GrainsWest Winter 2020

Winter 2020 grainswest.com 41 enting rather than purchasing land can be a smart short- and long-term farming strategy. While it makes especially good economic sense for young, cash-strapped farmers starting out, land prices in the $3,500 to $6,000 per acre range make renting a sound strategy for established farmers as well. The most important caveat in doing so, farmers and renters must put the rental or lease agreement in writing. Handshakes and verbal agreements are valuable, but for everyone’s protection and peace of mind, a properly worded, legally binding rental agreement helps both parties avoid disappointments, surprises and outright conflicts. While most farmers in Canada continue to operate with owned or deeded land, the most recent Statistics Canada census shows that more cropland is being farmed under rental agreements. Across the country there has been about a 2.25 per cent increase in rented land in the years between the 2011 and 2016, the census reports. Jonathan Small, chief research officer with Global Ag Risk Solutions, believes renting just makes sense given the increasing value of farmland across Western Canada. This challenges a long-established paradigm that farmers must own land. Small agrees it’s nice to own if you can, but urges farmers to consider sustainability and profitability over ownership. “Young farmers are facing all kinds of expenses, and have limited resources,” said Small. “Many desire to own land, to emulate their parents, but they really don’t have the money to buy land. I urge them to slow down, take a deep breath and perhaps don’t worry about owning land. Think about being profitable.” Small uses the example of two young farmers, striking out to farm in an area where all land quality is the same. Each is given $1 million. Young Farmer A takes his or her money, leverages it to borrow another $500,000 and then sets out to buy as much land and machinery as possible with $1.5 million. Young Farmer B takes his or her $1 million, leverages it to $1.5 million, but decides to rent both land and machinery. Farmer B ends up farming five times more land, than Farmer A. They both apply the same skills and inputs to produce crops with the same yield. “Farmer A may net more dollars per acre than Farmer B, but then Farmer A only has 20 per cent of the land base of Farmer B,” said Small. “Farmer B can use their profits to continue cropping more rented acres. “Farmer B can improve their size and scale of operations and efficiency and hopefully one day have those surplus dollars that they can invest in buying land,” he said. “I have seen many situations where a young farmer pours every dollar they have into buying more land. In terms of farm growth, it is like putting both feet on the brakes—they don’t realize the implications.” Small said renting also makes sense for established operations that need to grow as one or more children join the BY LEE HART • ILLUSTRATION BY JASON LIN R Crafting agreements that work for both parties THE ART OF THE RENTAL DEAL