Buying Farmland In Canada
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Simple economics suggest that if demand increases while holding supply constant, prices will rise. That means increased demand for food and constraints on arable land will lead to appreciating farmland values.
According to Statistics Canada, the average price of farmland per acre in 1988 was $464. At the same time, according to the U.S. Department of Agriculture, American farmland was the equivalent of C$885 per acre. In 2018, the average of farmland per acre in Canada exceeded $3,000, and in the U.S., it exceeded $4,000. Based on this historical data and the future outlook, investment in farmland is promising.
Saskatchewan farmland ownership has been more restricted than other provinces, resulting in a historically lower price per acre. Given the high soil quality and relaxation of purchase provisions over the past decade, the price per acre in Saskatchewan is on the rise. That means forthcoming investments are likely to provide fruitful returns and capital appreciation.
Some of the largest Saskatchewan farmland owners, including Andjelic Land Inc., Avenue Living Agricultural Land Trust and the Heide family have benefited from farmland appreciations via their strategic investments.
Even though the TSX showed more than 30 per cent appreciation in 2009, three of the those years produced depreciations exceeding 10 per cent. Conversely, farmland consistently appreciated, ranging from five per cent to more than 20 per cent, throughout the same 11-year period.
Further opportunity for investment in farmland remains, with substantial value to be extracted. Specifically, regions of Canada like Saskatchewan have been historically undervalued and as a result, are appreciating.
The agricultural census divides farmland into crops, summer fallow, pastures, and other lands. Cropland includes field crops, vegetables, fruits, nursery crops, and sod. Tame and Seeded Pasture is land used by farmers to graze animals that have been improved in some way (i.e., not wild pasture). All other lands include uncultivated pastures, land used for buildings, maple syrup lands, uncultivated lands (privately owned woodlands and wetlands on production operations), and all other agricultural lands.
The amendments introduce an annual limit on the number of hectares that non-residents can purchase. The Commission may allow the acquisition of only 1,000 hectares of farmland annually by foreign corporations or individuals not intending to settle in Quebec, although it may examine additional applications.
Any acquisition of agricultural land in Quebec in violation of the law is prohibited. The Commission may order a non-resident to set aside the farmland within six months of the issuance of the order, failing which he may apply for permission for judicial sale of the land. Deliberately acquiring or selling farmland in violation of legislation may result in a fine of at least 10% of the value of agricultural land for an individual or at least 20% in the case of a corporation or other legal person.
On the state level, regulations vary. Most states, like Texas and Maine, have no restrictions on foreign ownership of land, contributing to the large amount of farmland that is under foreign control in these states. Six states forbid any foreign landholdings, and some, like Missouri, put caps on how much land can be held by foreign entities.
A4: Since the 2013 purchase of Smithfield Foods, multiple bills have been proposed to provide more oversight of foreign investments in U.S. agricultural companies (including in 2017 and 2020), but until recently they each died in committee. Even if these bills had passed, they would have strengthened oversight on purchases of U.S. companies, not agricultural land specifically, leaving most land acquisitions unregulated. Furthermore, policymakers have signaled no efforts to improve state- or national-level information on foreign purchases of U.S. farmland, leaving the true picture obscured.
A5: Land grabbing is more of an immediate threat to food security in other parts of the world than it is in the United States, but it could become a greater threat in the future if more farmland is sold and if foreign investors continue to buy available farmland. The U.S. farmer population is aging, with an average age of 57.5 in 2017, up from 55 in 2012. The National Young Farmers Coalition (NYFC) anticipates that two-thirds of farmland will change hands over the next decade as farmers retire, meaning that more land could become available for foreign purchase.
It is important to note that foreign entities are not the only ones aggressively buying up U.S. farmland. Many large corporations, pension funds, and wealthy individuals are investing in agricultural land in the United States and abroad. Advocacy groups like the National Family Farm Coalition argue that the larger threat to national security is corporate capture of U.S. land resources, whether those corporations are U.S.- or foreign-owned. The NYFC also points to both urban and rural development as a threat to the future of U.S. farms, since converting farmland to other uses drives up prices and makes the land unaffordable for beginning farmers. Along similar lines, climate-related efforts to increase biofuel production and expand afforestation and reforestation could reduce the amount of land available for food production in the future.
For long-term U.S. food security, perhaps the larger concern is why up-and-coming U.S. farmers are unable to buy the land they need. According to the NYFC, young and aspiring farmers say access to land is their largest barrier to starting a successful farm business. With an aging U.S. farmer population and not enough new farmers able to enter the industry, more land will inevitably be converted to other uses or sold to foreign and domestic investors unless policies are put in place to support the next generation of farmers. Focusing narrowly on land purchases by Chinese companies or other foreign entities will not address the full scope of this problem. Policymakers should, instead, consider the many threats facing the future of the U.S. food system and ensure that current and aspiring farmers have the resources they need to secure long-term U.S. food production, starting with access to affordable farmland. In addition to federal action, some states, like Arizona, could do more to protect their local resources and communities from exploitation by domestic and foreign entities.
A previous version of this Critical Questions incorrectly stated that upon acquiring Smithfield Foods, WH Group (formerly Shuanghui) owned 146,000 acres of Missouri farmland. This piece has been corrected to state that upon acquiring Smithfield Foods, WH Group was reported to own 146,000 acres of farmland across the United States, including approximately 42,000 acres of farmland in Missouri as of 2015.
Sheldon Zou inspects his equipment on his farm in Ogema, Saskatchewan, on May 23, 2013. With too few farms in China to feed a burgeoning population, Chinese immigrants have started buying up agricultural lands in Canada and shipping produce to Asia. (AFP/File)
In Saskatchewan province, home to 45 percent of all arable land in Canada, the price of farmland has risen an average of 10 percent in the last year, and as much as 50 percent over three years in areas where Chinese immigrants have settled, according to farmer Ian Hudson, who lives near the village of Ogema.
Provincial authorities counted a half dozen large investment firms buying up farmlands in the province of one million people, but could not say if any of them are linked to Beijing, nor estimate the size of their land holdings.
\"The law in Saskatchewan is clear that investment in farmland in this province (buying more than 10 acres) is restricted to citizens of Canada and permanent residents,\" provincial agriculture minister Lyle Stewart told AFP.
But after Chinese state-owned firms poured vast sums into neighboring Alberta's oil sands -- which forced Ottawa to tighten its investment rules to try to prevent foreign governments from controlling Canadian resources -- many in rural Saskatchewan are quick to believe that Beijing is now targeting their farmland to feed its people.
A former manager of a Mattel toy factory in China, Hu moved to Canada in 2004 and started a real estate firm in Alberta before relocating to Saskatchewan after seeing potential profits in its \"undervalued\" farmlands.
Ontario does not have any restrictions on Chinese buying farmland or property in the province. Prince Edward Island has the strictest rules among provinces. You have to live on the island to buy farmland there. Foreigners face heavy restrictions on land purchases in China.
Anecdotally, rural Ontarians north of Toronto have expressed alarm over Chinese purchases of farmland there, says Charles Burton, Senior Fellow at the Macdonald-Laurier Institute and a former counsellor at the Canadian Embassy in Beijing. However, there is no way to know the long term designs for the land, he said.
Since the early 1990s, farmland has shown a profitable return every single year. The USDA says that farmland brings an average annual return of 11.5%. Take a look at its track record, and you will see that farmland outperforms all other asset classes, including real estate.
So, you've decided you need to get involved and participate in farmland growth. However, purchasing a farm isn't exactly what you had in mind. Unlike stocks, ETFs, and mutual funds, farmland isn't something you just purchase through a brokerage account.
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