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If you knew there was a very safe Canadian investment that skyrocketed by 20 per cent last year, you’d probably say that was a good thing.
But when the thing that’s going up in value is farmland, Christie Young says it’s a crisis in the making.
The latest survey by Farm Credit Canada shows the price of farmland in Quebec rose by a staggering 19.4 per cent last year. Nationally, Canadian farmland from coast to coast has risen by an average of 12 per cent a year since 2008. That’s more than five times the rate of inflation.
For people who already own farmland, soaring prices are a windfall.
But Young, executive director of FarmStart, a group trying to help young farmers get into the business of farming, says Canada is facing a sea change that bodes ill for agriculture.
“The average age of farmers is 60 years old across Canada,” says Young.
“According to StatsCan data, about 50 per cent of our land assets will be transferred in the next five years. And of the retiring farmers, 75 per cent of them don’t have successors. It’s a transition we’ve never seen before in agriculture. And it’s one we are wholly and completely unprepared for.”
FarmStart has two incubator farms in southern Ontario to bring new farmers into the business, but at current prices, Young says there is no way those starting out could earn enough from their farms to make a living and pay their mortgage.
It is a problem that Rejean Girard, who farms southwest of Montreal, understands.
He bought his small plot of land near Saint-Cesaire 20 years ago. But Girard says the return he gets from the sheep he raises would never pay for that land today. By that measure, he says, the land is overpriced by about three-quarters.
The steadily rising price of land has caught the attention of savvy Canadian investors. Global investors have an interest, too, but in most provinces only Canadians are allowed to own farmland.
That has created an opportunity for Canadian farmland investment funds like Bonnefield, Agcapita and Assiniobia, which have been assembling blocks of farmland and selling shares to high net worth Canadians.
The president of Toronto-based Bonnefield, Tom Eisenhaur, says farmland has been one of the most lucrative and secure investments especially when markets are volatile, and “a better hedge against inflation than gold.”
Eisenhaur says he expects the price of land to continue to rise, if not at the same rate as over the past decade.
He quotes a United Nations survey that shows world food production will have to double over the next 20 years.
“While it’s trite to say, no matter how bad or how good things get in the markets, people still have to eat.”
Profits from rising prices
While Eisenhaur is profiting from rising prices, he scoffs at the idea that funds like his are responsible for the land boom.
He says that while farmers buy and sell some $15 billion worth of land each year in Canada, third-party investors like his company trade a mere $100 million worth.
So it seems clear that farmers’ pursuit of more acreage is helping to push up the price of the land.
That seems to be in direct conflict with what Girard, Young and many others say about the difficulty of paying for farmland with a farm income.
That is, until I speak with Gary Brien who farms near Chatham, Ont..
“The way we’ve looked at it is more of a way of life. It just so happens the land has gone up as we accumulated it over our lifetime,” says Brien. “I really don’t think we own it. We’re just using it while we’re here. The value to us may not be in a dollar value.”
Brien says that the last few years, bumper crops have pushed up farm incomes to record levels, so farmers have had cash to spare. And when farmers have money on hand, their non-monetary way of thinking of land, combined with the tax rules, encourages them to put that spare cash into farmland, whatever the price.
“Farmers don’t like paying income tax,” says Brien. “And if they get a bunch of money and have a choice to pay income tax, or buy more land, they buy more land.”
Bigger and bigger
That tends to mean existing farms are getting bigger and bigger, able to take advantage of the efficiencies of expensive modern farm machinery and make the money to buy more land.
But that doesn’t help the farmers who are just starting out small, without inherited family land and little prospect of paying off a mortgage, even if they could get one.
“We have farmers in rural areas paying far over the productive value of the land that they are buying because they have the income or there are such scarce land resources that they’ll pay anything,” says Young.
“For a new entrant looking at that landscape, it is almost impossible to conceive of buying a farm.”