Net farm income

Net cash income (the difference between a farmer's cash receipts and operating expenses) plunged to its lowest level in 25 years in 2003 following back-to-back droughts in 2001 and 2002 and the bovine spongiform encephalopathy (BSE) crisis.

Net cash income tumbled 39.1% to $4.4 billion, the lowest level since 1978. Data are revised from preliminary figures released in The Daily on May 27, 2004.

Back-to-back droughts in 2001 and 2002 and the diagnosis of a single cow with BSE in northern Alberta last year were among the main factors for the steep drop in net cash income.

Prairie farmers were hardest hit. Net cash income plunged 65.2% in Alberta, 61.5% in Saskatchewan and 45.0% in Manitoba. Farmers in only three provinces recorded gains: Nova Scotia, Quebec and British Columbia.

Despite record high program payments, lower receipts for crops and livestock dragged down total farm cash receipts, while farm operating expenses rose 3.1%.

Net cash income can vary widely from one farm to another because of factors such as commodities produced, prices and weather. It does not take into account depreciation or the value of on-farm inventory changes. For details on farm cash receipts in the first three quarters of 2004, see today's Farm cash receipts release.

Cash receipts lowest in three years

In total, farmers received $34.2 billion from all revenue sources last year, down 5.4% from 2002. It was the lowest level since 2000, yet was still above the average for the previous five years (1998 to 2002).

Revenue from livestock dropped 11.0% to $16.2 billion, its lowest level since 1999. Receipts for crop producers fell 9.5% to $13.2 billion, lowest since 2000. In contrast, program payments rose 41.2% to a record $4.8 billion, shattering the previous record of $3.8 billion set in 1992.

Cattle receipts fell by around one-third last year to $4.5 billion, as marketings and prices both dropped in the wake of the May 20 export ban on cattle and beef products after the BSE diagnosis. Revenues from international exports of live cattle plunged by more than two-thirds to $569 million. Almost all exports go to the United States, and this market has closed.

On the other hand, hog farmers reported cash receipts of $3.4 billion, up 3.4%. The number of hogs sold abroad last year rose by almost 30%, helping to push marketings to record levels, while the average price for the year was similar to the average price for 2002.

On the supply-managed side, which accounted for over 40% of livestock revenue in 2003, receipts for milk and cream continued to climb. Revenues from chicken rebounded, while receipts for eggs dipped.

Crop receipts fell 3.4% below the previous five-year average in 2003, despite improved growing conditions in western Canada. Two consecutive droughts slashed production and sharply curtailed grain and oilseed inventories by the end of 2002. Consequently, producers had little to sell until they harvested the 2003 crop.

The 2003 production of most crops surpassed levels in 2002. During the second half of 2003 in particular, higher deliveries were offset by lower prices for most of the major grains and oilseeds, as well as lower Canadian Wheat Board (CWB) payments.

Hardest hit were producers of wheat (excluding durum) and barley. Revenues from wheat (excluding durum) fell 29.8% to $1.8 billion in the wake of lower deliveries and CWB payments.

Most of the 41.2% jump in program payments last year occurred in the form of payments delivered through three separate types of programs. These were: the 2003 Transition Funding program; assistance programs provided to help offset the impact of the BSE-related ban; and crop insurance programs.

Canadian farmers received almost $1.0 billion through both the 2003 Transition Funding and the BSE-related programs. (The Transition Funding program was implemented to support the agricultural industry during the period of transition to the new Agricultural Policy Framework.)

Crop insurance payments surged to a record $1.8 billion, a $313-million increase over the record in 2002 and more than double the previous five-year average. This jump was due to both poor growing conditions in 2002 and an increase in acreage insured.

Crop expenses lead the overall growth in operating expenses

Inputs, such as fertilizer and lime, stabilization premiums, pesticides, crop and hail insurance and machinery fuel contributed to the 3.1% gain in operating expenses.

Provincially, the largest increases occurred in Quebec (+7.3%), Saskatchewan (+5.0%), Manitoba (+3.5%) and British Columbia (+3.4%).

The biggest gain was in fertilizer expenses, which rose 11.8% to $2.5 billion, mostly because of higher natural gas prices. Farmers spent $1.6 billion on pesticides as infestations such as grasshoppers on the Prairies led to higher usage.

Stabilization premiums hit $182 million, their highest level in seven years, while insurance premiums reached a record $545 million, largely because of adverse conditions in recent years.

In contrast, livestock purchases plunged 18.2% to $1.2 billion due to the closure of beef export markets caused by BSE. Commercial feed costs fell to $4.9 billion, after three consecutive annual increases. Feed prices declined as a result of relatively large feed supplies and a stronger Canadian dollar.

Inventories bump up total net income

Total net income almost doubled to $2.6 billion in 2003 after hitting an extremely low level in 2002. The 2003 level was 22.1% above the previous five-year average. Total net income adjusts net cash income for changes in farmer-owned inventories of crops and livestock, depreciation and income-in-kind.

Back-to-back droughts in western Canada sharply curtailed farm grain and oilseed inventories by the end of 2002. Consequently, the return to a more normal harvest in 2003 helped increase inventories. In the same way, the BSE crisis forced the producers to keep their livestock on the farm, causing an increase in inventories.

Since they were the hardest hit by the combination of drought and the BSE crisis, Prairie farmers saw the largest increases of their value of inventory. Alberta led with the total value of inventory change reaching $1.0 billion, followed by Saskatchewan at $971 million, and Manitoba at $409 million.

Available on CANSIM: tables 002-0001, 002-0003, 002-0005, 002-0007 to 002-0009, 002-0012 and 003-0025.

Definitions, data sources and methods: survey numbers, including related surveys, 3436, 3437, 3439, 3471, 3472, 3473 and 3474.

For more information, or to enquire about the concepts, methods or data quality of this release, contact Marco Morin (613-951-2074; marco.morin@statcan.gc.ca) or Gail-Ann Breese (204-983-3445; gail-ann.breese@statcan.gc.ca), Agriculture Division.