Media Clipping — Thursday August.21st, 2008, Farm Focus

Farm income in Nova Scotia and PEI hits rock bottom
(Front page, top story)

Farmers in Nova Scotia and Prince Edward Island are now earning less than at any time in the last four decades—so little in fact that rural communities in both provinces are at serious risk. That’s the conclusion of a new report on farm economic viability released Aug. 5 by GPI Atlantic.

Every key indicator of farm economic viability in NS and PEI is in sharp decline:

• Net farm income has dropped by an average of 91% in NS and by 92% in PEI since 1971, and in 2007 reached the lowest levels ever recorded in both provinces. NS farms have recorded negative net farm income (where income no longer covers expenses) in four of the last six years, as have PEI farms in five of the last seven years.
• In NS, the expense to income ratio increased from an average of 82% in the 1970s to an average of 97% in the last decade, and in PEI it rose from an average of 74% to 98% during the same 35-year period—in recent years far exceeding the 80% threshold estimated as needed for a healthy farm sector. In 2006 the expense to income ratio reached 100% for NS farms and 102% for PEI farms. This indicates that the prices paid to producers for their products are inadequate relative to rising input costs, and are not keeping pace with farm expenses.
• Total farm debt increased by 146% in NS, and by 445% in PEI, between 1971 and 2006. It is estimated that, in a healthy farm sector, the total debt to net farm income ratio should not exceed 600%—a level achieved in the 1970s and part of the 1980s —in order for farmers to service their debt. That ratio reached an astonishing 4700% in PEI in 2006 nearly 8 times the recommended 600% threshold.
• The solvency ratio (total liabilities or debt divided by total assets or the capital value of farms) increased by 106% in NS and by 143% in PEI since 1971, indicating that in both provinces farms are becoming much less sustainable, with the rate of farm debt increase rapidly outstripping any appreciation in the capital value of farms.

Report author Jennifer Scott was shocked by the results: “…When we examined this issue for NS farms in 2001, we reported the situation was bad. Now, seven years later, it is worse—much worse.”

Scott notes that the significant economic benefits generated by farms both for their rural communities and for the provincial economy—$460 million in business spending in NS and $390 million in PEI—will be seriously endangered as farms fail. And jobs will be lost. Annual farm expenditures in NS currently generate 6,600 full-time equivalent jobs in agriculture, and nearly 3,700 additional indirect and induced jobs.

A key cause of declining farm viability is depressed farm product prices. In NS, farm input and grocery food prices have gone up much faster than farm product prices, so it is costing farmers considerably more to farm without a commensurate gain in income. Yet, remarkably, depressed farm product prices are not reflected in cheaper food prices for consumers, indicating that profits are being made in other parts of the food supply chain rather than at the farm gate.

Reasons for depressed farm product prices include global commodity pricing and trade issues, consumer demand for the cheapest price for food regardless of its origin or actual cost of production, and continued consolidation among retailers and processors.

Extensive GPIAtlantic interviews with NS and PEI farmers produced a number of recommendations to improve farm economic viability, including:

1. Market diversification to increase buyer competition (and therefore prices) for food products.
2. Regulation to prevent excessive mergers of companies in the food system.
3. Greater supply management to ensure that food prices not fall below a reasonable cost of production.
4. Stimulation of increased demand for local products, for example through local procurement policies by businesses, retail stores, universities, schools, hospitals, and government agencies. This solution may be aided by escalating gas prices, as transportation becomes more expensive and local food thus more competitive.
5. Payments to farmers for provision of environmental goods and services (e.g. conserving wetlands and protecting freshwater quality).

The full GPI Farm Economic Viability report for NS and PEI can be accessed here. A companion GPI report on Social Capital in NS and PEI agriculture will be released in September.

Copyright © 2008, Farm Focus