Net Farm Income

Detailed information for 2019

Status:

Active

Frequency:

Annual

Record number:

3473

The net farm income accounts are designed to provide an annual measure of income returned to the operators of agricultural businesses from the production of agricultural commodities. The numbers are used to assess the state of the agricultural industry and to form the basis of various policy options.

Data release - May 26, 2020; November 25, 2020 (revised data)

Description

The net farm income accounts are designed to provide an annual measure of income returned to the operators of agricultural businesses from the production of agricultural commodities. An important component of these accounts is the Farm Cash Receipts series (record number 3437) which represents the cash income received from the sale of agricultural commodities as well as direct program payments made to support or subsidize the agriculture sector.

These accounts only relate to the farm business and hence exclude any income that farm operators or their families may receive from other sources (wages and salaries, investment income, etc.). They pertain only to the production and marketing of agricultural commodities. Revenue or expenses related to the sale or purchase of farm capital (real estate, machinery and equipment) are not included. The accounts include the sale of any production from farm woodlots, but exclude any income earned from activities such as fish farming or the non-agricultural use of the farm.

Three measures of net farm income at the provincial and national levels have been estimated for the years 1971 to date: net cash income, realized net income and total net income. For 1926 to 1970, estimates of realized gross income, realized net income, total gross income, and total net income were published.

Net cash income of farm businesses is derived by subtracting operating expenses from farm cash receipts. It represents the amount of cash generated by the farm business that is available for debt repayment, investment or withdrawal by the operators.

Realized net income of farm businesses is derived by subtracting depreciation and adding income-in-kind to net cash income. It represents the financial flows, both cash and non-cash, attributable to the farm businesses, similar to an income statement. It represents the net income from transactions in a given year in that it includes the sale of commodities regardless of the year they were produced.

Total net income measures the financial flows and stock changes of farm businesses (net cash income minus depreciation plus income-in-kind and value of inventory change). It represents the return to owner's equity, unpaid labour, management and risk. Total net income values agriculture economic production during the year that the agricultural goods were produced.

Net farm income is of interest to farmers, and their organizations, governments, financial institutions, the agri-food industry and the public. The numbers are used to assess the state of the agricultural industry and to form the basis of various policy options. The primary reason for compiling net farm income is to estimate, on a provincial basis, the agriculture sector's contribution to gross domestic product. Estimates of farm income are published in the Canadian System of National Accounts as farm income contributes to the economic production and wealth of Canada.

Reference period: Calendar year

Collection period: During six weeks prior to release

Subjects

  • Agriculture
  • Farm financial statistics

Data sources and methodology

Target population

All Canadian agriculture operations as defined by the Census of Agriculture.

Instrument design

This methodology does not apply.

Sampling

This methodology type does not apply to this statistical program.

Data sources

Data are extracted from administrative files and derived from other Statistics Canada surveys and/or other sources.

Farm cash receipts are, for the most part, based on monthly marketings and prices of the various commodities. Calculations of commodity cash receipts involve the use of many data sources which can vary by province and by commodity. Monthly marketings are mostly obtained from administrative records of marketing boards, government agencies and private companies. Most of the prices for the monthly marketings are collected from administrative sources such as marketing boards, regulatory agencies and market information. Some prices are also provided by a monthly farm prices survey conducted by Statistics Canada.

Direct program payments are based on data obtained from several sources. The agencies responsible for the disbursement of payments under the various programs provide the data on a monthly, quarterly and, in some cases, an annual basis. Only payments directly provided to producers are included in the series.

Preliminary farm operating expense estimates are released in May, for the previous calendar year. The estimates for most expense items are based on price and quantity change indicators collected from a wide variety of survey and administrative sources. Revisions to these data are made the following November by incorporating preliminary estimates from the Agriculture Taxation Data Program. When final, they are incorporated into the farm operating expense series released the following May (i.e., almost 18 months after the end of the reference year). Revisions are also incorporated into this series after the results of the quinquennial Census of Agriculture have been reviewed in conjunction with other data sources.

The other expense items (interest, irrigation, livestock and poultry purchases, crop and hail insurance, and stabilization premiums) are estimated from administrative data prepared by banks, credit unions, industry associations, Farm Credit Canada, federal and provincial governments, and from Agriculture and Agri-Food Canada.

The income in kind series measures the value of agricultural commodities produced on farms and consumed by the farm operators and their families. The home-consumed products are valued at prevailing market prices such that income in kind represents the receipts producers would have received had the product been sold rather than consumed.

Quantities consumed are generally based on the number of farm operations producing the item at the time of the Census of Agriculture, their average farm family size and the average annual Canadian consumption of the commodity. These quantities are valued at weighted average market prices received for the product during the year from the farm cash receipts series.

The value of inventory change series is an estimate of the value of the change in producer-held inventories of agricultural products during a calendar year. The physical change in inventories is valued at weighted average annual market prices in the case of crops and at simple average annual prices for livestock commodities. This simple average is based on the value per animal at January 1, July 1 and December 31 of each year.

In the case of crops, supply and disposition balance sheets are used to establish the beginning and ending inventories on a calendar year basis. Inventories at the end of each crop year and production levels for each crop are based on producer surveys. Monthly disposition items, including marketings, home consumption, feed, waste and dockage, and seed use, are obtained from various administrative sources.

Physical inventory levels at calendar year-end are established for each crop by adding estimates of crop year beginning inventories to estimates of production and then deducting estimates of monthly disposition.

Physical inventory levels for livestock items are established from the quinquennial Census of Agriculture. Between censuses, semi-annual producer surveys are used to derive inventory levels.

Error detection

The components of Net Farm Income are verified for large year-to-year changes, analyzed for time series consistency, links to current economic events, issues arising from the source data, and for coherence with other sources.

In addition, the source data are subject to their own quality-control procedures during collection and processing stages. For instance, automated edits identify processing errors at the data-capture stage and subsequent editing identifies, among other things, errors, inconsistencies and extreme values in the captured data. Top contributors at the provincial level are often further analysed.

The administrative data used in the series are assessed based on historical and current trends, subject matter expertise, and information obtained through discussion with industry authorities. Much of the administrative data are already audited by the source organization. Any anomalies or inconsistencies detected are verified with the source, and, where necessary, adjustments are made to reconcile data with the conceptual framework of the Farm Income series.

Imputation

No imputation is done for this survey.

Estimation

Net farm income measures are derived residually.

Net cash income is derived by subtracting operating expenses from farm cash receipts.

Farm cash receipts include revenues from the sale of agricultural commodities, program payments from government agencies, and payments from private crop and livestock insurance programs. Receipts are recorded in the calendar year when the money is paid to farmers. Market receipts are farm cash receipts minus program payments. They include sales of field crops, fruits, vegetables, floriculture, nursery products, sod, cannabis, maple and forest products, livestock, milk, poultry, eggs, fur and honey. The information is collected from a wide variety of surveys and administrative sources that report the quantity and average farm price for each commodity marketed in a province. Program payments are tied to agricultural production and paid directly from government to farmers. Examples of these payments include the AgriInvest program, non-private crop insurance payments, and provincial stabilization programs. AgriInvest payments include only the withdrawals from the government portion of the AgriInvest accounts because the producer account includes only money previously counted as farmer income.

Farm operating expenses represent business costs incurred by farm businesses for goods and services used in the production of agricultural commodities. Expenses, which are recorded when the money is disbursed by the farmer, include property taxes, custom work, rent, fertilizer and lime, pesticides, machinery and building repairs, fuel for heating and machines, wages, interest and business share of insurance premiums. Initial expense estimates (released in May following the reference year) are based mainly on analysts' estimates of price and quantity changes based on various sources of price and production data. The first revisions in November are based on preliminary tax data. The following May, final tax data are used. In addition to the tax data, other administrative data are available for some specific expense items (e.g. interest, crop and hail insurance, and business insurance).

Realized net income is derived by subtracting depreciation and adding income-in-kind to net cash income.

Depreciation charges account for the economic depreciation or for the loss in fair market value of the capital assets of the farm business. There are no monetary disbursements associated with depreciation. Calculated on farm buildings, farm machinery, and the farm business share of autos, trucks and the farm home, depreciation is generally considered to be the result of aging, wear and tear, and obsolescence. It represents a decrease in the potential economic benefits that can be generated by the capital asset.

Income-in-kind measures the value of the agricultural goods produced on farms and consumed by farm operator families. It is included to measure total farm production. There is no monetary disbursement related to income-in-kind. It is calculated using Statistics Canada estimates of per capita food consumption, coupled with Census measurements of the farm population and the average prices that producers would have received in the marketplace.

Total net income is derived by subtracting depreciation and adding income-in-kind and value of inventory change to the net cash income.

Value of inventory change (VIC) measures the dollar value of the physical change in producer-owned inventories. This concept is used to value total agricultural economic production. To calculate VIC, the change in producer-owned inventories (between the end and the beginning of a calendar year) is first derived and then multiplied by the average annual crop prices or value per animal. This calculation is different from the financial or accounting book value approach, which values the beginning and ending stocks, and then derives the change.

The VIC over all the major commodities can vary widely (depending on the size of the change of inventories and prices). The VIC can be either positive (when inventories are larger at the end of the year compared to the beginning levels) or negative (when year- end inventories are smaller than the levels at the beginning of the year). If the inventory levels are the same at the beginning and end of the year, VIC will be zero despite price changes.

Quality evaluation

The quality of net farm income estimates and its components (farm cash receipts, farm operating expenses, income-in-kind, depreciation and value of inventory change) is evaluated by checking the consistency of these data with other sources or previous occasions. An interpretative analysis is also conducted. The data which goes into the calculation of net farm income comes from administrative programs and various surveys. Much of the administrative data is audited by the source organizations while the surveys are subject to their own quality assurance methods. Please see the Farm Cash Receipts (record number 3437) and Farm Operating Expenses and Depreciation Charges (record number 5214) for further information on these data sources.

Disclosure control

Statistics Canada is prohibited by law from releasing any information it collects which could identify any person, business, or organization, unless consent has been given by the respondent or as permitted by the Statistics Act. Various confidentiality rules are applied to all data that are released or published to prevent the publication or disclosure of any information deemed confidential. If necessary, data are suppressed to prevent direct or residual disclosure of identifiable data.

Revisions and seasonal adjustment

Data are published twice each year, at the end of May and at the end of November. Preliminary estimates of a calendar year are available in May of the following year (i.e., five months after the end of the reference year) and data for the calendar year prior to the reference year is subject to revision. In November, data for the previous two years may be revised. Every five years a historical revision is done based on the results of the Census of Agriculture and other sources.

Data accuracy

A data accuracy measure is a numeric value, or symbol corresponding to numeric values, which quantifies or summarizes the likely magnitude and important sources of differences between the published data and the quantities that the survey was designed to estimate.

No direct measures of the margin of error for the Net Farm Income estimates can be calculated. The quality of the estimates can be inferred from analysis of revisions and from a subjective assessment of the data sources and methodology used in the preparation of the estimates.

The Net Farm Income accounts are derived from a compilation of data from various surveys and administrative sources. In general, weaknesses in the source data are from either under coverage or from inappropriate concepts and definitions. The data used in the derivation of farm income estimates are quite varied in coverage, details, definitions and concepts and often these factors may not coincide with those required. They must be thoroughly examined and adjusted for consistency and coverage, using carefully designed estimating procedures.

As a result of the residual method used to derive net income, a minor change in either farm cash receipts or farm operating expenses can have a significant impact on the net income level and yearly change.

Administrative data are generally compiled for an organization's own needs, and not for statistical purposes, however much of the data are already audited by the source organizations. The administrative agencies used are considered to be the best sources available, and data received from them is judged to be of very good quality, even in those circumstances where adjustments have been made to cohere with the conceptual Framework of the Net Farm Income Accounts.

The processing procedures for the surveys used in estimating farm income help minimize the occurrence of non-sampling errors such as errors introduced during editing, and response errors. But they are based on a sample rather than the total population, and therefore subject to sampling errors.

The results of the latest intercensal revision, based on the 2016 Census of Agriculture and other sources, decreased net cash income in 2015 by -4.8% at the Canada level compared to the November 2017 release, decreased realized net income in 2015 by -11.2% at the Canada level and decreased total net farm income by -13.5% at the Canada level.

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