Question Period Note: FARM INCOME SITUATION FOR 2023 AND 2024

Q1 – Many farmers have seen large increases in expenses in recent years. How has this impacted their bottom line? Q2 – Which expenses have seen the largest increases in recent years? Q3 – How are the recent weather and climate challenges impacting farmers’ economic stability in 2024? Q4 – What is the Government doing to support farmers during this challenging period?

R.1 - Generally, overall income has remained strong, as increasing crop prices in 2021 and 2022, higher crop marketings in 2023, and strong cattle prices helped offset the elevated input costs. Crop prices in 2024 have generally been lower compared with 2021 to 2023. This, combined with elevated expenses is expected to result in lower incomes. However, higher incomes from 2020 to 2023 put most farms in solid financial positions such that weathering a period of lower prices and incomes is possible.

Some producers in some regions may see either improvements or challenges with their financial situation that are not reflected across the country. Income increases are expected for cattle; potatoes; fruits and vegetables; and nursery operations, while other farm types are expected to see a decline. R.2 - Fuel, fertilizer, and feed expenses saw sharp increases in 2021 and 2022, as the economy recovered from the pandemic with rising global inflation. Subsequently, Russia’s war against Ukraine significantly disrupted global commodity markets. These expenses moderated in 2023.

Interest expenses also increased in 2022 as the Bank of Canada raised rates to fight inflation. Interest expenses increased further in 2023.

Expense growth is expected to be small in 2024 as increases in some categories (such as interest, livestock purchases and labour) are expected to be mostly offset by declines in others (feed, fertilizer and fuel). R.3 - Despite concerns with drought at the beginning of the growing season, the most recent data indicates that the production of principal field crops is expected to be up 3 percent from 2023, as crops in Western Canada benefited from July and August rains after very dry conditions at the beginning of the growing season. While the overall size of the crop improved in 2024, we understand that producers in some regions may have still struggled with challenging growing conditions and weather instability. R.4 - Federal and provincial governments continue to provide support through the business risk management programs to help producers manage risks (for example, drought, flooding, market declines and increased input costs). Producers are also supported by programs such as the Advance Payments Program, Agriculture Climate Solutions - On-farm Climate Action Fund, Resilient Agricultural Landscape Program, Egg On-Farm Investment Program, Agriculture Clean Technology Program, as well as other Grant and Contribution programs.

Net cash income (NCI) is the primary measure used by AAFC to assess the short-term outlook for farm income for the sector and is the difference between all cash receipts and operating expenses. It represents the amount of cash generated by the farm sector that is available for debt repayment, investment or withdrawal by operators. As of November 26th, 2024, Statistics Canada reported that NCI in 2023 reached a record high of $24.0 billion (B), up 9 percent from 2022. There was a modest increase in expenses of three percent to $75.4 B. Despite lower global crop prices, farm cash receipts increased five percent to $99.4 B, more than offsetting the increase in expenses.

Data from Statistics Canada for the first nine months of 2024 indicate farm cash receipts decreased 3 percent to $70.6 B, compared to the same period in 2023. The driver was a decrease in crop receipts of 9 percent, as global crop prices have continued to decline. Livestock receipts increased 6 percent on the back of higher North American prices, in particular for cattle, and program payments declined 1 percent.

Statistics Canada has not released any estimates of expenses for 2024, but AAFC expects overall expenses to see only small growth compared to 2023, although with increases in some inputs and declines in others. After seeing large increases in 2021 and 2022, commercial feed expenses remained stable in 2023 while fuel and fertilizer expenses declined, and further declines are expected for 2024. Interest expenses, which began rising in 2022, continued to rise in 2023 in response to higher interest rates, and are expected to increase again in 2024.

Overall, farm incomes are expected to decline in 2024, but from record levels. In the near-term, financial stress is expected to remain limited due to the farm income strength of the past few years, as well as strong balance sheets and continued growth in equity. The agriculture sector also had a good harvest, despite drought conditions early in 2024. Based on data from Statistics Canada released on December 5, production of principal field crops is estimated to be 94.6 million tonnes (MT) in 2024, up three percent from 2023 and three percent above the previous 2019-2023 average of 91.6 MT. The department is continuing to monitor the situation and work with partners and will have a better sense of the farm income situation in early 2025 when it completes its winter farm income forecast.

Media coverage around earlier forecast results released in late February 2024, based on December 2023 conditions, have generally focused on the 2024 farm income situation in Quebec and reference a different measure: total net income (TNI). TNI is a broader measure than NCI which includes non-cash components, such as depreciation and the value of inventory change, and this measure showed a much sharper decline in Quebec (-87 percent) compared to NCI (-15 percent). TNI is normally a smaller figure than NCI, mainly due to the inclusion of depreciation, and percent changes thus tend to be larger.

A financially healthy agriculture sector is critical to Canada’s economic well-being.

Despite lower global crop prices and continued pressure from elevated production expenses in 2023, net cash income reached a record high of $24.0 billion, 9 percent higher than 2022, as North American cattle prices and crop marketings increased.

The most recent period of higher global crop prices, driven by short-run factors, occurred from 2021 to 2023. As global crop prices return to normal, the latest data indicates that farm cash receipts for the first nine months of 2024 are down 3 percent.  

While overall expenses saw significant increases in both 2021 and 2022, expense growth was much more modest in 2023.