion.

Debt levels plays an important role in farm finances. The more debt the more interest expenses. Canadian farmers had $98.2 billion debt in 2017 — equivalent to 18.5 per cent of assets: a reasonable level for an industry where commodity price volatility causes large income fluctuations.

By comparison, acceptable debt levels in real estate run up to 75 per cent of assets.

Alberta farmers with $22.1 billion debt have the lowest debt as a percentage of assts at 14.6 per cent. Second lowest debt to assets level is Saskatchewan at 15.2 per cent for $14.96 billion debt.

Ranked with third lowest debt level is B.C. at 16.7 per cent while Quebec is fourth at 18.7 per cent, or $25.3 billion

Highest debt levels are Newfoundland and Labrador at 56 per cent of assets; Nova Scotia at 40 per cent; New Brunswick, 35 per cent; P.E.I., 33.5 per cent; and Ontario at 31 per cent.