Spring
2016
grainswest.com
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“Once an institution owns it, I don’t think it’s going to come
up for sale very quickly, or potentially ever again,” Good
said. “That isn’t necessarily true of individuals buying land or
partnerships buying land, but my hunch is the CPPIB is never
going to sell Saskatchewan farmland. So I think from that
perspective, the rules needed to be changed a bit.”
According to Levi Wood, president of the Western Canadian
Wheat Growers Association (WCWGA), farmland purchases
by the CPPIB—a Canadian Crown corporation that operates
with nearly $240 billion in public pension assets—created a
perception that Saskatchewan farmers were being forced to
compete against their own government in a fight that was far
from fair. As a result, the regulations needed to change in order
to level the playing field.
“I think, in general, the government’s come up with
something that’s pretty positive,” Wood said, “in terms of the
fact that at least now it clearly sets out
the rules that are in place.
“We want to leave the market open
to Canadians, we want to leave it open
to groups of Canadian investors, but we
just want to be sure that, from either an
investment standpoint or an operations
standpoint, farmers are treated fairly
in an arrangement, especially when
the CPPIB is a pretty enormous and all-
encompassing organization.”
Surprisingly, given the amount of
attention the issue has garnered,
the amount of farmland owned by
non-farmer interests on the Prairies
only makes up a small percentage of the total land base. In
Saskatchewan, for example, investors owned only 1.44 per cent
of the province’s farmland in 2014, according to research by the
Johnson-Shoyama Graduate School of Public Policy.
“It’s not a very big portion of the market, but it’s more
visible because the holdings are in general a lot larger than
the average farm trade,” said Ben Van Dyk, a real estate agent
specializing in farmland, and farm team leader at the Alberta-
based Real Estate Centre. “There are hundreds of other sales
happening that aren’t quite as visible and they don’t get as
much exposure.”
Investors might only make up a small piece of the farmland
pie, but their presence in the market has grown substantially
over the past decade. In 2002, when Saskatchewan opened
up its farmland market to Canadian citizens and corporations
from outside the province, investors owned 51,957 acres
of farmland. That number grew to 837,019 by 2014, a
16-fold increase. Today, in addition to the CPPIB, investors
in Saskatchewan farmland include a number of investment
companies and partnerships, such as Agcapita Farmland
Investment Partnership, AGMW Regina Farms Ltd., Andjelic
Land Inc. and HCI Ventures Inc.
CALL OF THE LAND
Although it’s not the sexiest investment option around, farmland
has gained a certain cachet among investors looking to diversify
their portfolios beyond the usual equities. Endorsements
from high-profile investment gurus and bloggers have also
contributed to the investor buzz around farmland.
“I think it’s become trendy because Warren Buffet thinks
agriculture is the place to be,” Good said. “Over the past 10
years, there’s been a compelling return-on-investment story that
was sold to institutional investors.”
Farmland is an attractive investment option for companies
and individuals alike for a variety of reasons. According to
farmland investment fund Agcapita, shrinking land supplies
and the world’s rapidly growing food, feed and fuel needs
will ensure crop prices continue to increase long term, making
farmland a sound investment.
“Returns to investors have been very
good on average,” Van Dyk said. “The
yields are pretty solid compared to interest
rates, and the longer we have low interest
rates, the longer the investment companies
probably will keep investing in land.”
Investors who engage in cash renting—
where land is leased to farmers for one
upfront, 100-per-cent cash payment—are
able to avoid operational risk that could
result from a poor harvest or weak crop
prices, while maintaining consistent cash
flow. Additionally, farmland is generally
recognized as a safe investment, as land
prices are less volatile than listed equities on
most public stock exchanges.
“Whether it’s investment or pension plans, they’re looking
at that asset, and over the last 15 years that asset has been very
stable,” said J.P. Gervais, FCC’s chief agricultural economist.
Saskatchewan farmland has been particularly attractive to
investors for many years because prices have struggled to catch
up with those in neighbouring markets—including Alberta and
the United States—since the province opened up its farmland
market to non-residents in 2002. Investors have bought
thousands of acres of Alberta farmland as well, but the trend has
been far less pronounced. Because sky-high land values make
it harder to net a reasonable return on investment, Good said
he doesn’t see an investor rush on Alberta farmland happening
anytime soon. “It’s just not as attractive,” he said.
VALUES ON THE RISE
Another factor that has drawn medium- and long-term investors
to farmland is the steady rise of farmland values in Canada over
the past several years. The average value of Canadian farmland
rose by 14.3 per cent in 2014, on the heels of increases of 22.1
per cent and 19.5 per cent in 2013 and 2012, respectively,
according to FCC. Saskatchewan experienced the largest
“The yields are pretty
solid compared to interest
rates, and the longer we
have low interest rates,
the longer the investment
companies probably will
keep investing in land.”
–Ben Van Dyk
