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The Dirt On Farmland Ownership

Would you rather put up $800 to make $200 (and get a property tax bill), or put up $60 to make $200? It’s a simple question. But the answer is riddled with complexity.

Nevertheless, it’s being dangled in front of farmers these days by Brad Farquhar, manager of Assiniboia Farmland, a limited partnership that has been amassing thousands of acres of Saskatchewan farmland as an investment vehicle. Founded in 2005, and financed by about 25 investors, Assiniboia currently has about 110,000 acres “under management,” and is looking for more.

Globally, corporations and countries are snapping up farmland in a bid to secure production capacity and meet national food-security needs. However, provincial laws in Manitoba and Saskatchewan limit the ownership of farmland to Canadian citizens or immigrants planning to farm in Canada. So all of Assiniboia’s investors are Canadian.

“I want to make the argument that you don’t need to own land,” he told farmers attending Ag Days in Brandon last week.

Farquhar rightly points out that owning land is about real estate, whereas operating a farm is about running a business. “It’s an investment question, not a farming question,” he says. “Think about what business you’re in.”

Just as many profitable businesses lease office and manufacturing space, he believes farmers can reduce their capital requirements by leasing land instead of owning it.

He outlined an example to illustrate his point: a Saskatchewan farmer who sold the farm but continued to operate using leased land. Because he could rotate his land instead of having to rotate his crops on a limited land base, the story goes that he amassed a fortune over a period of 10 years growing just two crops, chickpeas and lentils. He then got out of farming and put his money into manufacturing.

Expanding the farm with rented land isn’t a new idea. Last time we checked, more than half of Manitoba farm operators rent land and just under 40 per cent of the land being farmed is rented.

The difference is, the landlords are widely dispersed and diverse – most often retired farmers – rather than a centrally managed investment fund. Farquhar says he can offer long-term lease arrangements that will be more stable and consistent than dealing with multiple landlords, who may or may not be attached to agriculture.

The pitch will be tempting to farm families in the throes of the succession dilemma or for young farmers who lack the necessary capital to invest in farmland. We can see farm families opting to sell all but the homestead. It offers an easy route to retirement, allowing one of the kids to continue, while treating the rest of the family equitably.

And we would encourage all farmers to consider this proposition, along with other alternatives, in the context of their own long-term planning.

However, as he outlined for the farmers in the room what investors see when they look at farmland, we wonder why farmers – or their estates for that matter – would want to cash in their ownership chips.

“Farmland is seen as a new asset class,” Farquhar says. It is a long-term asset that in recent times has appreciated at a fairly steady six per cent per year, and its value isn’t correlated to other investment commodities.

“It’s like gold with yield,” he says. Land is, in fact, a safer investment. People can live without gold. They can’t live without food. That makes it pretty much recession-proof too.

We also note that the latest Farm Credit Corporation land report finds that in this era of low interest rates, the ownership cost of farmland is similar or lower than renting. Countering that is the prediction by analysts that interest rates could soon rise.

There is another issue muddying this ownership question. Increasingly, farmers have made the pitch to governments and to society in general that part of the value they bring to the table is environmental stewardship.

The notion that farmers should be paid for the environmental services they provide is gaining momentum, especially since new ways have been found to measure and make tangible the benefits of natural capital such as clean water, healthy soil and wildlife habitat.

In some cases, taking a few acres out of production could increase the productivity of the rest. But tenure is determined on a per-acre basis. In a feudal land system, who decides on wetlands, shelter-belts, drainage or unconventional practices such as producing one’s own nitrogen?

One thing is certain. Once land disappears into a large-holder investment group, it is highly unlikely it will ever come up for sale again.

The seminar called “Farmland’s dirty little secret,” was well attended. But we overheard a farmer say this as he entered and saw the title: “I think I know what that little secret is – grab it while you can.”

We suspect many farmers will agree. [email protected]

About the author

Vice-President of Content

Laura Rance

Laura Rance is vice-president of content for Glacier FarmMedia. She can be reached at [email protected]

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