No new equipment or land for a few years, say farmers hit by interest rate hike

Farmers are used to keeping an eye on the weather and their fields, but nowthey're also watching the Bank of Canada after it raised its benchmark interest rate by a full percentage point in an attempt to fight runaway inflation.

"It's made for a challenging year, especially with paying off credit lines and making sure that bills are paid on time," said Rauri Qually, who farms with his wife, Pam Bailey, on land west of Winnipeg.

"We've been managing, but there are a lot of farmers across Manitoba and many different aspects of agriculture, from grains and oilseeds to livestock to specialty crops to fruit that are struggling."

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Most farmers carry a lot of debt, buying seed, fertilizer and equipment upfrontevery year, then hoping for a bumper crop and high returns many months later. The rising interest rates call into question the sustainability of some farms, which could directly affect consumers as well astheonein nineCanadian jobsinvolved in the country's agriculture and agri-food sector.

For Qually and Bailey, drought hurt their harvest last fall. This spring, inflation drove up seed and fertilizer costs. Spring flooding meant a late start to their planting season.

They're about a month behind where they should be.

Increased risk of borrowing

All of that, combined with this increased cost of borrowing, means they'll hold off on major purchases such asa new combine, which can cost $500,000.The bank's interest rate impacts what Canadians get from their lenders on productslike mortgages and lines of credit.

"That ship has sailed," Bailey said, laughing.

"New tractors aren't exactly in our scope at this point in time," Qually added. " Maybe in a few years."

At an agriculture conference in Winnipeg, farmer Toban Dyckwasalso keeping an eye on interest rates.

He saw his parents struggle with interest rates in the double digits in the 1980s, so he's always been careful not to take on too much debt when the money has been "cheap."

Still, "in order to increase our farm size, we've had to invest in more land, which means loans," he said. "It'll affect us. Lots of people will be way more saddled with debt."

And while farmers are resilient, "there arelots of deep sighs and just kind of one foot in front of the other," he said.

One of the big concerns is that this may just be the beginning of increasingly high interest rates.

A central bank cuts the lending rate when it wants to stimulate the economy by encouraging people to borrow and invest. It raises rates when it wants to cool down an overheated economy.

"The big question is where interest rates are going in the future," said Richard Gray, an agricultural economist at the University of Saskatchewan. He also farms with his son near Saskatoon.

"Fundamentally, you have to see interest rates higher than the expected rate of inflation. Right now, inflation expectations are six or seven per cent and interest rates are not nearly that high yet so there may be more interest rate hikes to come."

Livestock producers most vulnerable, expert says

Gray sees livestock producers as the most vulnerable in the sector. The cost of buying and feeding cattle are up, but the final price at market is not keeping pace.

"So they're in a little bit of an income squeeze, and you add higher interest rates to that group, you can bet there's some farmers that are hurting," he said.

High commodity prices are helping some farmers right now, but that could change as the economy slows, said Sylvain Charlebois, who teaches food distribution policy at Dalhousie University in Halifax.

"This year's seeding season was the most expensive in history because of costs, but the return is likely going to be there as well. Commodity prices are are much higher than average, so farmers should do well this year," he said.

"The concern with higher rates is probably next year ...because commodity prices will likely drop as a result of a slower global economy. That's why central banks want a slower economy. Demand for commodities will drop and prices will drop as well. But if costs don't drop, then farmers will be in trouble.

"For next year, there is a lot of uncertainty," Charlebois said.

WATCH | Farmers say rising interest rateswill slow agricultural investment:

Interest rate hike adds to challenges facing Canadian farmers, could increase food prices

2 years ago

Duration 2:02

Higher borrowing costs, which are rising with another Bank of Canada rate hike, are adding to the pain for Canadian farmers already coping with poor weather and high inflation. For consumers, the costs could contribute to higher food prices later this year.

Back in the field, the most immediate concern for Qually and Baileyis getting this crop to harvest.

Kneeling in the soil as they check out their canola plants, they know they're at the mercy of the markets and nature.

"You have to plan for the worst in agriculture," Qually said.

"You know, try to live within your means, farm within your means," Bailey added. "As farmers you gotta have hope.Just keep going."