Mr. Chair, this is my first opportunity to testify before this committee since joining the department. I'm very pleased to be here. I'm very pleased to be accompanied by Kara Beckles, the acting director general of our research and analysis directorate, which serves as the economic advisory group of the department.
Canadian farms—like businesses in all sectors—use loans as a tool to undertake investments that allow them to innovate and grow their operations. Canadian farms today are, overall, on solid financial footing. At the same time, many current baby boomer farmers are expected to retire over the next 10 to 15 years, and many will transfer their operations to the next generation. The government has programs in place to assist in that process and help young and beginning farmers to establish themselves.
Over the past years, many areas of the Canadian agricultural sector have experienced record incomes. The financial outlook continues to be positive. While we forecast that net income will decline somewhat in 2016 and 2017—by 2% in 2016 to $14.8 billion, and by a further 7% to $13.8 billion in 2017—we expect those to be still the second and fourth best years on record.
Over the medium and long term, we see Canadian agriculture benefiting from the increased global demand for more and better food, which is expected as a result of a growing global population and rising household incomes in developing economies. Over the past years, new technologies have increased productivity of Canadian farms.
With good income, increasing profits, and low interest rates, farm businesses have been investing in their operations, including purchasing farmland to expand their operations. This positive outlook has increased farmland values and debt.
However, since farm assets have increased to a much greater level than debt, farms' net worth has increased. In February, Statistics Canada released the Farm Financial Survey numbers for 2015. They show that while average debt increased to $600,000 in 2015, average farm assets climbed to $3.4 million, meaning that average farm net worth reached $2.8 million.
Producers' ability to manage their debt depends on their income. Given increases in farm incomes and low interest rates, we see that farms are generally in a very healthy position to service their debt. Over the past years, producers' incomes have grown much more than their interest expenses, meaning that they are in a much better position to meet their financial obligations.
Nonetheless, even in generally good times, farms are subject to several risks, such as weather and disease, as well as changes in commodity prices, exchange rates and interest rates. While interest rate risk is usually top of mind when talking about debt levels, in agriculture, it is actually crop prices and the Canadian exchange rate that have a much greater impact on farm financial health.
In recognition of the production and market risk beyond farmers' control, the federal, provincial, and territorial governments have put in place a suite of business risk management, or BRM, programs to assist farmers in dealing with these risks. Since 2013, these BRM programs have provided more than $5.6 billion in support.
AAFC's advance payments program, or APP, helps farmers manage their cash flow over the production year by providing access to low-interest cash advances. The loans give farmers flexibility to time the sale of their products based on the right market conditions, rather than the need for cash flow.
I'd like to talk briefly about young and beginning farmers. They, of course, are the future of the industry. Young farmers are more likely to be innovators, and more likely to invest in their operations. However, young and beginning farmers require access to significant financial resources to get started. To help young and beginning farmers, the federal government has in place a number of programs to facilitate access to capital, such as the Canadian Agricultural Loans Act, or CALA, which provides loan guarantees for investments. Also, as you'll hear more details shortly, Farm Credit Canada offers a number of special programs and services.
In addition, under Growing Forward 2, the government provides funding to the Canadian Young Farmers' Forum, Farm Management Canada, and provincially delivered cost-shared programming for resources to help farmers develop business plans and strengthen their management skills.
Canadian agriculture is changing and evolving at great speed. We see Canadian farmers adopting new technologies and taking advantage of new market opportunities here at home and around the world. Federal and provincial governments are supporting these efforts with programs that encourage the adoption of new technologies and practices, and strengthen required management skills. The result is greater capacity among farmers—those who are well-established and those entering the industry—to benefit from opportunities and to manage challenges and risks.
To summarize: the increasing debt levels that we see in agriculture are indicative of farmers using debt as a tool to increase their competitiveness and to grow. Producers' assets and net worth have increased much more than their debt levels. Canadian farms are generally in a good financial position, and the outlook for the sector remains positive.
Agriculture and Agri-Food Canada, together with its portfolio partners and its provincial and territorial counterparts, has policies and programs in place to help current farm operators manage production and price risks, support young and beginning farmers in establishing and growing their operations, and assist farm families with the transfer of farm operations to the next generation.
I am looking forward to your questions following Mr. Hoffort's remarks.