Across Canada, the average value of farmland increased by 6.6 per cent
By Kate Ayers
Regional land values across Canada increased between 2017 and 2018, Farm Credit Canada (FCC) recently reported.
While the national land value average increased last year, it rose less than in 2017 and 2016, an April FCC release said. Canada’s 2018 farmland value growth rate was the lowest recorded since 2010.
However, “the difference is not significant: 8.4 per cent in 2017 versus 6.6 per cent in 2018,” J.P. Gervais, FCC’s vice-president and chief agricultural economist, said in an email statement to Farms.com.
“The decline in the pace of increase can be attributed to increases in interest rates and slightly lower farm income in 2018 versus 2017.”
The average farmland values grew in every province except Nova Scotia, where land values dropped 4.9 per cent. Quebec experienced the highest gain in farmland values, which increased by 8.3 per cent.
The main driver of these increases is “fewer but more strategic investments by producers,” the 2018 FCC Farmland Values Report said.
In Canada, a limited supply of farmland exists. Producers are paying more for potentially productive land or are buying land in blocks to enhance operational efficiency.
“Land availability is tight, and so buyers can be aggressive when land becomes available for sale,” Gervais said.
“We must also remember that the percentage increase in land values is higher for less expensive land. So, producers are quite strategic in terms of finding land that can become more productive over time.”
The amount of land in production is critical to land values as well as farm income and interest rates, Gervais said in a report followup. Farm cash receipts dropped by 1 per cent last year, FCC staff estimated.
However, the lower income and higher borrowing costs did not reduce the demand for land as much as they expected. Demand may have remained strong due to producers adding more acres to increase operational efficiency, Gervais said.
In Ontario, the average value of farmland increased by 3.6 per cent last year, following a rise of 9.4 per cent in 2017, the report said.
The northwestern region of the province had the highest average increase at 7.6 per cent, followed by the southeastern and southcentral regions. The northern and eastern regions experienced no changes in farmland values.
In many of the areas of the province where farmland values increased, these changes were driven by “strong demand for a very limited amount of available land by supply-managed farm operations, cash crop producers and investors,” the report said. However, land values varied from region to region and even between areas within a region.
Soils that can support specialty crops like vegetables and ginseng, urban pressure and land purchases for future development also fuelled increases in Ontario farmland values.
Average land values in Ontario ranged from $3,621 per acre in northern Ontario to $17,561 per acre in the southwestern region of the province.
Across the country, producers should review their business management plans and make any necessary adjustments to accommodate for higher borrowing costs and farm income pressures, FCC’s ag economics team suggested. Farmers should also focus on increasing productivity and understanding their costs of production.
“Risk management strategies should be based on the financial situation of an operation as well as its strategic plan,” Gervais said.
“Some operations can find it profitable to rent land instead of owning the land they farm. Producers should also understand their exposure to lower commodity prices and rising interest rates.”
Overall, Gervais has a positive outlook on Canadian ag.
“Despite a few headwinds right now in the industry, the future looks positive because the demand for food and ag commodities remains strong over the long term. Rising asset values solidify the balance sheets of producers who own land,” he said.
“On the flip side, producers who want to expand find it more challenging because land is more expensive and requires quite a bit of capital. It can be a hurdle to expansion or farm transfer in some cases.”
For more information on trends in each province, see the 2018 FCC Farmland Values Report.