In fact, we can say even more. In an important way, family is making succession planning even more difficult in 2024 than in the past. That’s because no matter what sector you’re involved in this year, the topic of what is fair for our non-farming children is plaguing our parents.

The consistent rise in farmland values has further increased this burden and many farm families are looking for solutions that will address the discrepancy in equity that can be caused by the inflated value of their farming assets.

This is why many farm owners are considering splitting their farmland among all their children — both the farming and the non-farming children — in an attempt to be as equal as possible. Then, to prevent the farm suffering after losing its land base, these families are opting for family rental agreements to allow the farm operation to continue to leverage family assets, even if these assets have fallen out of the hands of the farm operators.

However, when it comes to farmland rental agreements between family members, a seemingly harmonious arrangement can give rise to unexpected challenges.

Yes, the concept of keeping land within the family may seem appealing, but there are several downsides that often go unnoticed. In this article, we will explore the potential risks associated with family farmland rental agreements and hopefully shed light on the complexities that can emerge.

Any succession plan that requires the non-farming children to rent to their farming sibling(s) must be looked at with your eyes wide open.

Strained family relationships

One of the most significant downsides of family farmland rental agreements is the potential strain it can place on familial relationships. Mixing business with family dynamics can lead to misunderstandings, disagreements, and, in extreme cases, permanent damage to family bonds.

Disputes over rental terms, land use, or financial matters can create rifts that extend beyond the realm of the business agreement, affecting the overall harmony of the family.

Parents know their children so they know that disagreements do occur and they are sometimes difficult to sort out. To prevent this, the primary strategy that parents go for is to produce detailed, and thorough agreements.

However, these agreements can often feel like being “managed from the grave” and the benefits of the inheritance can seem to become muted if the terms of the arrangement are forced on the parties.

It is also often more difficult to build working agreements with parties who are not present in the daily operations of the business. Those more removed from the daily duties of the farm may struggle to see the bigger picture when it comes to land maintenance and improvements, and this can complicate the working relationship between the siblings.

Ambiguity in agreements

Unlike formal leasing arrangements with non-family entities, family farmland rental agreements may lack the clarity and specificity needed to prevent future conflicts.

Family members often assume mutual understanding and trust and they may not invest the necessary time and effort in drafting a comprehensive agreement.

This may also be because, in an attempt to maintain the status quo and family harmony, they don’t want to go into the necessary depth around controversial or difficult topics such as death, divorce and disability, any of which could have an impact on the validity of potential agreements.

The resulting ambiguity can give rise to disputes regarding responsibilities, expectations, and even the duration of the rental agreement, and, in turn, become a detriment to the family harmony that this process was designed to enhance.

Unequal contributions and benefits – the ‘sweat equity’ factor

Family members typically have different levels of involvement in and commitment to the farming operation. This can lead to unequal contributions and benefits, causing resentment among family members.

For instance, if one party invests more time, effort or resources into the farm than the other(s), feelings of inequity may arise, jeopardizing the sustainability of the rental agreement and succession in general.

Sometimes we cross the line of trying to be too fair to our non-farm children and, as a result, the balance shifts to now being unfair to those who have shown their commitment to the farm and its operations.

Using a rental agreement as the basis for equalization can indeed have strong merit. However, if we don’t first address some of the underlying, deeper-rooted issues in the family dynamic we are often just deferring potential conflict instead of solving the problem.

Financial strain

Farming is an unpredictable business subject to many external influences such as weather and market fluctuations. In this context, family farmland rental agreements may not provide the financial stability that non-family arrangements can offer.

As well, economic hardships on the farm may place strain on family relationships as financial challenges spill over into personal matters. What if the farm is having a tough year and can’t make the rent payments?

This is a big enough problem when working with non-family entities but becomes another issue altogether when there are now multiple family members who become financially affected, all of whom may be relying on the revenue generated by the rental contracts.

The other aspect that is often not considered is what happens if there is an eventual sale of the land. Who sets the terms? Can the farm handle losing the rental land, or does it now need to investigate buying out the land? These questions can place considerable strain on sibling relationships.

Inability to adapt to changing circumstances

Life is dynamic. Circumstances can change unexpectedly. Family farmland rental agreements may lack the flexibility needed to adapt to evolving family structures, economic conditions, or changes in farming practices.

Without the ability to modify the agreement to suit the current needs of the family and the farm, the arrangement may become unsustainable in the long run. A prime example of this could be the change in employment status of the new landowner — who, in this case, would be a non-farming child.

If, suddenly, the landowner was unable to work, then they may need to unlock the value of the land they own to fill the gap in their lifestyle needs. This can have a multitude of negative impacts on both the family and farming operation.

If the landowner does indeed need to sell the land, then either the farming children must find the funds needed to purchase the land from their sibling, or the land will be lost to an outside party and the farm will lose both equity and ability to generate income. Either of these outcomes results in significant financial strain for the parties involved.

Conclusion

While the idea of keeping farmland within the family is rooted in tradition and a desire for continuity, family farmland rental agreements come with their own set of challenges. From strained relationships to succession planning complexities and financial strain, the downsides are manifold.

It is crucial for families considering such arrangements to approach them with a clear understanding of the potential pitfalls and to seek professional guidance in creating comprehensive, transparent agreements that protect both the family and the farm.

Balancing the business aspects with the emotional connections to the land is essential for fostering a sustainable and harmonious future for both the family and the farm.

These family farmland rental agreements can indeed fill a void in the succession planning efforts for farming families, but the creation of these agreements should not be taken lightly.

In our practice as succession planners, it is imperative that we fully understand the vision of success for the families we work with so the agreements truly align with the long-term goals of both the farm and the family. This includes the non-farming children.

Structuring these agreements to fit into a larger comprehensive plan for farm succession as opposed to being the primary solution will not only benefit the farming operation, but also place less burden on the family members which it seeks to protect.

– This article was originally published in the Feb. 27, 2024 issue of Country Guide.

The post Summer Series: The challenge with family rental agreements appeared first on Country Guide.

It’s how he thinks those farmers treat the land they are renting.

It isn’t just a nice-to-have, it’s the core of his business model, Andjelic says.

“Soil is both of our bread and butter — the producer and us. We’re only as good as the soil and the way we treat that soil. If somebody is mining the land, I don’t care if he pays me two times more than what the market is, he’s not going to get it.”

But are all today’s big power landlords the same? It’s a huge question because, as the value of Saskatchewan farmland around Andjelic continues to increase, the competition to rent that land intensifies right along with it.

Farmers are learning that to gain a competitive edge as a renter of choice, money is just part of what it takes to succeed.

According to Statistics Canada, approximately 40 percent of Canadian farmland is rented, and farmland pricing across the country has been on a steady upward trajectory.

Andjelic says the increases have translated into more demand from farmers to rent land so they can expand their own operations.

“As far as leasing is concerned, it is a very tight market,” Andjelic says, adding he gets up to 15 bids for certain land packages.

Because of the high demand, he has a team on staff at Andjelic Lands to thoroughly vet all applicants, assessing their on-farm practices related to soil health, crop rotations and more.

Tenants are primarily chosen based on these practices and on their approach to land management, Andjelic says. Other factors come second.

“Investors normally have a mindset of profits and returns, which of course everybody has to look at — you still have to pay the bills. But within that framework, you can work with people that have similar ideas, similar goals and similar love for the land.”

Farmland investors tend to have similar approaches to Andjelic, says Ted Cawkwell, agriculture specialist with Cawkwell Group, which specializes in farmland real estate.

Cawkwell says that longer-term farmland owners care deeply about the health of the land and soil, often more than profits.

“Farmers have an emotional tie to the land. They’ll hold on to it even in times when they shouldn’t,” he says.

Now, says Cawkwell, it’s driving a boom in how important it is for farmers to go above and beyond when showcasing their efforts to potential landlords.

Whether it’s something such as digging rocks or doing backhoe work, or a more in-depth commitment to collecting soil samples year over year to replenish nutrients, farmers can always be making incremental improvements to rented land, Cawkwell says. And those efforts can go a long way.

“One thing that I learned from being a farmer myself, we treated our rented land like land that we owned… we would do that at our expense on our rented land,” says Cawkwell, who grew up on a family grain farm at Nut Mountain, Sask and is currently a partner in a nearby farm business.

“We improved that land. And word got out pretty fast.”

Other factors at work

Beyond responsible land stewardship, though, there can be other factors that are important to landowners beyond just rental rates, says Val Panko, a business advisor at Farm Credit Canada. Farmers who rent land — or are looking to rent — would be prudent to learn what those factors are before getting into rental agreements, she says.

For example, crop sharing options might be more attractive to recently retired farmers who are renting out their land.

“They’ve still got their hands in the pot, so to speak. They’re familiar with what’s going on, they understand the industry.”

But landlords in other life circumstances may be more comfortable with straight cash rent agreements that are simpler and more predictable. They may also see more value in receiving rent payments on time than in getting the highest rate possible out of the land — which can also be difficult as there aren’t many sources for accurate, public and frequently updated data on farmland values in Canada.

For such reasons, Panko says, it’s very important for farmers to understand their landlord’s priorities for renting the land when they enter a negotiation.

“If you can find out what somebody wants… and try to tailor what you can offer to that, that’s where your leverage is in the negotiation,” she says. “The sky’s the limit in terms of flexibility.”

Panko says hybrid agreements having components of crop sharing and cash rent are becoming more common. These may involve renters paying landlords a bonus when crops go above a certain yield or profitability level.

Cawkwell says he has also seen instances when farmers voluntarily pay a bonus to landlords, outside any existing agreements.

“Let’s say you have a really profitable year. When it comes time to make your next payment, you just say, ‘I’m adding X amount of dollars to this. We had a really good year and I would just like you to participate in that.’”

Efforts like these go a long way in building a longer-term relationship, he says. “If you show them that, when there are good years, you’re willing to step up, when things do get bad, they’re probably going to be more understanding.”

Another factor farmers should consider, Cawkwell says, is paying their rent ahead of schedule.

He says although all rental agreements are different, the majority require the tenant to pay 50 percent before seeding and the other 50 percent after harvest.

“You can eliminate the risk for the landlord if you pay them 100 percent up front,” he says.

Building those relationships

Regardless of your approach, the overall goal should be building a longer-term relationship. A strong renter/landlord relationship is often based on much more than just a business transaction.

In Andjelic’s case, the basis for the relationship is shared values.

“I think it’s a partnership, that’s really the key. I find I love working with these people, that we’re on the same page as far as land use and every other aspect of food production.”

Cawkwell agrees, saying it’s worth it for farmers to put in the extra effort to build relationships once they have secured a rental agreement. When he was growing up, his dad, a farmer, would take him along to make their fall payment to the landlord in person.

“Get in the truck, go drive to their house, sit down with them, have coffee, have a meal, have a drink, block the afternoon off, do whatever they want to do,” Cawkwell says. “Even if it’s one person, go sit with them for a few hours.”

As with all industries, he says he has often seen emotional ties trump other factors when it comes to business relationships.

“It’s going to be pretty hard for them to leave if they feel like you’re their friend. Even if the neighbour offers them more money, my guess is if you’ve built that relationship, it’s not going to matter.”

One final consideration is that, with any type of agreement, farmers should proactively discuss rental arrangements with landlords and have written agreements in place.

In some instances, Panko says, handshake agreements were formed decades prior by different generations of farmer, and now the newer generations don’t know how to navigate tricky conversations.

“They’ve always done it that way and it’s been working well,” she says. “So why mess with the good thing?”

But these verbal agreements leave renters very vulnerable — larger farms can come in and poach the rented land or there could be sudden changes in estate ownership due to death, amongst other scenarios.

“It’s a huge risk management element,” Panko says, yet there’s a realistic solution, one that is critical in today’s competitive farmland landscape.

Get a written agreement in place, she says. “It creates security for both sides. It’s not infallible, but it is a solid best practice in any kind of business.”

– This article was originally published in the February 27, 2024 issue of Country Guide.

The post Summer Series: Choosing who gets to rent your farmland appeared first on Country Guide.

There are benefits to living next door to Canada’s largest urban area. Dianne grew up in Toronto. Barlow went to McMaster university in nearby Hamilton, then worked in an office in downtown Toronto before he came back to the farm. Now, they take advantage of living so close to the city. They love having access to great shopping, restaurants and plays, and, living so close to a major city, Barlow often picks up takeout from one of several nearby restaurants. And he never drives more than 20 minutes for parts.

But living so close to a growing urban area also brings challenges that Barlow’s ancestors probably didn’t anticipate when they set up their homestead in the area in 1843. The local price of farmland is linked to demand for commercial and residential development — not to the price of wheat. “If you’re not in the greenbelt,” Barlow says, “there’s a high potential for land to be commercially developed.”

Barlow has seen nearby 100-acre parcels of farmland destined for development sell for anywhere from $40 to $80 million. The price of this land, he says, is “inflated with potential.” Land that’s less likely to be developed trades at what Barlow thinks of as “a more realistic range.” FCC’s “farmland values calculator,” shows cultivated farmland around Hamilton selling for an average price of $22,977 per acre in the last year. (For comparison, FCC shows the average price of land in this author’s area of southeast Saskatchewan at $1,920 per acre. The Ontario price is almost 12 times higher.)

Barlow can grow higher-value crops than farmers in other parts of Canada, but generally, his cost structures are similar to other grain and oilseed farmers. High land prices in his immediate area, though, are a limitation on buying more farmland.

Managing 43 landlords

Compared to the purchase price, farmland rental costs in the area are low — approximately one per cent of the value of the land, Barlow estimates. For the owners, land in the area is more of an investment than a desire to farm. “To get the money out, you have to sell it,” Barlow says.

• READ MORE: Share of rented land increasing

But available farmland in his immediate area, which Barlow sees as a roughly 10-mile radius around his farm headquarters, has been divided into relatively small parcels of land. To put together enough small parcels of land to build an economically viable farm, Barlow currently rents land from 43 unique landlords.

Since he’s started farming, local land ownership has changed dramatically. In past decades, a lot of nearby farmland was owned by prominent local farmers. When they retired, they kept the land in the family, whether they farmed it themselves or not. In those days, most of Barlow’s landlords were retired farmers themselves, and understood farming.

But over time, the demographics of Hamilton area landowners have changed. Now, Barlow says, “The majority of my landlords don’t understand farming at all.” Barlow’s current landlords are a diverse mix of long-term owners, investors and new immigrants from countries around the globe. “They come from all different cultures,” Barlow says.

Most of these newer owners bought farmland as an investment, with an eye on future development — not because they’re planning to grow corn themselves. Some of them aren’t very interested in agriculture, or even what’s growing on their land. “There’s a couple of them that haven’t seen their own field in 15 years.”

Because most of his landlords don’t know much about farming, Barlow makes time to visit with all of them annually to let them know what’s happening on their land and to keep the lines of communication open. Every December, Barlow and his father deliver Christmas gift baskets to all the landlords that live close by. “It takes about a week,” Barlow says.

Each Christmas stop is a different experience. When they stop in to see the Eastern European immigrant landlords, he says, “you need to share a drink with them.” An Italian landlord often sends the Barlows home with a bottle of wine. The Barlows never leave their long-time Filipino landlord’s house without some kind of gift. “They like to give you something,” he says. Almost all the landlords invite Barlow in to talk, if not about the crops, then about their other interests. (One landlord likes dirt biking.) A couple of his older landlords are just happy to have a nice visit, and especially enjoy talking about their grandchildren. “If they offer you tea, you say, ‘Yeah, I’d love one,’” Barlow says.

The thought of managing relationships with 43 different landlords seems overwhelming. But as Barlow points out, “You’re just hearing about them now, thinking about all of them at once.” For him, the number and variety of landlords has grown gradually over time and is just one more part of his business. He’s known most of them for years and is genuinely interested in stopping by to see them. For the few landlords that live too far away for a Christmas visit, Barlow mails a handwritten letter along with his annual rent cheque.

Agronomy on rented land

Occasionally, landlords sell their land or find new renters. With 43 landlords, Barlow expects his land base to change regularly. “Probably every year, at least one field changes hands,” he says. Barlow continuously scouts for new rental opportunities that would match his existing land base. “I try to always gain one whenever I lose one.”

Because it’s unlikely he’ll be able to significantly increase his owned land base in this location, Barlow does his best to increase his profits on the land he has. He keeps an eye on technological developments but aims his efforts at incremental improvements. “Once you’ve been farming for a while,” he says, “there aren’t a lot of options to make big, dramatic changes. You’ve got good equipment, and you know what varieties you can plant,” he says. “You don’t just go and buy a different sprayer and somehow double your yield.”

Barlow identifies profitable changes through regular on-farm trials and field experiments, most of which are designed with a consultant. “He’s really big into trying to get us to try different things,” Barlow says. Not that Barlow needs convincing. He has an interest in new technology and is eager to try new things. Barlow’s consultant also uses soil tests and weather information to develop SWAT maps for each of their fields, so Barlow can apply fertilizer and seed at variable rates. “We look at the potential of each piece of land,” he says.

Having access to up-to-the-minute data makes these experiments more valuable. Barlow uses the JD Operations Centre system to gather and store this information. His newer machinery came equipped with this system and he’s retrofitted older equipment to make it work across the farm. “It keeps track of everything,” he says. That includes input costs, and sales revenues, “down to the per field cost of production per acre.”

On land he owns, Barlow invests in tile drainage. The investment pays off, but it’s not economically feasible on rented land, so before he signs new rental contracts, Barlow uses drones to take aerial pictures of the land to investigate potential draining problems and areas where he might have trouble accessing fields.

Managing inputs on a constantly changing land base can be complicated. Barlow uses a four-year rotation on his own land, and also on rented land he expects to be farming for the medium-term. “I can kind of treat it like a normal farm.” But when he’s been given notice that a particular piece of rented land will likely be sold in the near future, “there could be some really short-term outlooks,” he says. This doesn’t happen often, but when it does, Barlow manages short-term fields on a year-to-year basis, making production decisions based on what will grow the best crop in the current year.

Building up the land base

While Barlow has recently purchased some farmland, he expects it to continue to get more difficult to buy nearby farmland at an affordable price. “There are probably a lot of us waiting for opportunities to buy. That opportunity may not arise,” he says.

One tactic Barlow has used is to buy farmland that already has a house on it. After subdividing the land around the house and selling a small piece as an acreage, Barlow can farm the remaining land and leave a new acreage owner happy not to have any immediate neighbours. “It’s a really long process and it’s very expensive,” he says, “but you could have a $600- or $700,000 house sitting there.”

In the long run, Barlow expects his rental situation to become more difficult. Some land is likely to shift out of agriculture altogether. And there may be fewer farmland owners. “It will probably be consolidated to a small number of pretty aggressive investment-type people.” A few families in the area have already made big investments in farmland. “They won’t farm themselves,” he says. “They’ll rent it out.” Barlow expects some of these large-scale landlords to find preferred renters, or to choose to deal with just one renter instead of several different farmers.

Barlow acknowledges that living next to the city has brought some restrictions to his farm business. “I think it would’ve been easier to become a very successful well-off farmer in Saskatchewan than it was in Ontario,” he says. But he is optimistic about the future and doesn’t believe city growth will stop him from farming. “In my lifetime, certainly not,” he says.

It’s true that if Hamilton continues expanding, it could force some changes, but Barlow says he won’t move far. He’s rooted in the area and he loves it. He also serves as a director for Grain Farmers of Ontario and is enthusiastic about the future of agriculture and his own family’s future opportunities. “Maybe it would bump us out of our northern-most farms,” he says. “But that doesn’t mean we can’t go south.”

– This article was originally published in the February 27, 2024 issue of Country Guide.

The post Summer Series: So many landlords appeared first on Country Guide.

“It’s a dark market. We don’t know what the average land rental rates are for a given area,” says Darren Bond, farm management specialist with Manitoba Agriculture, who fields more calls on this topic than any other. “We do have some rules of thumb, but it’s all dependent on the area…That’s one of the reasons why there’s so much attention and focus on this — just because it’s hard to know these things.”

Farm Credit Canada (FCC) isn’t sure either. Early in 2024, it was still compiling the data for its 2023 farmland rental rates report, and although it was already sure that rental rates did rise last year, continuing recent trends, the size of the increase isn’t clear yet.

What’s changed in recent years is that farmland rental has essentially become a market, similar to any commodity market. Also changing is the role of interest rates.

On one hand, higher interest rates tend to slow land value increases and thus may weaken upward pressures on rental rates. On the other, if a landowner is looking at their land asset from a purely investment standpoint, they are well aware that they might earn a higher return if they were to sell the land and put the cash into the financial market right now, so that gets reflected in the rates they will charge for renting it.

“Over the long term, higher interest rates tend to pressure and elevate land rental rates relative to the cost of owning land,” says J.P. Gervais, vice-president of economics, insights and valuations, and chief economist with FCC.

Using rent-to-price ratios

Many farm business advisors and other financial professionals talk about rent-to-price ratios — basically the cash rental rate divided by the current land value per acre. This ratio can cast a little bit of light on the average cash rents farmers are paying in different areas. For 2022, FCC says the average rental rate per acre in Ontario was 1.4 percent of farmland value, while in Saskatchewan it was 3.1 percent. It was 2.6 percent in Alberta and 2.4 percent in Manitoba.

The sticky part of that particular equation is that, because land values have increased so much over the past 15 years, values have surpassed the productive capacity of the land. This makes basing cash rents on those inflated prices dangerous.

Agriculture has seen a lot of change over the past years as commodity prices have increased along with land values, dragging land rental rates along with them. Landlords are aware that long-term grain prices have been trending up and that’s led to discussions between owners and renters about how to set a fair land rental rate.

“While there’s no real surveys out there, the anecdotal information that I’ve been hearing is that land rental rates are generally increasing,” says Bond.

According to FCC, 2023’s crop was the most expensive crop ever put in the ground because of high input prices when compared to 2022.

The fly in the ointment is that as commodity prices have increased, so have production costs, especially for inputs like fertilizer. This is putting a squeeze on producers’ margins. Manitoba Agriculture’s new 2024 Cost of Production calculator, among many others, suggests that for many crops, these high variable input costs will mean break-even returns or very minor profitability.

“The last couple of years we’ve seen things go up and people then think we’re on an elevator that only continues to go up, but now we’re in this margin squeeze situation, it’s going to be interesting to see how that plays out with land rental rates,” Bond says. “The last couple of years have been good so there’s some financial health on farms that I believe will provide a floor for the land rental rates. But there could be some pressure on land rental rates in the future, even if we don’t see it in 2024.”

That combination of market forces will inevitably driver rental rates lower as farmers have a harder time making a profit if land rental costs are too high. How much, though, is anyone’s guess.

A dynamic driving creative solutions

Farmers can only afford to pay so much for land rent, based on the returns they expect from their crops. But at the same time, renting becomes more attractive — maybe even necessary — when farmers can’t afford to buy more land. This has created an interesting dynamic.

As it gets more difficult for farmers to make large land purchases, renting becomes more popular. At the same time, landlords can receive a stable rate of return by renting land, compared to investing in wildly fluctuating stock markets.

Against this backdrop of interdependency, how do landowners and renters meet in the middle? What new scenarios or arrangements can they try to ensure reasonable benefits on both sides?

Most land rentals are still basic cash rents renegotiated on a year-to-year basis, with generally minor rate changes based on the situation and outlook at the time.

Crop-share arrangements haven’t been popular over the past few years, largely because they are complex and require a lot of trust and faith by both parties.

That said, Bond has seen a few farmers and landlords experimenting with more flexible arrangements that include a floor price and a ceiling price based on crop yield. If there is an average yield, an average cash rent is paid based on a pre-agreed schedule. If the crops are good, more cash rent is paid as a top-up. The advantage for farmers is that they can mitigate some of their cash rent risk by sharing some profit in the good times and receiving a small break when the crops aren’t as good.

Any flexible arrangements require a degree of trust by both parties. Arguably the most profitable arrangements for both farmers and landlords come from finding good people to work with, having open and honest communication, and from building relationships over the long term.

“I’m constantly encouraged when I speak to landlords, that they know that that relationship is very important and teaming with a farmer will lead them to long-term profitability,” Bond says. “That is still a huge part of the farmer tenant/landlord relationship and hasn’t changed. With higher dollar values coming in, it’s even more important to work with good people on both sides.”

In some parts of Canada, landlords seeking to determine fair market rent are resorting to tenders or advertising but there hasn’t been as much of that across the Prairies yet, demonstrating that landowners still value their relationships for the most part with their renters.

Longevity is the grand prize

As important as rental rates are, longevity is also crucial for many farmers, but it can be hard to secure a long-term rental agreement, especially in a climate of increasing land prices. When a farmer structures their farm size and equipment to a certain capacity, losing land through expiring rental agreements can threaten the whole farm.

“If you build a farm machinery base, based on, say, 5,000 acres, and all of sudden you lose some large contracts and you’re down to 3,500 acres, it upends the cost of production and the potential profitability of that farm,” Bond says. “It’s important to maintain that land and equipment ratio.”

With less and less farmland coming available to rent or buy, farmers are looking to get agreements for multiple years where they can. Increasingly a handshake won’t do, they require a written, signed contract.

What will 2024 bring?

Gervais suspects that any increase seen in rental rates in 2024 will likely be lower than the 2023 increase, just because the factors that lead to the increase are expected to weaken. Experts predict interest rates should come down and the market for farmland slow somewhat. Commodity prices are as volatile as ever, but there is a lot of upside potential, depending on how the global weather situation pans out in the year ahead. But input prices don’t look set to come down significantly, so overall rental rates should stabilize simply because farmers can’t reach any deeper into their pockets to pay high rent prices.

– This article was originally published in the February 27, 2024 issue of Country Guide.

The post Summer Series: The dark market of farmland rentals appeared first on Country Guide.

Mark recalls three of the most common rumours: “Somebody’s sick, you’re getting divorced, or you’ve gone bankrupt.”

None of those were true. “People can make the decision to stop farming for good reasons,” Bobbie says.

Still, while the Bratruds were happy with their decision, they knew it’s unusual.

It’s not common for successful, relatively young farmers (Mark’s 49 and Bobbie 47) to exit the industry while they’re making a profit. Especially if they’re farmers on a fourth-generation family farm, with three kids — two girls in university and a son still in high school.

But the Bratruds chose their own exit for their own reasons, so none of the gossip bothered them.

Though, Mark admits, “Maybe it bothered me a little bit.”

The truth is that Mark and Bobbie Bratrud decided to leave farming while they were in a strong financial position. Now they’re putting their assets to a different use while they step back from their hectic life and try out some new roles. They’re confident they’ve made the right choice, and willing to talk about how they made their decision.

• READ MORE: The dark market of farmland rentals

Building up the family farm

After they’d both spent a few years working in the ag industry, Mark and Bobbie moved into the farmyard where Bobbie grew up, a few miles north of Weyburn, Sask. This was “home” for Bobbie, but a long way from where Mark grew up, near Edmonton.

They built up their farm while they both worked at off-farm ag jobs. “We didn’t give up our outside farm incomes until we got to a point where we really felt comfortable,” Mark says. In 2010, they took on debt to buy more land of their own.

While they were building up the farm and working, they were also raising their three kids who were all very involved with sports, school and friends. Mark and Bobbie volunteered a lot of their time in the local community, helping to run programs from figure skating to 4H when they weren’t driving their kids to the rink or to lacrosse tournaments.

By 2022, the Bratruds were growing grain, oilseed and pulses on 5,500 acres of land, 2,300 of which they owned. Like most farmers these days, they were having a hard time hiring long-term farm help. Bobbie’s father and uncle liked to help out during seeding and harvest, but Mark and Bobbie wanted someone to share the workload year-round. They tried many options, from local young people to foreign workers, but finding the right fit for their farm was a real obstacle. Mark and Bobbie were doing most of the farm work themselves.

That spring, they had high hopes that their newest farm employee would be the person they’d been looking for, and their labour problems would be solved. When that didn’t work out, Mark and Bobbie were looking ahead at another summer of waking up early to do all the spraying with no time to spend at the lake with the kids. “We were running these crazy, stupid hours,” Bobbie says.

That’s when things came to a head.

“There’s never one reason why you make a big life change,” Bobbie says. “But we were really burned out.”

They had done the analysis. “It felt like we were going into uncertain times,” Mark says. Local land prices were hitting record highs. Farm machinery was not only expensive, it was almost impossible to even find the equipment you wanted to buy. Grain prices soared when Russia invaded Ukraine, but how long could those high prices last?

Mark and Bobbie have told this part of the story so many times that they tell it together now, finishing each other’s sentences as they explain it together.

The summer of 2022 wasn’t the first time they had considered what life would be like if they weren’t farmers. But that summer, skyrocketing grain prices, a good-looking crop in the field, and considerable values for land and equipment all worked to solidify the decision.

“We could be out of debt. We could pay all the taxes and own our land, and just step away from this madness for a while,” Mark says.

“And that was it,” Bobbie chimes in.

They both laugh, and Mark says, “There was no turning back.”

It’s not that they didn’t love farming. “We really have been all-in on this farm,” Bobbie says, “which you need to do to make a successful farm. We don’t regret that.”

But she remembers what it was like before 2022. “Everything revolved around this farm. We’ve been very successful. We’ve enjoyed it. But — is there another way to look at life?”

That July, they tendered their land for rent for the 2023 growing season, giving potential renters plenty of time to make cropping and input plans. But they also kept their options open, limiting their land rental contracts to three years. “We can always get back in,” Mark says.

Then they started selling a lot of their equipment on their own. “It was just very, very easy,” Mark says. “We would list something and within a day it was gone.”

Once the 2022 crop was in the bin, Mark spent nine months working in lending at the Weyburn Credit Union. “I hauled all the grain,” Bobbie says.

“Now we have to see what we want to do with our lives.” Bobbie says.

It’s all about timing

Before the summer of 2022, the Bratruds had grown good crops for a few years in a row. They were already in a strong cash-flow position, and 2022 brought another profitable crop. This was a chance to exit the industry from a position of strength. “The opportunity doesn’t come around every year,” Mark says.

• READ MORE: The lease-back business of farmland

With none of their children showing a strong interest in taking over the farm, Bobbie says, “Probably, we were going to be making this decision in 10 years anyway.”

This situation gave them a lot of freedom. “You don’t often get the opportunity to do it when you want to do it and how you want to do it,” Bobbie says.

They also knew the good times might not last. Mark was forecasting volatile times ahead, with rising interest rates, increasing input costs, and an inevitable decrease in crop prices.

The past comes back

Mark’s outlook on risk management was formed when he was growing up on his family’s Alberta farm. “My dad struggled through the ’80s,” Mark says. “He took a big hit during the major interest rate changes. He didn’t lose everything, but he lost part of his farm and he had to change careers.” Mark was only 10 when they held a farm auction, but he hasn’t forgotten the experience.

When inflation and interest rates started rising in the early 2020s, Mark saw similarities to the ’80s.

Mark’s father never went back to full-time farming, but he did well in other areas. When he passed away in 2000, Mark inherited cash that helped the Bratruds buy their first half-section of land near Weyburn, and also gave them the opportunity to partner with Bobbie’s father and begin their farming career.

Looking ahead at a potentially rocky future for farmers, Mark’s realized how important it was to him to protect his father’s legacy. “I was not prepared to squander that away when it felt like we were going into risky times.”

But what about the family?

The Bratruds’ lives were already changing by 2022, with their two daughters going to university away from home. But even from Saskatoon, it’s obvious to the girls that their parents have more time. “They’re starting to appreciate that when we say we can do something, we actually show up,” Bobbie laughs.

Mark and Bobbie have had a lake cabin for years, but now they have time to use it. They can relax and appreciate their view of the water from the deck while they drink their morning coffee, rather than worrying about what’s going on at home.

Looking back at their decision, the only time the Bratruds show any sign of regret is when they talk about the years when they put so much work into the farm that they had trouble making time for family.

Most of Bobbie’s relatives live nearby, but their farm is an eight-hour drive from Mark’s extended family. Under the time pressures of farming, they missed getting to know young nieces and nephews and spending time with aging aunts and uncles. “That was a big thing for Mark. He’s missed a lot,” Bobbie says.

Mark remembers missing a family funeral because they didn’t feel they could take enough time away from the farm to make the trip. “You feel like you can’t go for three days,” Mark says. There’s always something pressing on the farm, especially during the growing season.

Across the industry, farmers are making more efforts to balance work and life than most of the previous generation of farmers ever imagined. But when farm work is urgent, it’s hard to walk away. “It’s easier to stay home and work,” Bobbie says.

Mark and Bobbie’s kids are old enough now to understand how much their parents sacrificed to be successful farmers. They’re happy that when their kids were growing up, their friends’ parents were mostly also farmers, doing the same thing. Now, Bobbie laughs, “they’re getting to know people that aren’t from farms!”

“I think we actually turned them off from farming with our obsession with the farm,” Mark says. He’s joking, but it’s the type of humour that starts from a kernel of truth.

What’s next?

Mark and Bobbie are still busy, even without the farm. Bobbie is working as freelance consulting agronomist, and Mark has launched a new consulting company, Coyote Business Strategies, working with farms and small businesses on cash-flow planning, credit counselling, and general farm consulting.

They’ve also started a farm equipment rental business. They’d considered this idea years ago, when they’d had difficulties finding equipment to rent for their own farm. “Do you buy a Pro-Till for three days of work?” Bobbie says. “We would’ve preferred to rent but it just wasn’t available. There’s a hole in the market.”

This business fills a local need and allowed them to optimize their tax situation after they sold farm equipment. “The opportunity was there, just for tax purposes,” Mark says. “We realized, if we ever want to do this, this would be the best time to do it.”

Running an equipment leasing business also keeps the Bratruds in a position to get back into farming in the future, even if just to farm the land they still own. “We’re still invested in the equipment game,” Mark says.

They haven’t run a splashy ad campaign, but word has gotten around about the Bratruds’ new business: Rent Pro Ag and Industrial. They’re busier than they thought they’d be, and have already bought construction equipment to expand their rental line. “We do see expansion in the future,” Mark says.

First, they have to decide how big they want this venture to become. “Are we going to have business hours on the farm, or bricks and mortar in town?” Mark asks.

They’re not sure how much time they want to put into another business. “We can blow it up to a size where we can hire somebody, and then we’re back full circle to the same problem of finding help,” Mark says. Now that they’ve had a break from full-time farming, this makes them both laugh.

Know your options

The Bratruds believe that one reason many farmers don’t consider exiting the industry is that they don’t have the option. “There are a lot of people in their 40s or even 50s that couldn’t make this decision on their own,” Bobbie says. Many farm families are intertwined with other family members in their farm business, or still waiting for the older generation to make succession plans.

The Bratruds were farming independently, with formal arrangements in place with Bobbie’s father and no financial ties to other family members. This left them free to consider any options.

But the Bratruds’ wouldn’t advise every farm family to do what they’ve done. “It was right for us, but that doesn’t mean it’s right for the next person,” Mark says. “

Still, they think all farmers could consider the possibility of leaving the farm. “It doesn’t hurt to challenge yourself every once in a while, and go through the scenario. Go through the numbers and make sure you understand how it all works,” Mark says. Knowing you have the option to step back can bring a sense of freedom and opportunity, even if you decide that’s not what you want to do.

Since Mark and Bobbie have announced their decision, they’ve heard from lots of farmers who say they understand, and that they’ve had thoughts of doing something similar. “We all have the same confinements of running these crazy businesses,” Bobbie says. “It’s good to investigate your options.”

“The best time to exit is when you’re at a relatively high value in the industry,” Mark says. “A lot of people hang on too long.”

– This article was originally published in the Feb. 27, 2024, issue of Country Guide.

The post Choosing the right time to quit farming isn’t easy appeared first on Country Guide.

That’s according to a recent online article by Farm Credit Canada (FCC) that delved into the dollars and cents of the renting-or-buying decision.

Generally, the cost to rent farmland is lower than financing a purchase, making renting a worthwhile option to explore, FCC said. It can support cash flow and minimize financial risk to the overall farm operation.

The best way to analyze this decision is what’s known as the rent-to-price ratio, which is the cash rental rate per acre divided by the value of that acre of land. The result is a ratio that is measured as a percentage.

For example, land worth $5,000 an acre, with a rental rate of $100 an acre, would have a rent-to-price ration of 2.0 per cent.

The largest increase in farmland values in 2023 were in Saskatchewan, Manitoba, and Quebec. With rental rates rising at a similar pace overall in those provinces the ratio remained stable. Alberta had a rent-to-price ratio of 2.4 per cent in 2023, down from 2.6 per cent in 2023. Saskatchewan was at 3.1 per cent both years. Manitoba was at 2.4 per cent both years.

The national rent-to-price ratio in 2023 was 2.52 per cent, a slight decrease from 2022. The lowest rent-to-price ratio provincially was Ontario, at 1.25 per cent in 2023, compared to 1.4 per cent in 2022. The highest was Prince Edward Island at 4.35 per cent in 2023, unchanged from 2022.

In 2022, Ontario saw the highest increase in farmland values with an average 19.4 per cent increase, with a more modest increase of 10.7 per cent in 2023. With the RP ratio decreasing this year, this indicates that cash rental rates agreements have not evolved at the same pace as farmland values.

Similar results were observed in Atlantic provinces with the rate of increase in rental agreements being lower than the rate of farmland value appreciation in both New Brunswick and Prince Edward Island. These provinces experienced higher than average increases in farmland values in 2022.

Cash rental agreements are often negotiated for longer periods, which encourages better land stewardship and more predictability for both parties. There is also considerable fluctuation in each province’s cash rental rates and farmland values. The high-end RP ratio is usually seen on farmland with the lowest value per acre in the province.

Specialty crops, like potatoes, are generally negotiated at higher prices than other crops.

Renting farmland can complement land purchases and is often part of long-term strategic growth plans, FCC says, but a lot goes into that decision.

Rent or buy?

Renting may be part of the business strategic plan when an operation is looking to expand their land base and grow their operation. Buying land can tie up available capital and reduce cash flow, leaving fewer financing options for machinery, input needs or future expansion opportunities.

While there are obvious advantages of land ownership, cash flow remains a key consideration for producers, as this is tied to the ability to service debt and maintaining agility for capitalizing on opportunities, FCC says. The difference in per acre profitability is generated by subtracting the cost of renting land from a newly purchased land cost, assuming a 25 per cent down payment and 25-year amortization length.

Since 2021, the three Prairie provinces have seen an increased cash flow benefit from renting land compared to purchasing. In 2023 in Alberta, rented ground returned $160 per acre more than newly-purchased land. The same story holds true for Manitoba as the per acre difference in profitability due to renting has doubled since 2020.

Saskatchewan has also seen the advantage grow for renting over owned land as well, but with smaller results.
Ontario and Quebec producers have also seen higher cash flow advantages when moving to rental agreements compared to newly purchased land. Ontario’s rent advantage was 2.5 times higher in 2023 compared to 2020, while Quebec is 2.1 times higher.

While the cash flow advantage of renting over financing is significant, producers need to understand their cost of production before entering into a new land rental agreement to ensure it meets the needs of their operation.

The post Renting land better than buying for cash flow: FCC appeared first on Country Guide.

Not everything is perfect in today’s rental markets. There is never enough land, for one thing. And there’s never a perfect way — or, at least, there’s never been a way that everyone agrees is a perfect way for setting out the terms of a rental agreement. Nor is there a good discovery system that publishes what the current rent bids are running at.

There are concerns as well about the impact of renting on soil quality and farm sustainability, although these are being addressed.

First, though, let’s look at market efficiency. This is something we can crudely assess in a couple of different ways. How well does current practice put a willing landlord together with a willing renter to ensure the land is productively farmed?

And how flexible is the category? Can farmers at different career and life stages adapt the way they access rented, leased or “non-owned” land to reflect their specific needs and address the values that they need to see incorporated into such a plan?

As I said in my first paragraph, on most such measures, generally, today’s rental system scores an “adequate.”

Our February 27 issue of Country Guide, though, goes some way to suggest that the market is changing. In short, it is becoming more profitable to more sophisticated players, no matter which side of the handshake they’re on. (“Handshake,” by the way, is a word I use deliberately, not because I prefer unwritten agreements, which I don’t, but because, as you’ll see throughout this issue, eye-to-eye contact remains vital even in this digital age.)

A single magazine can’t be exhaustive on such a huge topic, but I do think it can show there’s a growing role for smart thinking in farmland renting.

Start at the beginning with Andrew Leach’s column on the rapidly growing interest in family farmland rental contracts in succession and estate planning, and his insider insights into how essential it is to get this right.

Writers Trevor Bacque and Jodi Helmer explore some of the approaches available to today’s farmers to use investors’ money to achieve farm goals. To me, at least, this seems an area that is bound to grow, in part because land prices are so high compared to short-term productive capability but also because the sector seems to me at least to be ripe for a lot more innovation.

Leeann Minogue writes with an eye to the future as she talks to Jeff Barlow, who rents from 43 mostly non-farming landlords near Ontario’s Golden Horseshoe, and Mark and Bobbie Bratrud in Sasktachewan, at the forefront of a wave of very young retirees with ground that is going to come up for rent.

There’s much more too, and in coming months you will find more rental insights on our website and in our social media, so keep tuned.

Are we getting it right on rent? Are these trendlines healthy for a farm population that is growing its professionalism by leaps and bounds? Let me know at tom.button@fbcpublishing.com.

The post Editor’s Note: meet the new renters appeared first on Country Guide.

They’re questions that seem like they should have some obvious if not easy answers. Instead, they’re what you might call agriculture’s iceberg issues. The bit you can see is only a hint at what lies under the surface.

So, if you need more acres, someone might say, just rent them, or have a meeting with the bank and throw a few more shovels full of debt onto the pile.

Under the surface, though, are all those questions. Where can you find more land, how can you service more debt, how much longer can you wait?

It can make you wish you didn’t know the challenges so well, because right now it feels like you’re in danger of getting lost in the weeds before you even take your first step.

As agriculture continues to grow in popularity — and let’s face it, it hasn’t been this popular in more than 50 years — it’s clear that many who have no ag background and haven’t ever set foot into a field are increasingly interested in the industry as a business investment. And there may, possibly, be good news in this for farmers, especially those who are leveraged to the hilt yet know that unless a few critical pieces line up for them, they are actually going nowhere. And that potential good news starts with unique models that have sprung up in different areas of the world where investors are funding partnerships on the farm.

If that seems unlikely to you, you aren’t alone, but dig a little deeper and your scepticism may waver. Some of these groups seem to have a good fit, at least on some farms. After all, farmers play a long game; maybe investors do too. And both have an eye out for investment value. With a finite landbase globally, land values continue to ratchet up. Farm Credit Canada reports that since 2012, Canada’s farmland has gone up at least 5.2 per cent annually. In 2022, the national farmland value jumped 12.8 per cent. Ontario led the way with an eye popping 19.4 per cent while B.C. was “last” with an impressive 8 per cent.

With generally favourable long-term market projections that reduce risks while the land investment grows, it seems a smart choice for both.

But is it? Country Guide took a look at one Canadian company bridging the gap between the farm and the city to see if they are really working together like never before.

Area One Farms

Canada

A Canadian-owned business that operates throughout the country, Area One Farms was created by Joelle Faulkner, an Ontario farm girl raised on the family dairy farm near London but who now, because of her success in agriculture, spends her days in downtown Toronto, steps from its famously upscale Leaside neighbourhood

To her, there’s no real disconnect. It’s her farm background, she says, that gives her the knowledge base to work both with investors eager to diversify their portfolios and also with farmers looking for new ways to continue or to grow their farm businesses and their farm way of life.

“Based on our family’s experience, farmland was a good investment, but I actually didn’t like the idea that investors — who were just starting into farmland at the time — would buy land and rent it out,” Faulkner says.

“If the farmer doesn’t participate in any of the appreciation, they’ll never be able to buy the land. What I was looking for was whether you could make a partnership where the farmer always got a disproportionate amount of the appreciation so that eventually they could buy out the investor. And the investor would still do well enough that it would be worth doing.”

It turns out she thinks she can and it’s successfully happening across Canada. With 41 farmers and 180,000 acres of land under the AOF program, business is going well. Most farmer clients are mid-career, between 35 and 55, and while they have farms of various sizes, they have growth on their minds.

Depending on what a farmer is after, AOF offers two models to choose from.

More details are available via its website, but essentially for a crop share, a farmer simply pays a minority amount of money to buy additional land with AOF fronting the majority capital. Faulkner says this is mainly aimed at farms that want to capture smaller growth opportunities or when the land is less than 50 per cent of the farm’s existing base.

The participating farmer pays the operating expenses but gets paid crop revenue minus crop-share rent. The investors, meanwhile, are on the hook for land taxes and a pre-determined amount of crop insurance.

The second offer, AOF’s full farm partnership concept, allows for arguably larger scale growth opportunities and is often used in scenarios where a farming child and spouse are returning to the farm and the farm needs to expand to meet the additional living expenses.

In this case, the farmer contributes the farm, machinery and infrastructure while AOF contributes cash into a partnership. Using that cash, the partnership then buys the land the farmer wants to acquire or rent. (If required, AOF will help fund additional machinery and infrastructure.)

Faulkner notes this model has also proven popular among farmers looking to get out of special loans without losing the farm. Once the new land is worked, the farmer receives 15 per cent net income on it with the remaining 85 per cent going to the partnership, which means the farmer earns a share of the partnership’s net income.

For example, if the farmer owns 20 per cent of the partnership, they will earn an additional 17 per cent of the income, so 32 per cent in total. The farmer also earns anywhere from 10 to 15 per cent of the farm’s appreciated value on top of the land appreciation on their share of the partnership.

Expenses are paid as a joint venture with predetermined terms and conditions.

With a farm partnership, farmers are guaranteed this arrangement for 10 years. Then, at expiration, the farmer has the option to extend the partnership or buy out AOF, although if the farmer wants to buy out AOF early, that is also an option.

Overall, about half of AOF farmers opt for crop share and half for farm partnership, although 70 per cent of the investment money lies in the farm partnerships

Faulkner says the goal is for the farmer to ultimately have the long-term control and ownership. “We always partner with the farmer so they’re always a co-owner,” she says. “So whether you’re a crop share or you’re a full farm partnership, you are always a co-owner on the specific land we’re buying. You always have the right to buy us out.”

A feature that many enjoy is that once the terms are set at year one, they do not change. Boom times around the corner? Rent won’t go up $20/ac. A deal is a deal.

“You also earn as the operating partner (in a full farm partnership),” Faulkner says. “The tricky part about (conventional) renting is that normally when you rent you don’t get to own… you either have to buy it all or you have to rent it all. And then if you had the money to put in another five per cent one year you can’t do that either. Our whole goal is over time you buy this from us.

“This is an investment for us, but it is your life.”

The eager investors aren’t just wealthier landowners, either. In fact, most aren’t from ag at all and it often takes a meeting with Faulkner for them to realize the potential opportunity in front of them.

AOF works with foundations, endowments, wealth managers and individuals. Once they invest, it’s up to AOF as to where it will deploy the money. Investors and farmers never interact and funds are only invested in Canada, never abroad.

Faulkner says there’s many cases where a farmer can’t grow because they are at maximum scale. However, if a landlord decides to sell and the farmer can’t buy it, there’s an immediate problem on the horizon.

“You kind of need to figure out how to, because otherwise you’re going to lose the rented land and you’ll never get it back or another chance to buy,” she says.

On the Cole’s farm

Now in its 12th year of operation, Area One Farms has had three initial farmers buy out of their agreements. Faulkner says she couldn’t be happier.

“It’s been totally as good or better than we expected,” she says. “If what you need is equity for growth or a way to grow where you also own part of it, as opposed to building it on rented land, we are your very best option and we will be a great partner.”

That’s the assessment of Kurt and Lynn Cole at Coronation, Alta., where they farm and have been working with AOF since 2015. (Full disclosure: AOF provided the Coles’ names to Country Guide, although our interview with them was conducted independently.)

In 2014, the Coles were farming 2,100 acres of land and 150 cows, but a cousin who was also their neighbour had approached the family about selling off his farm. He told Cole he wanted them to own it, giving the family one year to figure out financing.

Cole poured over all the options and ways to make it happen before settling on AOF.

Simultaneously, two of his daughters and their husbands expressed an interest in returning to the farm, so there were even more complications to address.

After looking at all options, AOF made the most sense, Cole says.

“For me it was a great way to have alternative financing and maintain the lifestyle and the direction that we wanted to go,” says Cole, now 61. “When you have a chance to grow your farm, one of the biggest obstacles that we have is, of course, capital. When that is taken away, your whole ability to plan and to grow becomes a lot easier.”

Cole describes himself as “a partner guy” so the idea of joining forces with an outside entity did not bother him, though he appreciates that the concept isn’t for everybody. While there have been a few “growing pains,” overall he is satisfied with the arrangement.

Both sides understand that not every year is a bumper and the high-highs are the exception, Cole says, which he says is another reason the partnership has been a good fit for the farm.

“We were able to grow to a position that was comfortable for not just the income but also the workload of everybody that wanted to come back to the farm,” he says.

Faulkner also understood the challenges that the Coles faced. Her farm background gives her a level of innate knowledge that not every financial planner might have.

Looking into the rearview mirror, Cole believes the farm would have continued to grow, even without AOF’s help, but admits it would have taken considerably longer and not at the scale they are today, with 4,000 acres of cropland and 800 cows.

“I probably wouldn’t have had the goals that I have now,” he says, adding that adding his two daughters’ families likely wouldn’t have worked out the same, either.

Would it work for other farms? Cole’s advice is to sit down and really think it through.

“Everybody has to make that decision on their own,” he says. “You have to be good at working with a partner, and not everybody gets that, but when you do get it, you get the advantage that the partner brings to your business.

“It’s not a magic wand. It’s alternative financing that gives you opportunity. Then what you do with that opportunity is where you’ll end up. It’s still about the decisions that we each make. It’s an understanding of how do we use the opportunity that’s presented to us.”

Overseas

Investors in other countries have also come to realize that agriculture could be a winning ticket for stable, predictable growth with satisfying returns. Among others, here are two examples of companies that work with farmers and investors to create profitability on both sides of the fence.

LANDE, Latvia

Based in Latvia, LANDE lets farmers invite non-farmers to become shareholders in their farm. Similar to GoFundMe or GiveSendGo, LANDE allows small and medium sized farmers to make a funding request and any individual can decide to fund some or all of the farmer’s ask. Maybe the farmer needs money to rent more land or buy a new tractor. They set the amount needed and people invest. At the end of the term, (i.e. 12 to 60 months) the farmer is expected to pay back the loans to the micro-investors, who earn their principal and interest back at the conclusion of the project.

LANDE says it only publishes carefully selected projects with a low loan-to-value ratio. Depending on the nature and timeline of a project, collateral can be in the form of a three-way agreement between LANDE, a grain buyer and a farmer, a commercial pledge or a mortgage loan.

To date, LANDE has more than 6,500 investors. The average term of a project is 18 months and carries a 10.9 per cent interest rate. In 2023, the company expanded into Romania and company CEO Ņikita Gončars says the goal is to be operational across the entire EU.

Visit lande.finance to learn more.

Growth Farms, Australia

Aimed at private and institutional investors, Growth Farms’ business model is to purchase and manage Australian farmland. The company touts 10-plus per cent returns each year to those looking to add a surefire winner to an investment portfolio.

Publicly, the company says farmland carries a lower risk versus the traditional asset classes. Those interested in Growth Farms can be from anywhere and the company says a majority of its investors are from overseas.

People can either join as an active or passive client. Active means buy and operate while passive means buy and lease. Those who wish to buy and operate are much more involved and may have higher returns due to infrastructure development, but it also carries a greater risk of volatility because of the direct involvement. Passive investors still receive returns, which come with less risk, while assets are leased to third parties with the portfolio and tenants being managed by Growth Farms.

The assets the company typically acquires are in areas of high rainfall and company CEO Martin Newnham says their due diligence is strictly evidence based. “Which means our decisions are not based on an ‘I reckon or ‘I hope’ or ‘I might’, but on proven data,” he says.

Visit growthfarms.com.au to learn more.

The post The other option to renting farmland appeared first on Country Guide.

As shown in the graph at top, changes in the amount of rented land vary by province. In Quebec, only 20 percent of land was rented in 2021, while in B.C., 46 percent of farmland was rented. 

The provincial-level information shown in this chart masks variability within each province. For example, while on average 32 percent of land is rented in Ontario, in the Hamilton Census subdivision, 46 percent of land is rented. While the average share of rented land in Saskatchewan was 41 percent in 2021, in the southeast Saskatchewan subdivision of the rural municipality of Griffin, only 24 percent of land was rented. On average, 43 percent of farmland was rented in 2021, but in the Peace River Census subdivision, the ratio was 50 percent.

Why there are less land rentals in Quebec versus other provinces

Martin Caron, President of the Union des producteurs agricoles (the Québec farmers’ union), offers the following explanation: “In Québec we have smaller lots than most other provinces. It’s not uncommon to have lots of four hectares. In other provinces they divide large tracts of land into parcels, but Québec already has many small lots of 10 hectares or less. For example, a consultation carried out in just three of Québec’s 17 regions showed that there were 55,000 lots of 10 hectares or less in those regions alone. 

In 1978, Québec enacted the Loi sur la protection du territoire agricole du Québec (Act to Protect Agricultural Land) and instituted the Commission de protection du territoire agricole du Québec (Commission to Protect Agricultural Land – CPTAQ), which was tasked with overseeing the application of the law. This changed the game. Before this people would hang on to their agricultural land, planning to de-zone it and do something non-agricultural with it, like build houses. But when the law came into effect, suddenly they couldn’t do that. They realized that even if they kept the land, they couldn’t put houses on it or use it for any other non-agricultural activity because they’d have to run their plans through the CPTAQ. So, more often than not, landowners would sell the lots rather than keep them or rent them, especially if they weren’t agricultural producers.”

The post Share of rented land increasing appeared first on Country Guide.

Further exacerbating attempts to get a firm handle on farm consolidation and ownership concentration is the fact that the land base for a farming operation is often owned under a number of different names.

Today’s farm operations frequently have complex structures involving partnerships, joint ventures and corporations, with land owned by several individuals and/or entities.

“A given operation might be farming land titled under several individual and corporate names. In the Land Titles Registry, there is no simple way to connect these parcels to a given farming entity,” says Annette Desmarais, Canada research chair in human rights, social justice and food sovereignty at the University of Manitoba.

Desmarais has been conducting research into changing land tenure patterns on the Canadian Prairies since 2014 with her most intensive work focused on Saskatchewan, where land titles information is publicly available for free. Desmarais’s research team also conducted interviews with 45 farmers, municipal employees and reeves across Manitoba, Saskatchewan and Alberta, and surveyed 400 farmers across the three provinces.

The research confirms there was definite increase in the number of acres purchased by investors in Saskatchewan from 2002 to 2014 and also that land prices in the 15 municipalities where these purchases were concentrated had risen.

“What surprised us was how much more they were paying than other farmers,” Desmarais says. “At the time (2017), investors were saying that their presence had no influence on the market, and we were able to show that they were contributing to increasing prices for land.”

Are farmers concerned about who owns what?

Findings suggest farmers across the region are very concerned about the increasing amount of land being purchased by non-ag investors and mega-farms (larger than 30,000 acres).

Of the 400 farmers surveyed in 2019, 74 per cent believed farmland ownership had become more concentrated in their region over the last 10 years, and of those, 68 per cent believed it had become somewhat of a problem or a major problem.

Among Saskatchewan farmers, the most frequently cited issues associated with land concentration were the ability of large owners to outcompete smaller players for land (61 per cent), the declining number of local farmers (45 per cent), negative impacts on the local community (41 per cent), and less local land for sale (39 per cent).

Most surveyed farmers also believe non-farmer ownership is restricting access to land, especially for younger farmers.

“It’s difficult for them to get started in farming because of the huge investment required,” agrees Sheldon Froese, a real estate broker with Royal LePage Riverbend Realty in Manitoba.

“We’re seeing this in all sectors of any business whether it’s buying rental units or condos. Things have changed but definitely our land prices have made it a little harder for some local people to buy bigger farms.”

But at least in Manitoba and Saskatchewan, Froese doesn’t see large tracts of land being snapped up by people who are not farming it.

“We’ve had the odd people invest in land, but they’ve always rented it back to farmers and that’s one way the young people have been getting into farming — by renting land from people that just want to buy land to invest in it,” he says. “Because they’re on the investment side, it’s not like they will take it away and farm it themselves someday, so people can make a good business plan for the future or at least get started, have a good income and build their own land ownership from there.”

Ontario is seeing similar trends with outside investors buying farmland over the past decade, especially land close to urban developments where prices can reach upwards of $40,000 an acre. The scale of those purchases may not parallel the West, though.

“There’s no question those institutional buyers are present here but they still don’t make up a significant part of the market,” says real estate broker Phil Spoelstra of Remax FarmOntario Team.

“For the kind of return on investment and capital appreciation they want, which is their main driver, the Prairies provided them with more opportunity over the last number of years,” Spoelstra says. “We saw more investment out that way than here where it’s harder with our land prices, to get the two to three per cent annual return on investment that they would like to see.”

That doesn’t mean Ontario farmers aren’t also concerned about outside investors.

“There’s legitimate concern around institutional ownership,” Spoelstra says. “There are some opportunities within institutional land ownership such as farmers building rental land operations but ultimately there is no ownership in those models, and ownership is control. Farmers need to own the land.”

What’s the impact?

Many farmers told Desmarais’s survey team that these trends are hurting local communities. Farmers from other provinces are buying a second farm in Saskatchewan and going back and forth. they said, and outside investors with no ties to the community are contributing to the decline of rural towns.

A similarly large number of farmers told the survey team that farm consolidation and the concentration of land in the hands of larger farms and outside investors had weakened their communities, caused depopulation and eroded local services.

Farmers also identified a concern that non-ag investors will take land out of agricultural production, either deliberately or as a result of poor decision-making.

It’s an especially pressing concern in markets with the tightest supplies. “Land that is bought and sold again and is not in production is troubling for farmers,” says Marianna Westerkamp, owner of Westerkamp Realty on P.E.I. “The land is limited and needs to stay in production.”

The research also highlighted the ecological impact of farm consolidation such as loss of biodiversity and wildlife habitat, either from larger operators clearing shelterbelts, bushland and sloughs to accommodate larger machinery or make the land more attractive to lease, or because the competition for land, and the inability of some smaller operators to purchase more acres to expand drives them to clear marginal land because of economics.

In some cases, land bought by investors is rented back to the farmer it was bought from, or they hire farm managers, but rarely do they farm it themselves.

“Clearly, access to land and what’s happening with land is key, and in the context of all these aging farmers, many of whom don’t have a succession plan, we are setting ourselves up for an unknown future about who owns the farm,” says Desmarais.

“The issue is that the price of land is higher than its productive value so you won’t be able to pay that off in one generation. If you do access land you are signing up future generations to that debt.”

It’s also prompting changes in the structure of family-owned farms that are shifting towards a more formal business model with CEOs and professional management.

Desmarais recently published an article in The Conversation Canada about her research findings that received 31,000 reads online.

“I have had emails from farmers as a result of that article saying there is a lot of resistance to mega-farms and investors in my part of the province,” she says. “If there is no legislation introduced to make sure that there are more farmers on the land, what would stop those who already have a lot of land and capital from continuing to grow, because that is what they are going to do. You need to change policy if you want to have a lot more people living in rural areas. I think farmers should be really involved.”

The post Who owns the land? appeared first on Country Guide.