Farmland values are a matter of national concern.
Provinces maintain jurisdiction of land ownership and municipalities can determine appropriate uses and levy taxes accordingly, but agricultural land and rural society also affect the entire country.
One need only look at carbon pricing and taxation for an example.
Farm consolidation has been underway since the land was first cultivated. Recent acceleration of that process might seem alarming, but as recently as the 1980s there was national concern about having enough farmers to replace those who were leaving.
It was becoming an issue again before 2008, but an unprecedented run of commodity price increases and stability allowed many broadacre producers to create capital wealth that provided new levels of equity in farming.
Those days have passed, but the equity remains and continues to fuel farmland values.
Canada was not alone in this. Farmland has increased in value around the world with some recent plateauing or declines, which has alerted the wider world to the opportunities it holds for investment.
Farmland real estate investment trusts such as TIAA’s CREF and Farmland Partners, are relatively new to the market, but despite some declines in dividends, they are on par or better when compared to commercial real estate or timberland financial tools.
These are typically thought of as alternative funds that might be counter-cyclical to the rest of the market and attractive to high-wealth investors looking for longer-term gains based on global population growth and middle-class emergence in the developing world.
This patient money isn’t likely to go away any time soon.
A low Canadian dollar versus the U.S. dollar has helped offset commodity price declines and buoy up its farmable acre values.
Low interest rates add fuel to higher farmland values, making buying land both a good investment based on rental yields, often in the three to five percent region, and relatively affordable for high-equity producers looking for expansion.
Relative to what is the question.
Even with canola prices in the $10 range, margins barely support $90 per acre rentals. Payments on interest-only loans on many prairie acres tops $75 — add taxes to it and quickly we return to price levels where farming the land and owning it are two separate and distinct items in a business plan.
Land is not a commodity because there is no more being made.
It can be made more productive with drainage, improved agronomy and alternative uses that involve co-pays from other industries such as oil and gas or wind power.
Farmers could also see revenue from selling current and future practices to those looking for carbon offsets.
Our nation has committed to lowering carbon emissions, but not every activity we do can cut the total while at the same time increasing productivity and revenue.
Some activities have to be seen for their abilities to sequester carbon. Conservation groups are becoming competing bidders for land in some regions and also offer to create value-added deals with producers looking to either maintain operations, such as livestock grazing, or have a nearing timeline to retirement that would involve interim payments in exchange for a provision to buy title at a later date.
Canada has an interest in farm sustainability.
Sustainable production, both environmentally and fiscally, generally happens when farmers can afford to cover all of their costs more than three-quarters of the time. At those levels, they are insurable.
Any less and they require significant support from their fellow citizens to avoid a crisis that bleeds into the general economy and environment.
Farms that are under significant financial pressure to survive can’t always take the long view when it comes to choices around carbon or soil improvement. Rotational choices become based on year-to-year margins, which is bad news for the industry and the environment.
Farm debt, led largely by land purchases, grew to $85 billion in 2014 from $78 billion in 2013.
Highest bidders, no matter what their interest in the land, are often the most welcome for producers looking to exit the industry. However, non-farming interests are the enemy for those wanting to remain invested or farming for the long term.
A lot can happen in five years. Canadian farmland prices have doubled in some regions, and data about farmland sales, ownership and use nationally is spotty. Information is key to making decisions, both on a policy basis and for individual producers.
Federal and provincial agricultural leadership within government should be looking to track and make available that data on as near a real-time basis as possible. Trends can set up too quickly to be passively viewed with each agricultural census.
Canadians might decide to act to limit foreign farmland ownership, provide for compensatory credit for carbon or do nothing. However, without information, farmers can reasonably assume nothing that is good for farming will take place.
Michael Raine is managing editor and Production editor at the Western Producer. Contact him at 306-665-3592 or e-mail email@example.com.