Outside investment in farmland not driving up prices

The emergence of farmland investment funds brings more opportunities than pitfalls

The purchase of farmland by outside investors offers opportunities for the agriculture community, which needs new financial tools to deal with a surge in farm sales during the next few years, the president of the Canadian Federation of Agriculture says.

High crop prices and low interest rates have driven up land prices as many farmers reach retirement age, Ron Bonnett told a Canadian Agriculture Economics Society conference. At the same time, groups have formed to buy land as an investment, sparking concerns about outside buyers making land unaffordable for younger producers.

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Bonnett said so far, investment groups own about 500,000 of Canada’s 160 million acres of farmland. “These investments could even be useful for young farmers who can rent the land. This is an evolving situation.”

The issue could become more significant in the future if investor ownership increases markedly, he continued. Or if foreigners started buying up considerable tracts of land.

Land prices rose more during the last five years than in the previous five years. Farmers already carry more debt for land purchases than for the equipment they own, he said.

Tom Eisenhauer, president of Bonnefield Financial, one of the largest land investment companies in Canada, said farmers should see outside investors as partners, not just land buyers. “Our clients will be hurt as much as farmers if commodity prices decline investors. If farmers can’t afford to rent the land, then their investment won’t pay off.”

He said the presence of his company and others in the market has had a minuscule impact on land prices. They have risen steadily since the 1970s even as farm incomes rose and fell with shifting commodity prices. “Farmers were buying land even as the prices for it fell. With higher yields and more land, they could increase their production to push up their income.” Farmland is an attractive investment because of projected steady demand for additional food production, he said.

Brady Deaton, an associate professor at the University of Guelph, said fears about non-farmer ownership of land is “a red herring. Land ownership has been a controversial issue for more than a century.” Whether they rent from an investment company or a retired producer, farmers will be accessing the land they need to prosper.

In 2010, 40 per cent of farmland was rented mostly compared to 22 per cent in 1975. The trend is similar in the United States where land prices have risen faster than in Canada.

Agriculture policy-makers need to keep the trend to increased use of rented land in mind as they develop or create new programs, he urged. “Governments should be cautious about encouraging farmland purchases among producers.”

Bonnett noted with many producers nearing retirement age, there will be a large number of farm transfers in the next few years. New tools are needed to help farmers, particularly young ones, to finance the transition.

The federation has been working on the farm transfer and tax policy issue for years, including the treatment of off-farm income. “It’s possible that investors can be useful for young farmers. Already there are six different land ownership companies and partnerships. They bring badly needed capital into the industry and offer both lease and rental opportunities.”

CFA is working with Farm Management Canada on a Risky Business Program to educate farmers about managing their personal debt load including options for access to land, he explained. It is also working with academics on studying the implications of different land tenure regimes. “While we can see trends emerging, not a lot of information is available about them.”

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