Farmland’s reputation as a safe and profitable asset seems sure to draw more investment dollars into rural Canada, whether farmers are happy about the extra demand for their number one source of wealth or not. A look at Calgary-based investment fund Veripath Farmland Partners and its 90,000-acre row crop portfolio shows why.
Farmland is just too secure to ignore, says Veripath managing partner Stephen Johnston. As farmers know, decades of historical data show consistent returns, few down years and low volatility.
Also key is that farmland, in a trader’s world that is so buffeted by global headlines, is so incredibly independent. Most other investments get sideswiped by the jolts in stock and bond markets. But not farmland.
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So, although there still aren’t that many non-farm investors looking at Canadian farmland, that’s bound to change, Johnston says.
“All those characteristics are going to attract interest,” he says. “They just will. It (farmland) is very unique compared to all the other things you might invest in.”
Sensitive issue
Outside investment in farmland is a sensitive issue among active farmers, says the University of Regina’s André Magnan. It challenges the traditional model in which farm families own most or all of the land they work.
A study he co-authored, “Who is Buying the Farm?” acknowledges that land typically makes up a large share of farm equity. It plays a huge role as collateral to finance borrowing and as security for retirement.
Of course, many farms rent land too, but in past, this has been to supplement their owned acreage with land typically leased from a retired neighbour or family member, Magnan says.
With investors, however, shifts are coming that can have implications for local communities. Local landlords often maintain a more personal connection with their tenants, Magnan says. By contrast, investor landlords may have stricter lease conditions, and higher rental rates in some cases.
Chad Lawley, a professor of agribusiness and agricultural economics at the University of Manitoba, raises additional issues that are causing consternation. These include land rent not staying in the community if land is owned by outside investors, and the perception that owners take better care of farmland when they farm it themselves, since they are felt to have greater interest in its long-term sustainability.
Also there’s a question of fairness, with charges that investment companies may have access to capital at a lower cost, allowing them to make higher bids for farmland, says Lawley.
There’s a fear too that this may help investors buy up the best-quality land, he adds.
Magnan’s study confirmed land quality was one factor causing investment activity in Saskatchewan to be unevenly distributed. While investors owned only about 1.44 per cent of Saskatchewan’s farmland in 2014, 16 rural municipalities were found in which investors owned over 5 per cent of agricultural land.
“In the 16 ‘high-activity’ RMs, investors paid more per acre of farmland, on average, than other buyers in all but two years,” the study said.
Investor impact
Investors suggest the impact of their buying is negligible on farmland prices in Canada.
Bonnefield Financial CEO Tom Eisenhauer told a Senate committee in 2017 that less than 0.25 per cent of Canadian farmland was likely owned by investors.
Bonnefield, headquartered in Toronto, is Canada’s largest farmland investment management and property management firm. It has $1 billion in assets under management, comprising about 134,000 acres through over 120 lease relationships across B.C., Alberta, Saskatchewan, Manitoba, Ontario, New Brunswick and Nova Scotia.
“It is simply not credible to assert that investor purchases of farmland — which we estimate constitute only 0.5 to 1 per cent of total farmland transactions in any given year — could drive prices in a market that may be as large as half a trillion dollars,” Eisenhauer told the committee.
Eisenhauer now estimates that investor ownership has increased only slightly — if at all — since 2017, “because just as some investors have continued to invest, others have sold.”
“But the bottom line remains the same: farmers continue to undertake the overwhelming number of farmland transactions in Canada,” Eisenhauer says.
Veripath’s Johnston also states investor ownership is tiny. Between them, the top three farmland funds in Canada, including Veritas, own less than 400,000 acres out of the approximately 160 million acres of farmland in Canada, he says.
“The farmland market in Canada is still overwhelmingly farmer-to-farmer transactions,” Johnston says.
Scratching beneath the surface can reveal more investor activity than the headline numbers might indicate, though. U of M’s Lawley says it depends on how you define “non-farmer investor.”
A survey he contributed to several years ago found that investment companies accounted for less than two per cent of rented acres in both Manitoba and Ontario. Yet, non-farmers accounted for most of the rented land, with widows or widowers at 11 per cent, retired farmers at 36 per cent and non-farmer investors at 29 per cent.
“Non-farmer investors compete with farmers for land, and in times of high prices, make it more difficult for young or new farmers to purchase land,” says Lawley.
How we got here
Farmland hasn’t always been in investors’ sights, and it wasn’t until the mid-2000s that investors outside the farm sector really looked at farmland as an asset class. The global food price spikes of 2007-08 changed all that, the study said.
Although Canadian farmland values have risen every year since 1993, they jumped by double-digit percentage increases between 2011 and 2015, peaking at 22.1 per cent in 2013, according to Farm Credit Canada.
Much of the investment attention has focused on the 58 million acres of farmland in Saskatchewan, which touts itself as “home to more than 40 per cent of Canada’s cultivated farmland — some of the most productive land in the world.”
“With its highly industrialized agricultural industry, stable political environment and comparatively cheap farmland, Saskatchewan has become particularly attractive to prospective investors,” says the study.
At one time, only Saskatchewan residents could own more than 10 acres of farmland in the province. But when the rules were relaxed in 2003, along came investor buying.
By 2014, 37 investors owned a combined 837,019 acres, according to the study.
The province’s largest current landowner is an individual, Calgary’s Robert Andjelic, with 218,406 acres spread over 91 rural municipalities. That compares to 160,858 acres in 2014.
Controversy
Investment attracts controversy in Canada. When Regina-based investment company Assiniboia Capital Corp. sold approximately 115,000 acres of Saskatchewan farmland to the Canada Pension Plan Investment Board, critics in the farm sector decried the unfairness of having to compete with CPP billions.
Even more controversial is the concept of foreign investment and ownership. Although foreign buying is heavily restricted on the Prairies, there’s a sense that “everyone knows” that foreigners purchase farmland — possibly through Canadian citizens acting as fronts — and sometimes in large tracts.
Despite the persistent rumours, the research Magnan and his colleagues undertook using land titles didn’t reveal any significant amount of foreign ownership among Saskatchewan’s largest landowners.
That doesn’t mean they don’t exist at some scale. Magnan’s research found rare cases of foreign owners that had been grandfathered in. Also, Saskatchewan rules allow entities that are partially foreign owned, but controlled by Saskatchewan residents or their farming corporations, to own up to 320 acres.
Rumours of Chinese buying in particular are long-standing, but lack foundation. Chinese firms acquired large tracts of land in Australia for the production and export of grains and meat, Magnan notes. But he adds foreign ownership rules in Australia are more relaxed than those in Western Canada.
Magnan suspects there may be cases of Chinese Canadian permanent residents and citizens buying Canadian farmland, but that’s within the scope of the ownership restrictions, even though locals may interpret it as “Chinese investors.”
“In any event, even Chinese Canadians would be minor players in the investor ownership trend,” Magnan says.
Getting around the rules
Social media may be convinced that Canada’s ownership regulations are being bypassed, but it’s not so easy, and certainly not as easy as Twitter says.
Mangan’s study reported an entity named Skyline Agriculture Financial in 2014 attempting to buy Saskatchewan farmland “under a complex business structure involving mortgages, swaps and derivatives.”
The province’s Farmland Security Board caught on, and ruled the following year that Skyline, whose investors technically didn’t own the farmland, still contravened the province’s foreign ownership ban.
The Saskatchewan government subsequently tightened its rules even further, prohibiting pension plans and large trusts from acquiring farmland, closing farmland purchasing financing loopholes, and raising violation penalties.
More political action could follow in Saskatchewan, however, as regulations have tended to fluctuate with land prices.
Lawley points out that rising land prices and a perceived increase in outside investment in farmland during the 1970s led to greater restrictions, which were then eased in 2003 at a time of very low farming returns. They were tightened again in 2015, coinciding with high land prices and word of increased investment from large institutional investors and investment funds.
“Part of the demand for farmland ownership restrictions is tied to the political strength of net buyers of farmland versus net sellers of farmland,” Lawley says. “Farmers hoping to sell land in retirement like high farmland prices and will tend to support relaxed ownership restrictions.”
Inflation
Meanwhile, signs of an economic downturn are sure to attract even more outside investment.
Johnston notes that historical research shows farmland’s resilience in periods of inflation or stagflation.
Given recent inflation trends, more investor money could flow into farmland, Magnan agrees, although it may not be overnight. “It may take a year or two to see a noticeable trend, since farmland is relative(ly) ‘illiquid’ — it’s not as easy as buying some crypto or stocks,” he says.
Lawley isn’t ready to predict more buying driven by higher inflation. He points out that current year-over-year inflation is calculated against relatively low inflation of a year ago.
“We will have to wait and see,” Lawley says, although he adds “A substantial increase in long-term inflation expectations could draw in more investor interest.”
Bigger picture
Aside from inflation, it’s the steadily growing demand for food around the world that will drive farmland values higher long-term.
“The demand for farmland is really a proxy for the demand for food,” says Johnston.
There’s an international twist too. Because of their food demand, investors in countries with water deficits are particularly apt to look overseas for consistent ground.
“In the U.S., Australia, certain countries in South America, there has been institutional, ultra-high net worth capital that has acquired farmland,” says Johnston, who points out it’s therefore reasonable to expect similar in Canada.
A place for investment?
Investors reject being cast as black hats. They say they’re complying with the law, and that they actually benefit farmers.
In Bonnefield CEO Eisenhauer’s Senate testimony, he argued restrictive ownership rules in provinces like Saskatchewan and Manitoba impeded the flow of capital to farmers, making them rely more heavily on debt. Those regulations also had the effect of reducing the value of farmland below what it’d otherwise be, thereby hurting the wealth and nest eggs of many farm families.
Another argument relates to how investor money, whether foreign or domestic, could actually provide useful development.
Investors in Toronto’s Area One Farms aren’t all Canadian residents, which restricts the firm’s business dealings. But CEO Joelle Faulkner says how the money is used is more important than where it comes from.
Area One Farms partners with farmers, and Faulkner says one way its investment money can be useful is in funding irrigation.
“Saskatchewan has been very clear that it wants to develop more irrigation,” Faulkner says. “We’re actually a really good entity to partner with farmers for their capital costs and developing irrigation infrastructure and adapting to that management system.”
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