Man sells his farm and walks into a financial advisors’ office.
“What should I invest in?”
Whether through family farm legacy, or just the pride of ownership, farming and land real estate have been intertwined throughout the generations. From the first settlers in Western Canada, the idea of owning land was first and foremost for food production and to feed those around us. Only as of late have the tables turned, resulting in what most have a hard time understanding. Farming and land ownership are not the same business.
Growing up I always knew my father was a farmer. Early in life it didn’t matter what we owned or rented, it mattered that I got to ride the combine in the fall and tractor in the spring. As I grew older, I came to learn more about the business side of land and agriculture as the farm went through periods where we both gained and lost rented land. I was also around when my grandfather’s estate was settled and all the kids were provided land, which in today’s succession and transition planning would be greatly scrutinized. But back then when land was not worth much, it was normal.
So why do farmers have this fascination with land? Without speculation, I can only comment on my own experiences and insights. My father had more pride in land ownership than I did when I came back to the farm. He grew up a farm kid and was part of the growth, trials, and tribulations of farming when it was not profitable. Interest rates higher than 20%, and weather and market occurrences that today would be seen as disasters were more normal than not.
In fact, my first year of farming I could have rented land for the property taxes. But this I believe is why the older generations are emotionally tied to the land. It was not easy, and they made it work for the love of the lifestyle. In today’s world this is not always the case. Land is now an appreciating asset and an inflationary hedge like gold. This is why the world is changing.
Whether good or bad, land ownership is no longer about a lifestyle.
Family farms, whether we agree or disagree, are multi-million-dollar enterprises. Farmers themselves have become the richest 1% in Canada within a decade due to this multiplier increase in value. In fact, if you ask most producers today the resounding comment is “I should have bought more”. Now along comes the new differentiation that producers will need to identify, there is farming and there is real estate, and they are not as intertwined as originally thought.
Okay, now I have your attention and for some, your anger, hear me out. Can you farm without ownership of any land?
Although harder, the answer is yes.
In fact, all of our growth in the last three years moving from a 14,000 acre farm to a 32,000 acre farm has been done through short and long-term rental arrangements. We are proof that you do not necessarily have to own land to succeed in farming. It helps, but it is not a hard and fast rule.
Secondly, can you own farmland and not be a farmer? Again, the answer is yes as many retiring farmers have become landlords and in many aspects are considered “real estate moguls”. Times are changing and the way we treat business in our industry must also change.
In past blogs I have covered how consolidation and growth in the industry are usually treated with negativity and criticism. What if I told you that whether it be large-scale farms or outside investment looking for real-estate returns, the decisions being made are based on dollars and cents of return on investment, and not on how much per acre you make?
Earlier I made the comment that most of the equity in agriculture is not from farm profits, but rather from the appreciation of land bought at a very low-cost base and having ten or more times the return. Why as an investor, would I not look at this as an asset I want to invest in?
So, in an era where we are seeing farms continue to grow into sizes that many consider against the landscape of what “family farming” should be, we need to remember that the majority of the 60M acres in our province remain owned by families. We often treat agriculture differently from other industries due to this fact, but the truth is many businesses in many industries are family run (Cargill for example).
The industry will need to start realizing that consolidation will occur in an industry where wealth is accumulating. That and the fact that our demographic is shrinking as the baby boomers exit the industry (the average age of a farmer in Western Canada is moving closer to 65 years old), there are going to be less of the new generation to take over these farms. Like it or not, bigger is coming. Our job is to make sure that bigger is better and not worse.
So, the next time you hear a new land deal at unprecedented prices or want to think negatively about outside investment in agriculture, take a step back and realize that this growth is what made our industry as profitable and wealthy as it is today. The next generation will have a harder time transitioning into farming, but they also saw immense growth in the past generation and probably had better childhoods because of it.
Whether we like it or not, land prices at the current levels are likely here to stay.
The only question is are you a farmer or an investor at this point?