Spring
2016
Grains
West
30
increase in farmland values in 2014 at
18.7 per cent, while Alberta saw values
climb by 8.8 per cent.
According to Gervais, these steady
value increases across Canada can
largely be attributed to two factors: the
profitability of farming and low interest
rates.
“If you look at the last 10 or even 15
years, it’s actually pretty amazing to see
the impact of crop receipts and interest
rates on farmland values,” Gervais said.
“Yes, somebody that is looking at a very
specific piece of land will look at this and
that, and potential yield and a million little
things, but, overall, the shifts we’ve seen
in the marketplace are really driven by
overall income and the low interest rate
environment.”
Canada’s low interest rate environment
not only makes taking on debt to buy
land more attractive, it also makes land
owners less likely to sell, as they can
often get more bang for their buck by
renting the land out instead. This creates
a perfect storm of high demand and low
supply, where farmers and investors have
to engage in bidding wars whenever
good farmland becomes available.
“People say, ‘they don’t make any
more farmland.’ Well, true enough, but
even then, people don’t sell it,” Gervais
said. “When something comes up and
is available, you’re going to have a few
farms looking at the same piece of land,
knowing that if they don’t buy it now,
it may be gone for another generation
and they’re not going to have any other
chance to buy it.”
FARMLAND BALANCING ACT
Finding the right mix of free-market
principles and regulation for investor
farmland purchases is a complex problem
with no easy solution. The competing
interests at play are too diverse—there are
winners and losers in every scenario.
Many young farmers can’t afford to
go toe-to-toe with their well-established
farm neighbours—let alone wealthy
investors or funds—as land values
increase due to high demand and low
supply, leaving rented land as the only
option to increase their acreage in many
cases. On the other hand, older farmers
looking to scale down their operations or
retire have been able to cash in and turn a
tidy profit on their original investment.
“It’s difficult to compete against a large
corporate entity or a fund in terms of
the price you can pay for land,” Good
said. “The flipside of that is it certainly
has been lucrative for some farmers who
have been able to sell land at a price that
they probably weren’t going to get from
their neighbours.”
Additionally, many of the most
common criticisms of investor farmland
ownership lack the evidence to back
them up. According to Gervais, despite
the popular perception, investors
aren’t even the main culprits behind
high farmland demand—and the
corresponding high prices—in Western
Canada. In most cases, established
farmers competing against each other
are having a greater impact on regional
land values. “It’s still producers selling to
other producers,” Gervais said. “That’s
really what’s driving the market.”
Complaints that many investor
landlords are raising rents to levels
that make it hard for farmers to make a
living are just as misguided, according
to Wood. “I think as much as anything,
going back to about 2007, an increase in
commodity prices—and in some cases a
doubling or tripling of farmland values—
has led to a very significant increase in
those rental rates too,” he said. “Rental
rates still just reflect what the market is
willing to pay to lease that farmland. So I
wouldn’t necessarily say that it’s any kind
of a widespread problem.”
In the end—whether regulations are
introduced to restrict investment or the
market is opened up to encourage it—
some people aren’t going to be happy.
“It’s a double-edged sword,” Good
said. “On one hand, if you’re going to
buy land, you don’t want the price to be
going up—it would be great if it were
going down. On the other hand, if you
have debt that’s backed by land, you
don’t want the price of the land to go
down. So it’s a delicate situation and
balancing act.”
REGIONAL LAND STRATEGY
During Saskatchewan’s farmland
ownership review, the WCWGA sent a
submission to the provincial government
with a number of recommendations. One
of these was a push for all of Western
Canada to adopt a consistent regulatory
strategy for land purchases by foreign
investors. According to the WCWGA,
if B.C., Alberta, Saskatchewan and
Manitoba all set their foreign ownership
limits at 40 acres, it would simplify things
for farmers across the Prairies.
“It’s important just to cut through some
of the regulatory red tape that’s out
there with a consistent strategy across
the western provinces, because there
really aren’t a lot of differences between
farmland in Manitoba and Alberta, or
between the Peace River region and
Saskatchewan for that matter,” Wood
said. “I think that more of a regional
strategy on that would be good so that
farmers and everyone knows exactly
what they’re dealing with all the time.”
This regional approach to farmland
regulation could also be useful for
dealings with Canadian investors, Good
said, as long as any restrictions aren’t
taken too far.
“If there was ever to be a huge rush
on land, you probably can’t turn back
the clock and put the legislation and
regulations in place after it’s all gone,”
he said. “So it’s probably a reasonable
thing to do, sort of depending on how
restrictive it becomes.”
To read this story online and others
from this issue visit
grainswest.com
“It’s still producers selling
to other producers.”
–J.P. Gervais
