Betting the farm – and winning
Published: 17 Mar 2011
Investors are buying up our farmland and making traditionalists nervous
by Sarah Elton
The great plains of the Prairies grew the nation, fed the British Empire and fuelled our literary canon. Now the world’s breadbasket has a new role in a growing number of investment portfolios. Investors are buying Canadian agricultural land, betting that rising food prices, a ballooning global population and growing worldwide scarcities in farmland will mean a payoff for them.
“The interest we’re seeing has gone exponential,” said Stephen Johnston of Agcapita, one of a handful of private companies in this country that are investing in land on behalf of high-net-worth individuals and creating farmland funds because, he says, compared to other parts of the world, Canadian farmland remains cheap. Prices range from about $500 an acre in Saskatchewan or $700 in Manitoba to a steeper $1,200 in Alberta (versus anywhere from $6,000 to $10,000 an acre in Iowa, say, where prices have risen dramatically in the past year). Many predict that one day the land will be as precious as gold—or even better. “Unlike gold, farmland generates ongoing income,” said Johnston.
Not only are investors speculating on land, they believe they can make a profit leasing the acreages to farmers while they wait for the right time to sell. Investors in Saskatchewan are charging rent equal to seven per cent of a property’s worth, said Johnston. That would mean a farmer pays around $70,000 upfront in rent, per year, for an average-sized 2,000-acre farm from Agcapita. The number could climb with farm prices, which are already rising. According to Statistics Canada, the price of Alberta farmland almost doubled between 2000 and 2009. According to Marvin Painter, a business professor at the University of Saskatchewan, the dividend yield from the rent and the predicted capital gain from a future land sale works out to be only slightly below what a blue-chip stock would reap.
“It’s a forever asset that produces income,” said Brad Farquhar, co-founder of Assiniboia Capital Corporation, which controls more than 110,000 acres, worth about $55 million, in Saskatchewan. They began raising money for their venture in 2007, both from big clients and smaller investors—half of their approximately 500 investors put in less than $10,000, he said. To ensure they are buying land that can generate rental income, the company assesses the productivity of a farm, and therefore the worth of the land, by examining soil quality, past yields and rainfall. “The last thing you want to do is buy land where the nutrients have been extracted by the last farmer,” he said. They only rent to farmers who “farm well,” and agrologists go out every year to inspect the land. The company hopes to assemble a large farmland portfolio that might be of interest to big-league investors. “Maybe Canada Pension Plan takes an interest in farming,” he said.
While the pension plans haven’t come calling yet, investors elsewhere have their eye on the Prairies. Johnston at Agcapita receives at least one call a week from people outside of the country who are interested in buying in. “I say thank you very much for telling us we’re on to a good idea, but you can’t invest,” he said. That’s because only Canadians are permitted to own farmland in Saskatchewan, Alberta and Manitoba. But anyone is permitted to purchase farmland in B.C., Ontario and Quebec where, last year, outrage followed reports that Chinese interests wanted to buy millions worth of farmland in the province. Indian businesses, too, are looking to invest in cranberry production there, following in the footsteps of a U.S. subsidiary of Manulife Corporation that purchased one of the province’s cranberry farms in 2009. The fracas prompted the Desjardins Group to release a study paper concluding that “the public’s reaction has shown just how much Quebecers care about who owns the land.”
Investment of private equity in farmland has been ongoing for several years in the U.K., Ukraine, New Zealand and Australia. (In fact, the Alberta pension fund is reported to have purchased land in Australia that will be developed into a timber plantation and farm.) The governments of land-poor countries such as Saudi Arabia and Korea, as well as corporations and hedge funds, are buying huge swaths of farmland in South America, Southeast Asia and Africa, in what many call a land grab. A World Bank report on the issue described how farmers in the Democratic Republic of Congo, displaced after land was sold to a foreign buyer, had to pay guards at a national park to let them grow their crops there.
Indeed, wherever these sales are taking place, there is protest, said Devlin Kuyek, a researcher with GRAIN, a non-profit that has studied the phenomenon since it noticed the trend in 2008, after the stock market crashed. “It’s about food sovereignty and control over land and water,” he said of the protests. In Canada, too, there is growing opposition.
“Farmland is food land,” said Kevin Wipf, executive director of the National Farmers’ Union, which authored a report that condemns the trend. “To have it bought up to be rented back to those who grow our food is not ideal for the food system.” Critics worry farmers will lose control if they don’t own their land, and this might mean that more profitable crops, such as those used to make biofuels, are prioritized over food production. Also, farmers already have a hard enough time making a living, and they fear investors will take away more of their profits. “You are putting in another player who is taking money away from the equation,” said Kuyek.
So far, the amount of Canadian land that has been sold to investors is unknown, in part because government is not keeping track, said Wipf. Rémi Lemoine, chief operating officer of Farm Credit Canada, a federal Crown corporation that usually lends money to farmers who want to expand their businesses, says they’ve also helped finance purchases by land equity groups with loans of “up to $9 million at a time,” though Lemoine said they won’t work with foreign organizations and the land must remained farmed, even if the farmer doesn’t own the title.
Just who controls the land goes deeper than simply whose name is on a deed, said Wayne Caldwell, professor of rural planning and development at the University of Guelph. “From a community perspective, it’s problematic. We have a legacy of farms being places where people live and make a living. It’s a romantic view, but it’s also a reality,” he said. “We’re in uncharted territory. We’re not sure what the implications will be.”