Analysis

Sharp increases in input prices provoke the largest hike in farm expenses since 1981

Farm expenses rose 9.4% in 2008 to $42.5 billion, the largest increase since 1981. Underlying the rise were strong price increases in several important inputs including fertilizer, feed and machinery fuel. Almost two-thirds of the rise in farm expenses are attributable to increases in those three inputs.

The strong global demand for most commodities in the first part of 2008 resulted in a boom in prices. Machinery fuel prices were part of this boom with diesel fuel prices rising 45.5% over the first three-quarters of 2008 compared with the same period in 2007, according to the Industrial Product Price Index (IPPI). While prices dropped during the fourth quarter as global demand fell with the onset of the financial crisis and the economic downturn, most farm usage occurred prior to this time.

Fertilizer prices, supported by strong crop prices, were also up sharply for much of the year before dipping slightly at the end of the year. On average, prices were up 61.2% in 2008 according to the IPPI.

Most feed grain prices followed a similar pattern with prices peaking in the summer and falling in the final quarter. Double-digit annual increases in prices were the rule rather than the exception for feed grains in 2008.

Depreciation charges were up 4.6% in 2008; they accounted for 6.7% of the rise in farm expenses.

Farm expenses increased in all provinces with the largest rise in Saskatchewan (+13.7%).