Reader questions about mega-farms and land value

A few weeks ago, I wrote Are big investors destroying the family farm? about how mega-farms are taking over Saskatchewan and Manitoba and how the small family farms are starting to disappear, hurting the surrounding towns, which rely on the rural residents to keep businesses afloat.

From the research I read for that issue, it was suggested that the best way to keep Canada competitive in the international agricultural industry while keeping rural communities alive would be to have a mix of big industrial farms and small farms, but how we support both of these as a society becomes the question.

Farmer retirement and succession planning

As Flatlander reader Liz wrote, succession planning is a problem for keeping small farms going. She wrote :

I saw a piece on the local news about young people not being interested in taking over the family farm. I assume that must be an issue. It’s sort of the same as doctors. Apparently, many recent doctors don’t want to work in a clinic. They choose working in a hospital.

So if young people don’t want to be farmers or general practitioner doctors, then there isn’t much that can be done about it.

We need food. So if it’s produced by a big corporation or a former farmer who has expanded to a corporation, then is that a problem?

I moved from England to Saskatchewan a long time ago. I have never lived on a farm, so I can’t call myself an expert but boy, it seems like a tough way to make a living.

And that is a good point. Who will take over those smaller farms?

Anecdotally, my cousins who grew up on a farm all left, although one still works in the agriculture industry. I personally can’t think of a farmer under the age of 65, but they do exist.

I was reading about this Hudson Bay (Saskatchewan) couple, originally from South Africa, that cultivates fresh produce year-round using hydroponics.

I also read a recent article about this organic farm north of Brandon owned by a couple working with Ducks Unlimited to preserve some of the natural habitats for the local wildlife.

But one thing we didn’t talk about in the issue about the Praire farm landscape is that, according to an RBC report released last month, it is projected that 40 per cent of Canada’s farmers will retire in the next 10 years.

Sixty-six per cent of farmers don’t have a succession plan.

Not enough labourers for the big farms

The mega-farm corporations could buy up all that land, but the problem is they need labourers.

The RBC report says we will be short 24,000 agricultural labourers over the next 10 years.

Canada does have a temporary foreign worker program that brings in workers to help out over our growing period.

Issues with this were highlighted during the pandemic, particularly around their living conditions.

A government report came out on the issue, which I came across while researching human trafficking on the Prairies back in 2021.

The Canadian Museum for Human Rights in Winnipeg has a permanent exhibit on the migrant worker experience in the Canadian Journeys gallery. They let migrant workers tell their own stories on camera, and they were very honest about their poor working conditions.

While the federal government has been actively working to improve protections for migrant workers, the Migrant Workers Alliance for Change still calls Canada’s Seasonal Agriculture Workers Program “systematic slavery.”

Giving these workers a path to permanent residency could help keep rural communities alive. Still, there is no guarantee people will stay in agricultural jobs if the working conditions and pay are poor.

The RBC report recommends that automation is the best way to address any labour shortage over the long term, meaning machines will replace human labourers as rural Saskatchewan and Manitoba continue to change.

Calculating the future value of farmland

Flatlander reader Dennis wrote:

The price per acre should be adjusted for the time value of money (TVM).

The time value of money is a fundamental concept in finance that refers to the idea that money available at present is worth more than the same amount in the future.

If you’re like me, you may have zoned out in reading that sentence.

The easiest way I can explain TVM is this: instead of spending money on pizza and beer every weekend, you could invest it in something that will grow your money over time, like a high-interest savings account. The longer you invest that money, the more it will be worth.

Farmland is an investment that will increase in value. Since the cost of farmland is rising, your money may buy less land in the future than it does today.

For instance, if you bought farmland in 1997 for $417 an acre in western Saskatchewan, held onto it until 2021 and sold the land for $2,300 per acre, you would be walking away with more than five times the money you initially invested.

People can use a mathematical formula to calculate how their investment will grow. The challenge is that the variables can also change over time, sometimes not for the better.

It will be interesting to see how the recent increase in interest rates impacts farmland sales this year. It could slow down investors’ purchases.

There is also some risk to investing in farmland. For instance, if the soil becomes depleted or contaminated by some unforeseen circumstance, then the productive value of the land would depreciate.

With any investment, one wants to think through all the variables.

How government policy affects the price of farmland

Flatlander reader Geordie wrote:

Ok, I’m a little confused. While you do say that the Calvert government changed the rules in 2003, allowing more than Saskatchewan residents to own farmland, you also say that land prices have been stagnant for a decade, which puts us in the neighbourhood of 2012-2014. How do you parley that into the rule change by the Calvert gov’t in 2003 being the reason for the spike in land prices? I would ask if you did a typo in which 2003 should have been 2013, but then 2013 wouldn’t have been the Calvert NDP gov’t, since the Sask Party have been in power since 2007.

When looking back at the Historic Farmland Values Report from Farm Credit Canada, one sees more significant jumps in prices from 2007 onwards. Change didn’t happen overnight. The prices increased incrementally over time.

Here is more context about the change of ownership rules and what happened in the years that followed that helped drive up prices.

When Lorne Calvert changed the rules in January 2003, it allowed people and businesses outside Saskatchewan to buy land.

People supported the Farm Security Act changes because they were concerned about Saskatchewan being the only province to see farmland prices decline over the last half of 2001.

The Canadian Federation of Independent Businesses said changing the Act was essential to rural economic development. And the Saskatchewan Party also agreed with the changes.

The public was worried about foreign farmland ownership, but they were okay with other Canadians buying Saskatchewan land. However, the National Farmers Union expressed concern over absentee ownership.

Investment funds started buying farmland

After the law was passed, by 2005, Saskatchewan entrepreneurs began setting up farmland investment funds, like Assinboia Farmland Limited and the Farmland Investment Partnership.

These companies would take investor money from outside Saskatchewan, purchase farmland, and rent out that land.
Since farmland in Saskatchewan was cheap in the early 2000s, these investors rightly predicted that the prices per acre could only go up.
You also had farmers, like now, who were looking to retire, but lacked succession plans for their land and were willing to sell to these funds.
Other farmers were looking to expand their operations without having the capital to do so and were looking to rent from the funds’ land managers.

So the changing of the rules and the creation of farmland investment funds started to move prices.

More investment funds entered the picture, driving the prices up faster over time. However, this ended in 2013 when the Canada Pension Plan Investment Board (CPPIB) bought 115,000 acres of farmland and acquired Assiniboia Farmlands for $128 million. It was looking to purchase more land on top of this.

This led to the government, which had switched to the Saskatchewan Party by then, doing 3,200 consultations with various stakeholders who said they didn’t want investment funds buying up farmland and driving up prices.

“Our government understands that to many in the province, farmland is not just an asset,” Lyle Stewart, the Agriculture Minister at the time, told reporters in 2015 after introducing amendments to the Farm Security Act in the legislature. “It is a connection to our history and who we are as a people. Farmers and ranchers want an opportunity to own the land they farm.”

A newer rule created around land ownership.

The amendments Stewart introduced, which took effect in 2016, prohibited pension funds and investment trusts from purchasing farmland. However, the CPPIB didn’t have to divest itself of its land.

The rules didn’t end up slowing the continued rise of farm prices.

Even if investment funds couldn’t purchase anymore, the change to the Act didn’t stop big business owners and landlords from continuing to buy up the land.

Who can own land and how it affects property values and residents has been a hot topic for decades. For instance, farm ownership and land prices were an election issue for the Allan Blackney NDP government in 1971.

Regardless of who is in office, farmland prices and ownership will remain a complex issue that the government must manage.

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