The chief agricultural economist for Farm Credit Canada (FCC) says that a stronger Canadian dollar and higher interest rates may make the business of agriculture more challenging, but not necessarily put producers in a weaker financial position.
“The fundamentals of Canadian agriculture are sound and most farm operations are in a good financial position to weather most significant changes in our economy,” said J.P. Gervais, in releasing FCC’s 2017-18 Outlook for Farm Assets and Debt Report. “Economic conditions are always changing, so it’s really the pace of change that can pose the greatest challenge – not so much the change itself.”
Since July, the Bank of Canada increased its interest rate twice by a quarter of a per cent, and at the same time, the Canadian dollar has gained strength and is hovering around the 80-cent mark.
The FCC report examines farm liquidity, which reflects the ability of producers to make short-term payments, and solvency, the proportion of total assets financed by debt. Both indicators suggest a vast majority of farms are in a strong position to absorb the impact of higher interest rates and a stronger dollar.
The debt-to-asset ratio in Canadian agriculture also remains historically low at 15.4 per cent.
A low debt-to-asset ratio provides financial flexibility and represents lower risk.