<a target="_blank" href="http://ad.ca.doubleclick.net/N3081/jump/calgaryherald.com/business/story;loc=top;sz=960x42;kw=ron;kw=business;nk=print;pr=ch;ck=business;page=story;kw=ch;ord=94445886?"><img align="TOP" border="0" vspace="0" hspace="0" src="http://ad.ca.doubleclick.net/N3081/ad/calgaryherald.com/business/story;loc=top;sz=960x42;kw=ron;kw=business;nk=print;pr=ch;ck=business;page=story;kw=ch;ord=94445886?" /></a> Investment funds staking claim to Prairie farmland
With almost half of Canadian farmers aged 55 and over, a burgeoning number looking to build a retirement fund from the sale of their land have access to a new class of buyer - venture capitalists.
Farmland investment funds, a relatively new concept in Canada, are popping up all over the country and buying land, mostly in Saskatchewan, but also in Alberta.
Acting as the landlord, these funds lease the land back to farmers, who operate it. Over the past five years, major players such as AgCapita Farmland Investment, Maxcrop Farm Canada, Assiniboia Capital Corporation and Bonnefield have staked their claims on the Prairies.
The founder of Alberta-based AgCapita, Stephen Johnston, said these funds are a minimal risk for investors and a means of increasing land value for farmers.
"Farmers in Saskatchewan want to get better prices for their land," Johnston said. "A lot of farmers are looking to retire, so there's a lot of interest for retiring farmers for prices to be back at parity."
But some farmers say the funds are driving up land prices to a point that prevents a new generation from buying into the industry.
"We are going back to the turn of the century - my grandfather came to this country to avoid the feudal system," said Edward Sagan, who has farmed for 35 years and is a board member with the National Farmers Union of Canada. "Farmland should be owned by individual people, not the corporate elite."
A Conference Board of Canada report commissioned by the Centre for Food in Canada and released last week explained the funds as a means to create liquidity in an industry that is capital-intensive, allowing veteran farmers to expand their business or retire and new farmers an opportunity to lease new land.
The report states these funds have invested in more than 64,750 hectares of land in Canada - an amount equivalent to just one in 405 hectares of farmland in the country - but it's growing each year and the NFU views this business model as a dangerous new trend.
Doug Scott, an NFU board member in Alberta, said these funds are inviting short-term investors into a long-term industry.
"Investors see farmland as an investment right now and as a way to profit; and when things go south they will roll it and get out," he said, explaining that the volatility of grain prices alone would send investors packing.
Despite market volatility, the value of farmland has been increasing consistently over the last decade. A Statistics Canada report released in June stated that farm real estate prices rose 9.7 per cent in 2012, the largest yearly increase since 1981.
"We don't see any prospect of land coming down in value," said Michael Bloom, vice-president of organizational effectiveness and learning with the Conference Board. "Between domestic investment funds, international investors and market demand, that's a recipe for rising prices."
Brad Farquhar, partner with Assiniboia, explained that a young farmer does not have the $5 million it takes to buy a farm.
"It's less expensive; why do people rent a house as opposed to buy?" Farquhar said. "Lots of younger farmers don't have the capital to buy land, they use it on equipment and then rent land to get themselves started."
Matt Gehl, a 28-year-old NFU member who comes from a long line of farmers, did not have to worry about purchasing his land and considers himself lucky.
He said that competition from the funds is creating an environment that will prevent younger farmers from being able to afford land.
"They're not just targeting all land, they are targeting the same land that farmers are looking at - good-quality land," Gehl said.
"They are certainly not controlling provincial land prices, and these funds aren't the sole drivers of land prices - but in the areas where they want to buy land, they're driving those prices up, without question."
But Bloom said leasing provides another avenue for those young farmers to get into the business if the family farm is sold by the generation nearing retirement.
"There isn't an automatic succession in the family as there once was in family farms," he said. "They can get in by leasing."
All of the funds save for Maxcrop, which did not disclose its business model or financial information, said they returned about 20 per cent to investors last year.
AgCapita purchases land and receives rent from the operator up front in the spring to minimize risk for investors if there is a bad crop yield. Other funds such as Toronto-based Bonnefield and Saskatchewan-based Assiniboia usually take payments twice a year, during spring and fall.
Assiniboia manages $150 million in assets on more than 46,539 hectares of Saskatchewan farmland.
Bonnefield has managed assets at $22.9 million for its first fund and manages around 6,475 hectares between Saskatchewan and the Lethbridge area of Alberta. A second fund will soon be deployed with more than 10,117 hectares in both provinces.
Saskatchewan-based Max-crop manages 28,328 hectares and specifically caters to both Chinese and Korean-Canadian investors. Under the Saskatchewan Farm Security Act, there can be no foreign ownership of Saskatchewan farmland.
Jason Dearborn, the corporations chief operation officer said they comply with this act as they only sell to fully landed immigrants or citizens.
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