Off-farm income remains important to financial farm health

Net farm income continues to trend higher in Canada, reaching a record $6.8 billion in 2015, a result of strong commodity prices in agriculture. Historically, farm income has represented less than half of total revenue on Canadian farms. But recent trends are seeing farm operating income representing a greater proportion of total farm income.

Farm and off-farm income trending higher

Recently released information from Statistics Canada reveals trends in average farm and off-farm income from 1998 through 2014.

Average farm income in Canada reached $95,331 in 2014 and has increased by nearly 45 per cent over the past 10 years. While it’s difficult to relate these numbers to the total economy, one comparison is median income of dual income families. The median income of dual income families is $91,530 and represents a 27 per cent increase since 2005.

The breakdown of farm income is interesting: Farm operating income reached a record of $48,457 in 2014 and is 56 per cent higher than 2005. Off-farm revenue has increased at a slower pace, increasing by 31 per cent since 2005 to $46,874.

Prairie provinces experiencing strongest average farm income growth

The Prairie provinces have recorded the greatest increase in average farm income over the past 10 years, led by strong increases in average operating income. For example, average farm income in Saskatchewan has increased 59 per cent since 2005, fueled by a 75 per cent increase in average operating income.

Off-farm income remains vital to total farm income

Average operating income has increased faster than off-farm income over the past 10 years in all provinces except Nova Scotia and New Brunswick. Across Canada, average off-farm income accounts for 49 per cent of average total farm income.

Despite strong growth in operating income, off-farm income represents more than 50 per cent of average total farm income in four provinces, British Columbia, Alberta, Nova Scotia, and Ontario. In 2014, off-farm income accounted for 60 per cent of total income in B.C.; however, this represents the lowest level of off-farm income for B.C. Off-farm income accounted for 57 per cent of farm income in Alberta, 55 per cent of farm income in Nova Scotia, and 54 per cent farm income in Ontario. 

The Canadian economy and off-farm income – is there a connection?

The strength of the off-farm economy is related to the overall economy – but that’s far from a perfect match. Statistics Canada report data up to 2014. The current downturn in the energy sector began in the middle of 2014. The unemployment rate in Canada went from 6.8 per cent in July of 2014 to 7.1 per cent in December of 2015. The labour market has stabilized since then.

While the Canadian economy is still adjusting to the slowdown in economic growth, the outlook for off-farm income appears relatively positive. For example, average weekly earnings in Canada increased two per cent in 2015 over 2014 and have remained steady in 2016. One exception is Alberta where average weekly earnings have trended lower in 2016 as compared to 2015.

Off-farm income can offset variations in agricultural net income

Off-farm income remains an important risk management strategy for some agricultural operations. The entire agri-food supply chain shows a very resilient pattern of economic activity, both in direct farming operations and connected sectors.  The economic outlook for the entire farming community is expected to continue looking better than the economic outlook for the overall Canadian population.