Rising farmland values a mixed blessing for farmers

Hey there, time traveller!
This article was published 12/05/2018 (2739 days ago), so information in it may no longer be current.

For the majority of farmers in Canada, the latest Farm Credit Canada farmland price report is good news.

Unlike hard assets such as machinery, buildings and tools that depreciate over time, the value of this key asset continues to rise at rates that aren’t far off medium- to high-risk investment portfolio returns.

At least, its commercial value continues to rise.

How the productive value of farmland is faring is another issue.

Canadian farmland values rose by an average of 8.4 per cent last year. The Manitoba rate of gain was about five per cent on average.

Although gains differ across the country and the pace has slowed since the hikes of 25 per cent or more just three years ago, Canadian farmland prices are showing no signs of dropping any time soon.

The story is a little different south of the border, where Purdue University data show land prices have dropped as much as 25 per cent due to a struggling farm economy.

Canada’s relatively weak loonie has served to buffer Canadian farmers from the oversupplied global market.

But what is good news for Canadian farmers nearing retirement (the average age of Canadian farmers is 55) is not so good for young farmers trying to acquire enough to get into the business.

Once only of interest to farmers, retired farmers and their relatives, the secret has slipped out that land is a good investment and there’s been greater interest in farmland among non-farmers.

Farm organization representatives testifying before the Standing Senate Committee on Agriculture and Forestry raised fears that competition from investors, urban developers and conservation groups is driving the cost of land beyond the reach of real farmers.

At least that’s the perception.

Everyone can agree that urban development is a problem. In fact, much of Canada’s prime farmland is already under concrete.

But conservation groups would rather work with landowners to preserve wildlife habitat than buy land outright, largely because they can’t afford it either. They can do far more good by paying farmers to leave non-productive sloughs and bushes intact than buying it all up.

Farm Credit Canada’s chief economist Jean Paul Gervais also offers a different view on the impact of foreign ownership, which by the way, is not allowed under Manitoba legislation.

“Foreign ownership exists to different degrees across provinces, but in a province such as Ontario, which does allow some form of foreign ownership, it still represents much less than one per cent of ownership of total farmland, so that leads us to believe that this is not necessarily an issue in all the analysis and the data that we report,” he told the committee.

Non-farm investors can actually play a role in helping bridge the succession challenge for farm families. The retiring farmer can sell the land to finance his or her retirement. Operators just getting established can lease the land instead of buying it outright.

It’s not an option most farmers would choose; they want to own the farm business as well as the real estate.

And many would argue that’s the best way to ensure good stewardship.

But in some respects, splitting the asset from the operation would be a better way to protect the land’s productive value even as its resale value continues to rise.

The landowner’s sole interest is in preserving the value of the asset, whereas short-term economic pressures often cloud a farm operator’s decisions.

For example, it’s proven difficult to convince farmers to proactively avoid the development of herbicide-resistant weeds because it might cost them yields over the short term. This is true even though it’s widely acknowledged that the cost of dealing with the issue after it has been created is much, much higher.

A landowner could require a tenant operator to adhere to management practices that prevent the problem.

Excessive tillage is another example where a landowner might take a different position than a land operator.

There’s been a lot of farm real estate changing hands over the past month because of the gale-force winds that have become common in April and May. That’s not good for anyone.

Laura Rance is editorial director at Glacier FarmMedia. She can be reached at 204-792-4382 or lrance@farmmedia.com