Debt relief for Canadian farmers?

Dr Laurie Baker, assistant professor at McGill University’s Department of Agricultural Economics, is the head of a two-man team presently researching alternative financing strategies for Canadian agriculture. The research, which was motivated by the need to alleviate the financial burden on Canadian farmers, examines the case of the Community Supported Agriculture (CSA) approach to financing organic farming.

"What we have tried to do in this research," says Dr Baker, whose area of expertise is Farm Business Management and Agricultural Finance, "is to examine the possibility of adapting the CSA method of farm financing to other sectors of agriculture by analyzing the financial benefits accruing to both the CSA farmer and the member/investor."

CSA has been known in North America since the mid -1980s as a means of attracting non-farm equity capital into agriculture. In Canada, the concept has been most active in organic agriculture. In it, individual consumers (called member/investors) enter into a contract arrangement with a farmer in which they provide financing for the farmer’s operating capital. They do so by buying shares of the harvest. The farmer has an obligation to repay the loan by supplying an agreed upon quantity of the produce to the member/investor at regular intervals during the harvest period.

Asked about the need for alternative forms of financing in Agriculture, Dr Baker explained that farming in Canada has traditionally relied on debt financing from commercial banks and government loans. This meant that each generation of farmers in the typical farm family has had to sell its assets to the next generation in order to pay off debts and have a retirement income. Due to relatively high interest rates on these debts, farmers are under financial stress. "It is in light of a growing need to reduce this financial burden on farmers that we think our findings are important," says Dr Baker.

The McGill research reveals that, for the particular case study considered, the CSA method of financing was superior to the traditional debt financing method presently in use by most Canadian farmers. The farmer made savings on interest charges, having cash up-front and a guaranteed market for his produce, and the investor benefited, given the market price, by buying his supply of organic vegetables from the CSA farmer, rather than on the open market.

Dr Baker and his research team in the Faculty of Agricultural and Environmental Science at Macdonald Campus believe that adapting the CSA approach more broadly would have major benefits for Canadian agriculture and the farming community.