What is Farmland (Agricultural Land) ?
Agricultural land is any land on which activity designed to grow food products can take place. Generally, this happens on farms, but it can also happen on any land where it is possible to grow plants for fuels and fiber, as well as wood, as well as for other products that are organically derived.
Obviously, there are different types of farmland, because in different parts of Canada, one finds different agricultural products. You don’t grow apples on the same sort of land, or in the same sort of climate, where you would grow grain. When a landowner decides to dedicate a parcel of land for agricultural purposes, factors such as physical accessibility, market trends and agricultural business costs can all play a role.
Agricultural Farmland Classifications
Within Canada, agricultural land is graded on a seven-point scale as far as capability class. Land that is graded Class 1 has the most versatility as far as crop ability. Class 7 basically has no possibility for agriculture that uses the soil. The classes in between have some uses; Class 6 is most often used for animal grazing, as well as uncultivated agriculture that is perennial and/or native.
Each class also has subclasses that identify specific management practices and/or limitations that influence the land’s usefulness. These factors include soil moisture deficiency, topography, decreased fertility and the presence of stones. Draining the land, removing stones, adding fertilizer and irrigation can all address those limitations. For this reason, land is almost always accompanied by two ratings; one before the recommended improvements have been made, and one afterward. One common assumption is that it will be possible to irrigate the farmland with outside water. Stone removal, diking, salinity alleviation, draining, fertilization and subsoiling are also common mitigations that are assumed to be possible.
For farming purposes, the best classifications are Class 1, 2 and 3. However, a great deal of the best farmland in Canada is vanishing due to expanded urbanization – up to 25,000 hectares a year, in fact. Each time 1,000 people join the Canadian population, 53 hectares of prime farmland near the big cities disappear. This is a major problem in Canada, because despite the country’s large size, only about 3 percent can grow crops, and 4 percent can go to pastureland. Clearing land of its plant cover can ruin the soil beneath it for agricultural purposes, thanks to erosion and the impact of direct sunlight.
Over time, this trend has caused a great deal of turmoil in Canadian agriculture. Since 1920, almost two-thirds of the loss of farmland in Ontario, Quebec and the Maritimes has come from urbanization and degeneration of the soil. About half the nation’s Class 1 farmland is in southern Ontario – where population growth has been the fastest.
As sustainability becomes more and more of the conversation with respect to land use, and as the population continues to grow, farmland investors are likely to increase in number.
Farmland Industries and Family Farms
Within Canada, about 36 percent of agricultural production comes from the dairy, cattle and hog industries. Of the remaining available agricultural land, about 80 percent of what Canada has is in Western Canada.
The number of family farms in Canada has dropped to just over 205,000 as of 2011, which represents a ten percent decrease. However, corporate farms are growing. They only represent 2 percent of the number of farms in Canada, but their proportion is growing. Here are some other key facts about Canadian agriculture:
- Canada leads the world in the production of peas, lentils, canola, flaxseed and mustard seed.
- Canadian farmers’ markets had sales in 2009 of over $1 billion, bringing an economic impact over $3 billion.
- Canadian dairy genetics exports in 2012 were valued in excess of $110 million.
- Canadian animal production exports to China rose by 44% in 2011.
- In 2011, agriculture and agri-food provided 12 percent of Canadian jobs and accounted for 8 percent of the nation’s GDP.
Lending on Farmland
There are several reasons why you should consider investing in Canadian farmland, even during the pandemic. The COVID-19 spread has made a global retraction similar to what happened in the Great Depression during the 1930s a distinct possibility. The major economies in the world are heading for the biggest quarterly drop in recorded history – which makes land a stable part of any portfolio.
One number that hasn’t stopped growing is the global population. There are over seven billion people on the planet today, and by 2050, that number is projected to exceed nine billion. Another projection involves 90 percent of existing farmable land will be used to grow up to 70 percent more food to feed these people. As a result, farmland will become even more valuable. Given that farmland supply is constant, an increase in demand will lead to an increase in demand for food – and in demand for arable land.
Between 1988 and 2018, Canadian farmland increased in value from about CAD 500 per acre to over CAD 3000 acre. In the United States, the value of farmland jumped about 500 percent. This growth in value has been particularly strong in Saskatchewan, where the prairie land has considerable versatility. Saskatchewan has almost half of the cultivated farmland in Canada. Ownership has been more restricted than elsewhere in Canada, which has held per-acre prices down. However, those restrictions have eased in recent years, which has land prices in the province going up. The three-year average increase in farmland values in Saskatchewan was 6.2 percent as of Farm Credit Canada’s 2019 report, as opposed to 4.9 percent in BC and just 3.3 percent in Alberta.
Looking at this from an investment perspective, farmland has shown more positive growth year-over-year between 2009 and 2019 compared to the Toronto Stock Exchange (TSX). The TSX went up by over 30 percent in 2009, but in three of the years during that time, there were years that featured drops of more than 10 percent. Farmland, in contrast, has consistently grown in value, with jumps between five percent and over 20 percent.
Amansad Direct Lending Group of Investors is looking to lend to small or medium-size farms that need help keeping operations going. The loan can be as small as $100,000 to $500,000, and it can be larger depending on various factors. The mortgage has to be in first position and can lend up to 60 percent of the farmland value. Our preference is to lend to crop farmers, but other farmers will be considered too. If you’re interested in getting your financing on your farmland and don’t qualify with a bank or institutional lender at this time , get in touch with us. We may have short term solutions until things get back on track.