Ownership limit rules cooling Canada's farmland boom

Winnipeg

EIGHT years after almost doubling their money by selling a 320-acre (129.5 ha) chunk of their Saskatchewan farm, Mervin and Doreen McElree are having a more difficult time unloading the remaining 160 acres to finance their retirement.

While lower crop prices are partly to blame, the pool of potential bidders also is getting smaller. Saskatchewan, Canada's biggest agricultural province, imposed a temporary ban last month on certain investors acquiring farmland. The government's concern is that surging land values fuelled by pension-fund investment - while a boon to retiring growers - deters younger ones, boosts agricultural debt and threatens to create more tenant farmers.

The ban created a dilemma for the growing number of older farmers seeking to unload their land and halted planned purchases by investors including the country's largest pension fund. As much as C$50 billion (S$55.3 billion) of farms across Canada, the world's second-largest wheat exporter, will be sold by growers to finance their retirement over the next 15 years, according to investor Bonnefield Canadian Farmland LP.

Back in 2007, an investor paid more than C$200,000 for a 320-acre parcel, almost double what the McElrees spent in 1995. The couple wants to sell the remaining 160 acres and farmhouse in the rural municipality of Edenwold, eight kilometres outside of Regina, to "anybody that can pay", which would give them the money they need to finance their new home in the city, she said.

For now, the province is limiting who can bid on the McElree property. Saskatchewan, home to more than 40 per cent of Canada's agricultural land, temporarily banned farm purchases by investment trusts and pension funds on April 13 as it reviews provisions of the Farm Security Act. The government is reviewing whether to make permanent restrictions or relax rules and let anyone buy.

Increased investor demand could make land too expensive, turning more farmers into renters, and "therefore making farms possibly more at risk", Saskatchewan Agriculture Minister Lyle Stewart said. "The concern with farmers is also that foreign investors or institutional investors would drive the price of land beyond what it's really worth."

Farmland values more than doubled in Saskatchewan over a decade to C$881 an acre by 2013, Statistics Canada estimates. Last year, prices jumped 19 per cent, more than any other province and topping the nation-wide increase of 14 per cent, according to an April 13 Farm Credit Canada report. The province probably will see another 8 per cent gain in 2015, said JP Gervais, chief agricultural economist at Farm Credit Canada. Like their southern neighbours in the US, Canadian farms have surged during a period of low interest rates and higher income, he said.

With farmers getting older, more land is coming up for sale. Canada's 2011 Census of Agriculture showed that 55 per cent of operators were 55 or older, up from 38 per cent two decades earlier. At the same time, there were fewer younger farmers, which means more assets will be owned by private investors and bigger farm operators, the report said.

Many potential farmers can't afford to get into the business, Norm Hall, president of the Agricultural Producers Association of Saskatchewan, said from Wynyard.

"They're now competing in a land market with investment companies, and that's a very, very unlevel playing field," said Matt Gehl, a board member of the Saskatoon-based National Farmers Union.

While only Canadian or Canadian-owned companies can buy farmland, and foreign residents are restricted to 10 acres, sales to investors have increased in the past decade, according to a review of land titles in three Saskatchewan municipalities, said Annette Desmarais, associate professor at the University of Manitoba.

The Canada Pension Plan Investment Board, which manages C$254 billion, has purchased about 140,000 acres in Saskatchewan, according to the Farm Land Security Board, a Regina-based organisation that oversees ownership regulations. Another federal government pension and the British Columbia Pension Corp have expressed interest in buying land in Saskatchewan, said Mark Folk, general manager of the Farm Land Security Board in Regina.

The surge in land values has boosted borrowing, with farm debt up 22 per cent to C$78 billion between 2010 and 2013, the National Farmers Union said in a March 10 report.

The price of land is a major concern in some rural communities, where older farmers are leaving and investor purchases show no signs of declining, said Ms Desmarais, the University of Manitoba professor.

"We certainly need to have a whole lot more new, young farmers on the land, and that's going to be really hard to do if the price of land continues to rise," she said.

For now, Saskatchewan's ban has cooled investment. Toronto-based Bonnefield, the largest manager of farmland investments, said that none of the C$260 million in new capital raised in the last year will be used in the province.

"Capital is being scared away," said Tom Eisenhauer, Bonnefield's president. Investors "are aggressively putting their money elsewhere," he said. BLOOMBERG