Deb Smith’s blood boils when she thinks of her son having to compete with a $234 billion pension fund to buy a parcel of farmland.
That is what could happen in the wake of the recent ruling by the Saskatchewan Farm Land Security Board that the Canada Pension Plan Investment Board is eligible to buy land in the province.
“I just get sideways on it,” said the farmer from Kindersley, Sask.
“It annoys me to no end that (the government is) being this stupid.”
Smith said outside investors such as the investment board, which recently bought 115,000 acres of farmland from Assiniboia Farmland Limited Partnership for $128 million, are artificially inflating land prices and keeping regular farmers from expanding their operations.
“We have got a huge amount of acres in this province being sold to complete outsiders that have nothing to do with our communities,” she said.
Smith wants the province to return to an era when only Saskatchewan people were allowed to own farmland in the province. She is sick of watching wealthy Alberta investors snap up much of the available farmland around Kindersley.
“They don’t live here. They don’t contribute to the community. None of their families are here,” she said.
“Why are we selling our most valuable resource to investors like that?”
Norm Hall, president of the Agricultural Producers Association of Saskatchewan, said his membership is split on whether they want Canadian institutional investors such as the investment board bidding on farmland.
“It all depends on the age of the member that we talk to,” he said.
“You look at the guys that are looking to get out, they’re wanting to get as much (money) as possible. Of course the guys that are coming in, they want to get it as cheap as possible.”
Farmers do agree that they don’t want the rules opened up to allow investment by non-Canadians.
“By far the majority are in favour of keeping it Canadian, the way it is,” he said.
Farmers don’t want to see land snapped up by foreign investors who are more interested in shipping grain back home than they are in value-added processing, and they don’t want to compete for land with well-financed foreigners.
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Tightening farm ownership laws has become the key pre-election issue for Rick Swenson, leader of the Progressive Conservative Party of Saskatchewan.
Swenson is calling on the province to introduce immediate legislative changes.
Saskatchewan agriculture minister Lyle Stewart has heard the complaints about the Canada Pension Plan Investment Board purchase and is taking steps to close loopholes in the Saskatchewan Farm Security Act that are allowing institutions such as the investment board to make inroads in the province.
National Post columnist Jesse Kline recently lambasted the Saskatchewan Party government for retreating from its fiscal conservative roots and adopting Liberal protectionist policies.
He doesn’t believe farmers deserve special treatment. Instead, he thinks the province should allow anybody to buy Saskatchewan farmland, regardless of where they live.
Kline said it would be good for the farm economy.
Investors want to make money and they do that by making farms more efficient and productive. They would inject billions of dollars of much-needed capital into the province’s agriculture sector.
He said it would make land harder to buy for young farmers, but it would help retiring farmers who are being forced to sell their farmland at bargain basement prices.
“A truly fiscally conservative government would have the gumption to tell farmers that they will have to deal with the same market forces as other businesses,” he wrote.
Dan Patterson, who was general manager of the Farm Land Security Board between 1988 and 2010, thinks that is folly.
“Isn’t that kind of promoting the interest of those that are leaving versus those that want to stay?” he said.
Patterson believes there are benefits to having undervalued land prices because it means lower land payments and lower rents. The result is improved profit margins that can keep farmers afloat during difficult times.
“Keeping these huge institutional investors out of our farmland makes our farming more efficient,” he said.
The New Democratic Party ushered in Saskatchewan’s farm ownership legislation in 1974. Alberta and Manitoba quickly followed suit.
The province was worried about the vertical integration occurring in the depressed farm sector and the large landholdings being amassed by companies such as Marathon Realty.
“They thought that represented a peril to Saskatchewan’s way of doing things,” said Patterson.
The legislation was met with resistance from growers looking to retire and from the corporate sector.
“It has always been a controversial issue,” he said.
The original legislation restricted ownership to Saskatchewan residents. That changed in 2002 when David Dutcyvich, a British Columbia resident, threatened to take the province to court for violating the Canadian Charter of Rights and Freedoms.
“The government at that time concluded that they would probably lose that charter argument that gives Canadians the right of mobility and so forth,” said Patterson.
The province amended the act to allow investment by Canadians but restricted landholdings to 10 acres for non-Canadians.
Patterson is convinced outsiders would gobble up billions of dollars of land if those restrictions were eliminated.
He recalled conversations with foreigners wanting to buy large tracts of land when he was head of the security board.
There was the rich American who wanted to buy a million acres in the province. When he was told the rules wouldn’t allow that, he asked Patterson how he could get around the rules.
There was the head of a big vegetable oil trading firm in Hong Kong who was touring the world looking for a minimum of one million acres of farmland for growing canola.
“He was just amazed at what he found here. It was just the perfect scenario — all this fertile land, a politically stable country, infrastructure and technology,” said Patterson.
And then there was a conversation with an intergovernmental affairs official who had been approached by a Chinese government official offering to buy one million acres in southern Saskatchewan.
“Someone asked them who would they have farm the land. They said, ‘well, the Red Army would come over and farm it,’ ” said Patterson.
Bob Lane, president of Lane Realty Corp., also believes a stampede of foreign investment would occur if the rules were relaxed.
“If the ownership law was opened to the rest of the world, then we could sell Saskatchewan four times over before five o’clock this afternoon,” he said.
“There are incredible masses of money in the world that would love to be safe and secure in western Canadian agriculture.”
Patterson said investor interest in farmland ratcheted up in the mid-2000s when companies started turning large quantities of crops such as corn and soybeans into fuel. Crops quickly became an energy commodity, which appealed to Wall Street.
Interest intensified with the global financial crisis of 2008, which prompted investors to acquire assets with long-term growth prospects.
Patterson said the province’s land laws have increasingly come under attack by corporations, pension funds and hedge funds, which have devised creative ways to circumvent the legislation.
The Canada Pension Plan Investment Board case was the first hole in the dike. The next one could be the case involving Skyline Agriculture Financial Corp.
Skyline says it was approached by a group of Saskatchewan farmers looking for a more flexible form of financing to buy land. Skyline insists it is a financial institution that will not own or operate farmland in the province.
The company, which has a history of offering innovative financing packages to the mining sector, wants to raise $50 to $100 million a year over the next decade to lend to farmers around the world to buy farmland.
Skyline recently financed the purchase of 16 acres of Saskatchewan farmland as a test to see if its complicated model involving mortgages, swaps and derivatives complies with the province’s land laws.
The Farm Land Security Board ruled that Skyline would be the true owner of the land despite its claims that farmers would own it. That violates the law because Skyline is partially financed by American investors.
Skyline took the province to court and is awaiting a ruling.
Michel Leduc, senior managing director of public affairs for CPPIB, said its investment in Assiniboia Farmland will support the family farm in what has become an extremely capital intensive business.
“We can offer partnerships that allow farmers to expand their operations and maximize economies of scale without risking their own farms; provide opportunities to monetize part or all of the family investment while continuing to manage the farmland if they wish and create buyout opportunities for farmers who may have difficulty finding a buyer when they wish to retire,” he said in an e-mail.
Leduc said CPPIB has no intention of engaging in land speculation.
“We expect to hold these assets for multiple generations and see ourselves as a long-term responsible custodian of farmland in Saskatchewan. We provide patient capital to facilitate the improvement of the farmland, production output and the livelihoods of those working in the sector.”
Leduc added that CPPIB has no plan to amass huge holdings of farmland in the province.
“We see farmland as a global asset opportunity,” he said.
Skyline declined to be interviewed for this story.
Patterson said the Skyline case is a prime reason why farmland ownership legislation is more critical and relevant today than it has ever been.
He applauded the provincial government for announcing it intends to amend the legislation to tighten loopholes.
Wally Lorenz, a ReMax real estate agent from North Battleford, Sask., said Saskatchewan farmland is attractive to investors because it sells for a fraction of the price of land in other jurisdictions in North America.
The average value of farmland and buildings in the province was $881 per acre in 2013, according to Statistics Canada, compared to $1,388 per acre in Manitoba and $1,934 per acre in Alberta. The average value of just cropland in the United States last year was $4,100 per acre.
Investors are looking to generate returns in the four to six percent per year range, which they do by renting out the land they buy. It is easier to generate those returns on a quarter section bought in Saskatchewan for $250,000 than one in Alberta bought for $500,000.
Saskatchewan farmland was undervalued for decades because of the laws forbidding out-of-province investment. Land values are starting to catch up in the wake of the 2002 amendment allowing all Canadians to buy farmland in the province.
However, Alberta land still sells for a hefty premium because of the oil and gas sector, a larger population, more Hutterite colonies and the expansive feedlot industry.
Lane said Canadian investor interest in Saskatchewan farmland peaked four or five years ago with high grain prices, but it has died down considerably because land prices have risen too high and it’s tougher to charge high rents when grain prices are collapsing.
“The real glow has come off of that whole rush and that whole boom thing. It’s over,” he said.
Farmers worried about a rumoured wave of Chinese investment in Saskatchewan farmland can relax.
“These were Chinese Canadians living in Vancouver and Toronto and they bought a lot of poor land,” he said.
Now their leases are up and they’re finding it hard to generate the kinds of rent they need to make a decent return on their investment.
“They’ll wish that they never heard of Saskatchewan,” said Lane, who has been selling farmland for 32 years.
Lorenz doesn’t have a problem with investors such as the Canada Pension Plan Investment Board buying farmland in the province because it is money that is invested on behalf of Canadians across the country.
What he does take issue with is what he calls the “shell game” purchases of farmland, in which a Canadian principal buys land with money that came from outside the country.
“That’s the one they’ve got to get straightened out,” he said.
Lorenz believes investors from the United States, China and India are buying large tracts of land using the technique.
“Give me a break. What’s going on here?”
The province hired a special investigator to look into Canadian-fronted foreign capital investments, who delved into two land deals and found no wrongdoing in either case.
Hall is not impressed that the province looked into only two cases because farmers suspect there are many more.
Smith doesn’t care if the money is coming from China, Europe or Alberta. She considers it all to be foreign investment and is annoyed that the government didn’t have the “backbone” to allow the charter challenge to go to court in 2002.
“If they want to own land in this province, I say they have to live here and contribute to our communities,” she said.
“There’s a lot of farmers really irritated about this.”
Smith wants today’s government to go back to the pre-2002 era when only Saskatchewan residents were eligible to own farmland in the province.
“We’re a province so rich in resources. Why are we selling them off?”
She believes foreign investment in the province’s farmland will be the death knell for rural Saskatchewan.
“If this government doesn’t want any more farmers in the province, they’re heading in a good direction,” said Smith.
Patterson doubts the province will ever go back to the Saskatchewan resident approach because of the prospect of another charter challenge.
On the other hand, he doubts premier Brad Wall’s government or any future government will ever open up ownership to non-Canadians because that would be political suicide.
“It would be difficult, particularly for a government that is very connected to rural Saskatchewan, to contemplate doing something like that,” he said.