by JIM ALGIE
Unified, nation-wide restrictions on foreign and corporate ownership of farmland can help stop the continuing decline in Canada’s family farms, a new National Farmers Union (NFU) report says.
The report documents a growing “corporate farmland buy-up” and blames uneven farmland ownership restrictions among Canadian provinces and territories. That, together with rising farmland values and mounting farm debt has led to “increasing consolidation of land holdings” by investment funds and corporate ownership, the report says.
In an interview from his central Alberta dairy farm, today, NFU president Jan Slomp said a dramatic rise in direct, institutional investment in farmland over the past six years represents a significant threat to Canadian traditions of ownership by individual family farmers.
“Monetizing of farmland is the biggest impediment for the next generation getting access,” Slomp said. “That is a huge problem,” he added.
“Even if we have interest, a lot of young people simply don’t have the means to start farming,” Slomp said, referring particularly to dramatically higher farmland values since 2008.
Corporate investors, including the Canada pension fund, “are seeking greater control over Canadian agriculture and a bigger share of the wealth that farmers produce,” the report says. It provides detailed analysis of farmland acquisition activity in Ontario and Western provinces by a variety of investment funds including: Bonnefield Financial Inc., Assiniboia Capital Corp., Agcapita Partners LP, Walton International Group Inc. and AGInvest Properties Canada Inc.
In an interview, today, Bonnefield President Tom Eisenhauer described the NFU report as “well-intentioned but ill-considered.” A frequent defender in public forums of the relatively new business of institutional investments in agriculture, Eisenhauer said institutions provide a logical source of funds for a variety of challenges facing farmers, even those cited in the NFU report. His six-year-old company owns more than $300 million in Canadian farmland leased back to farm operators.
“If the objective here is to reduce debt load on farmers then the absolute best possible partner you could have is somebody who’s willing to put up equity and helps you grow your business,” Eisenhauer said from his Toronto office. “Believe me, there is no pension fund guy on Bay Street who’s ever going to pick up a pitch fork and go and compete against the farmer,” he said.
“The land is absolutely no good . . . without a really good quality farmer there with him to partner to farm it,” Eisenhauer said. He also rejects arguments that institutional interest in farmland helped drive up land prices in recent years.
“By definition we could never buy a piece of land for an uneconomic price,” he said. “We are actually serving to keep a lid on the market . . . I have to earn an attractive return on very nickel I put out the door or else I’m out of business,” Eisenhauer said.
Farm debt has risen along with Canadian farmland values, the report says. It cites Statistics Canada data on the average value of land and buildings which has almost doubled since 2008. Meanwhile, the number of farms and farmers and the amount of farmland in production continues to drop.
The 36-page report, together with a collection of supporting documents, updates an NFU report issued in 2010. Since then – and despite relatively low interest rates and “a short period of better crop prices” – agricultural debt has continued to grow, the report says.
It estimates mid-2013 farm debt at $78 billion, up $14 billion over the previous two and a half years even as the number of family farms and farmers continues to drop. The NFU report also warns against a trend of farm input suppliers linking credit to crop delivery contracts. Farm debt to private individuals and supply companies has risen from $7.5 billion in 2010 to $8.3 billion in 2013, the report says.
In Ontario, farmland values in the four counties of Huron, Simcoe, Middlesex and Essex have far outstripped provincial and national averages, the report said, citing 2013 sales as high as $20,000 an acre in the four counties. Even the average values have grown dramatically.
The report estimates the average value of land and buildings in Saskatchewan has gone from $435 per acre in 2008 to $881 per acre currently. In Ontario, the average value per acre is $8,417, up from $4,593, the report says.
The appreciation of land value “doesn’t do any good for our bottom line but it does for the investor,” Slomp said. He was comparing farm production interests with those of financially-motivated investors seeking long-term returns on the initial capital investment.
“We need regulation to address that unless we don’t see a problem with family farmers vacating the land and having an industrial agriculture taking its place,” the NFU president said.
The report includes eight recommendations it describes as “necessary steps to move the country towards food sovereignty.” They include a “unified set of land ownership restrictions” among federal and provincial governments to allow ownership only by individuals or incorporated farming operations owned by residents of the province where the land is located.
As well, the report recommends provinces report annually on foreign land ownership and offer tax breaks and incentives to encourage farmland ownership by farming families. Governments must “find ways for young and new farmers to gain secure access to farmland that does not require massive indebtedness,” the report says. BF
Comments
When NFU President, Jan Slomp, complains about the "monetization" of farm land, he should be blaming his fellow dairy farmers instead of corporations and/or non-farm investors.
If it wasn't for supply managed farmers using the benefits of 200% tariff barriers to drive farm land prices into the stratosphere, and to a lesser extent grains farmers doing the same thing because of ethanol mandates, there never would have been enough of an increase in the value of farmland to attract outside investors in the first place.
Institutional farmland investors are simply a symptom of a problem created by farmers and governments which pander to the sort of agricultural protectionism the NFU adores.
Stephen Thompson, Clinton ON
Was not this about the same time period that the feds capped quota which led to a substantial increase in land value? Yes it was.
This was also the same time when the central banks began their bond purchase program which removed the price discovery mechanism from the bond market, thereby creating artificially low interest rates.
I must also add that these so called investors are the highly speculative type IMO, when for example there are much safer and better returns out there.
Here are 2 examples.
1). Kimberly Clark (KMB), which is a consumer staple that has raised its dividend for 40 years, and the last 10 have seen 9.5%/year. This stock trades at 20.6 times earnings and yields 3.3%
2). Johnson & Johnson (JNJ), in the health care sector, has raised its dividend for 50 years, the last 10 years has seen an 11.7% yearly dividend increase, trades at 15.3 earnings and yields 3.3%
Raube Beuerman
"By definition, we could never buy a piece of land for an uneconomic price"
I know of no piece of farmland within 100 miles of where I live that is economical.
One hundred acres recently sold south of me a few miles for $18000/acre.
Even on land that is debt free, a farmer these days is doing well to net profit $250 acre at todays prices. That puts that farm well over 50 times earnings.
These so-called investors will be looking for a return on their money.
Where will it come from?
Raube Beuerman
What price are you waiting for..... sell!
If that is correct, then who is the greater fool, those who buy at those prices or those who won't sell? One farm would probably use up more than use up your capital gains allowance.
Purshasing real estate strictly for investment purposes is not what I did when I bought in 1996. I never thought of my home with 50 acres as an actual investment.....more as a cost of living. I only wish today's 20-something potential farmers had this opportunity rather than compete against actual investors, many of whom are farmers who don't need any more land.
I bought my farm with buildings because it is what I wanted, but I would never think of it as an investment like I do with my stocks.
Raube Beuerman
Raube ,you have more than one farm, and since you claim farmland is a poor investment compared to stocks then perhaps you need to exercise your capital gains deduction now before farmland drops below your $18,000/ac. neighborhood value. Why not take your own advice and use the balance and invest in your more profitable stocks?
1). As I stated in the previous post I don't view my primary residence as an investment in the same way as stocks. I need to live somewhere.
2). In 1996 I paid market value for this farm (I had to since it was incorporated previously), yet was able to make ends meet with mediocre off farm income. Show me anyone who can come close to doing that today without very high off farm income.
3). If I was drinking my own kool aid, as this anonymous poster suggests, I would be buying land for $16-18000, but I am not.
4). Why does not the anonymous poster above share the amount of land(quota?) and/or other investments they have.
Raube Beuerman
Most people don't need 50 acres for a house ? You may not of intented it as an investment but that is excatly what it has become and it is the same for most of us.
Seems he might be confused and does not realize that his house is assessed seperate from his land .
We are all well aware that you don't believe $16-$18000 land prices are not a good investment and that land values could perhaps be topping.
In fact, you have said elsewhere on this site that well chosen stock investment makes far more sense than investing in land (or perhaps even keeping over valued land). I would suggest, if you do make the correct stock choices your theory could be correct! You have also said you own a second farm. The question is, why not, take your own advice, sell it for $16-$18000 per acre, use up your capital gains, as you have suggested elsewhere on this site and invest the proceeds in your more lucrative stock portfolio? Sounds like a great idea doesn't it or are their hidden pitfalls?
Beuerman's note: The author of this comment should sign his or her name and re-submit.
Raube Beuerman
cheap shot by anonymous poster deleted by editor.
It must mean 50 times earnings is not enough.
Many people can't sell stocks at tops either.
From feeding hogs !
Nobody should able to buy over 500 acres south cookstown in ontario
Nobody should able to crop over 3,000 acres and own more half that 500 acres is not enough on second grade land
Large farms are the only way we can compete with the U.S. and other parts of thw world. Useing your thinking farmers would have go to college to buy a farm.
News flash!
Anyone in Canada who thinks for "one second" that Canadian grain farms, either large or small can compete with the U.S. Farm Bill ARC is absolutely dreaming in technicolour.
Want proof ? See: https://www.southwestagconference.ca/index.cfm/proceedings/proceedings-2... view video of session 15.
I seem to recall reading that over 50% of cropland in the Mid-West States is now owned by non farming investors.
Only when some farmers realize that they could grow their net worth faster by parking money in solid companies will the price of farmland come down(or a 2% interest hike). Until then it appears that the rural population will continue to decline as Wingham radio stated today on the news.
Raube Beuerman
Sell the one farm get the quota money that's out there in over flowing pockets,put up a chicken barn and buy quota on home farm and play it out ,if quota goes government will pay you back for sure they have had it rough SM
With the utmost of respect, it's hard to tell if the above poster is being dead-serious or tongue-in-cheek by proffering a solution which appears to be that of pouring gasoline on an already raging inferno.
It's bad enough that the so-called "winners" in the new-entrant programs seem to see nothing wrong with the financial equaivalent of going "90 miles per hour down a dead-end road", it would be even worse if everyone was to think this way and, alas, it appears that too many do.
Managing risk responsibly is an attribute of a good manager - being reckless is not.
Stephen Thompson, Clinton ON
Even if I wanted to be a supply managed farmer(which I don't), the numbers don't work.
Say for example I had a million to put down to get into birds, which would have a total cost of about 2.3 million for 14000 birds including barn, my monthly mortgage payment comes in at over $5000 (3.85% over 25 years), which secondly, is longer than i would like. If I understand correctly, 14000 birds would have a net profit of close to 5g a month if one was free of debt. A break even scenario even after throwing a million at it.
That is also assuming interest never rises and quota stays around.
I'll pass.
Raube Beuerman
Post new comment