A bright future for farmers: Setting the stage to support the next generation

Margins have always been tight in agriculture, but they’re getting even tighter. The squeeze is coming from all directions: increased input costs, unpredictable markets, generationally high inflation, and the highest borrowing costs in more than a decade.

According to Statistics Canada, input costs increased by 4.5 percent in the first quarter of 2022 compared to 2021. April 2022 alone saw a nearly 20 percent increase compared to April 2021. October increases from 2021 to 2022 were 10.1 percent.

Thankfully those costs have a chance of going back down. Those related to necessary investments like technology, building infrastructure, and machinery are far less sensitive to market forces than feed, fuel, and fertilizer. When they go up, they tend to stay up. Even if higher beef, grain, or other output prices allow operators to break even on inputs, the net impact on the cost of production is significant, making farming far less profitable.

Farmers are also feeling disproportionate impacts of carbon taxes. Agriculture is energy-intensive, and the current taxation scheme will continue to increase the costs related to that energy every year through 2030.

Collectively, these issues add a whole new layer of risk for Canadian producers while simultaneously eating away at the potential return on investment.

The RBC report is also front of mind for municipal organizations. Agricultural investments mean municipal revenue for things like policing, telecommunications, healthcare, and education. These services are a constant challenge to maintain in rural communities where farmers and their families work and live.

Governments offer varying levels of support for farmers, but the current programs often don’t go far enough to prop up the industry or support rural and remote communities.

Saskatchewan has signed onto the federal Canadian Agricultural Partnership, which became the Sustainable Canadian Agricultural Partnership in April 2023. The federal government has promised an additional $3.5 billion through the program through March 2028, with more than 85 percent dedicated to cost-sharing projects and federal programs/activities.

Even still, municipalities are struggling to keep up with climbing infrastructure costs, including internet and telecommunication services and upkeep of their existing inventory.

“We don’t get enough support in rural Saskatchewan,” says Ray Orb, President of the Saskatchewan Association of Rural Municipalities (SARM) and Reeve of the Rural Municipality (RM) of Cupar. “Even just the engineering costs for a road or a bridge — it’s getting to the point where rural municipalities can’t afford it. The federal government needs to realize that, and so does the province.”

There are 62,101 km of rural highway and over half a million kilometres of arterial, collector, and local roads throughout rural Canada. These roads require maintenance and service, a small example of infrastructure spending that needs to be raised and managed through municipal spending.

According to the Canadian Radio-television and Telecommunications Commission, 88.8 percent of major roads and highways have LTE coverage in Canada. Access to rural internet has been a consistent topic for discussion over the years. Only 45.6 percent of rural households have access to broadband internet compared to 98.6 percent of urban households.

It takes funding at all levels of government to address this problem on behalf of rural communities.

Step 1: Plan early for succession

Creating successful succession plans is going to be the most important step in ensuring continuity from generation to generation — and those discussions must happen as early as possible.

Agriculture business advisor, Trevor MacLean says it’s imperative the incoming generation understand the business before they take over. They need to clearly understand the pros, cons and different angles of decision-making. And they need to be comfortable with managing all the risks involved in running the business.

With so many financial barriers keeping young people out of farming, the outgoing generation should be prepared to financially support their successors as they inherit the family farm.

"If the farm can afford it and there's a good financial plan in place between the successors and the new generation, that support could make all the difference. But there are risks, the terms of any financial assistance must be well defined and well-thought through,” said McLean.

He adds that strong, clear communication and putting it all down on paper with obligations and family and business needs is critical as families move forward from one generation to the other. Those plans must also change with the ebb and flow of changing legislation and tax needs, but there’s too much at risk for families not to create some sort of plan.

“[Outgoing farmers] can’t hold the farm books in exile anymore.”

An impartial advisor, like MacLean, can help start, maintain, and finish these kinds of conversations. They can often see things clearer and take a more holistic view of things as a family would. Where family members have their own biases and perspectives, advisors are focused on what's viable and best for the business.

Step 2: Lenders need to take a fresh approach

What is asset-based lending?

Asset-based lending

Asset-based lending allows borrowers to access debt financing by securing the loan against the value of existing property.

For example, a farm operator may own a combine harvester valued at $200,000. They could, in turn, borrow $150,000 promising the combine as collateral.

The biggest risk of asset-based lending is that the farm operator runs into financial difficulties and defaults. Their property could then be seized by the lender, amplifying the financial damage.

Asset-based lending — for instance, providing $7 million of debt on $10 million of equity — isn’t financially sound for the farmer. One missed payment could easily snowball into losing the farm or vital equipment.

However, he says more needs to be done to provide people with financial literacy so they can plan for the ups and downs of farming and make more financially sound decisions. If lenders are going to help young farmers with additional funding, all parties need to sit down and create risk management plans.

Lenders need to change their approach first to challenge their assumptions on what are good, bad, or low-risk clients. They need to base lending decisions on more than just what assets clients have, such as the assurances and insurance in place to shore up their finances in the event of a potential crash.

“I see it on the other side where it was probably a low risk for a lender to get behind somebody but didn’t because they didn’t like the collateral that was available,” says Person. “The forecasted risk scenario was much different than it realistically would have been.”

Lenders need to base their decisions on good financial information, but Person sees this overcautious mindset stonewall viable farm opportunities time and time again. He says it’s frustrating as a business advisor because it devalues what he and his team can do for their clients.

Whether they’ve been in the business for two years or 20 years, farmers know to surround themselves with good people, from agronomists to equipment specialists to legal professionals. Many would benefit from adding trustworthy business advisors to that list as a critical resource to help them reach their goals.

Financial problems are the biggest source of stress and mental health concerns in the agriculture industry. Improving financial literacy across the sector and injecting strong financial planning into an operation can save farmers and their families.

Getting the family involved, talking about the financial challenges of the farm, and finding help with succession planning, are all ways farmers can manage the stress of passing down the farm to the next generation, said MacLean. Farmers do not have to carry that burden on their own anymore. Farming is changing and what does the future look like for the success of that family farm?

“Talk about it. Because it is risky. It is going to take multiple stakeholders to figure out what the new model for agriculture looks like going forward.”

Step 3: Legislators need to prioritize initiatives to ensure family farms remain viable

Orb said SARM has been lobbying the provincial government for more training programs but feels he’s fighting an uphill battle. While there have been efforts, uptake of previous funding initiatives has fallen short of expectations, making him feel less confident that this will remain a priority for legislators.

Still, it’s worth questioning the lack of engagement. One explanation is there’s been a lack of interest or need. Or perhaps the right people simply aren’t aware these opportunities are even available to them.

Training would go a long way to build farmers’ confidence and remove the barriers to entry in a costly and increasingly complex profession. Farms are bigger than ever, and so is the machinery needed to run them.

“A lot of farmers now have large, expensive machinery that they don't want people operating without experience said Orb. “It would be nice to have a certification that would say I’m capable of operating a combine, tractor, or sprayer.”

The Government of Canada has extended its Agri-Food Pilot through 2025. The program is attempting to create a pathway for newcomers and temporary foreign workers to fill labour shortages in the agrifood sectors with a specific emphasis on work experience and language skills. If the program hits the maximum threshold of 2,750 applicants each year, it could help create a pipeline of 27,500 new labourers working in specific agri-food sector jobs by 2030.

Step 4: Education is key

The urban and rural divides are not helping when it comes to barriers to entry support for farmers, said MacLean. And this issue looks different from one community to the other. Unfortunately, he says they're not working harmoniously.

When urban money is flowing into rural communities, it's causing conflict. More discussion needs to happen to bridge that urban/rural divide so everyone understands the importance of farming practices and the impact they can have on urban areas.

"There are certain practices when we talk about sustainability. You have to talk about things like manure application on farmland. Yes, it's stinky and it's dirty, there is no way around it. However, it is part of that recycling process.”

Whether it’s providing this bridge to people outside the farming sector through community news and advertising, figuring out how to get agricultural programs into secondary schools as early as possible, or educating within the industry to promote financial and tax literacy, focusing on these different forms of agricultural education could provide the answer to many issues.

“We're a massive contributor economically to the country, but we're also a massive educator of the general public as well,” said MacLean. “Agriculture needs to do a better job of finding that bridge in what we do to what the general public and government perceive we do.” 

The more people know about agriculture, the more everyone, both in and outside the industry, will see how important it is. Finding ways to support educational opportunities and tell the story of Canadian farmers should be the focus for both large and small organizations across Canada. Farmers and agriculture industry insiders are all in this together so helping one helps the other, especially when it comes to keeping agriculture strong and viable in rural Canada.