On one hand, the rising cost of buying and renting farmland is a good thing. On the other, it’s a festering sore spot within agriculture.
The increasing cost of land acquisition is directly related to the profitability of farm operations. In the bad years from about 1983 to 1993, land prices often dropped year to year because it was really tough to make any money. No one wants to see the return of that financial hardship.
But now the expectation of ever-increasing land prices has further decoupled the productive value of land from the income that can actually be generated. Land has always been priced above its logical productive value, but calculations by Farm Credit Canada show the gap is wider than it has ever been.
Land rents are highly competitive as well. Opinions vary on whether a farm can be successful long term if expansion hinges on renting a large percentage of the acres. The way land prices have risen over the past 15 years, anyone who has purchased land has seen a handsome increase in value. Renters have missed that benefit.
Land investment companies have complicated the situation. Once thought to be having a minimal impact on the overall land market, the big investment companies are now recognized as one of the driving forces.
Their activity is often justified by the argument that investors make rental land available to beginning farmers who can’t afford to buy. However, there’s little evidence of altruistic intentions. Land investors are not a charitable organization. They are in the game to make money.
Meanwhile, large farms grow ever larger. Because of their asset base, they are more able to purchase land and they are often able to outbid competitors on rented land.
Should virtually all the land be farmed by a relatively small number of very large operators? Many would say that isn’t a desirable outcome, but few policy ideas are being evaluated to stop this natural progression.
Trying to counteract market forces is typically a losing battle, but the topic deserves more discussion and analysis. Even many producers with sizable acres and assets wonder if their farm will have a viable future for the next generation. Will they be able to compete amid some very large farms and the land investment companies?
Interestingly, the term “family farm” is often bandied about to make mega farms seem acceptable. Many huge businesses are family owned and passed down from generation to generation. It doesn’t necessarily make them more virtuous.
People often decry the monumental obstacles faced by a young person wanting to start farming. They make starting a farm sound like some fundamental right. It isn’t. Neither is owning your own home in a big city.
However, provinces and nations do have the ability to create rules aimed at desirable outcomes. One rule change I once suggested in this column is a cap on crop insurance coverage. Beyond a certain size, say $5 million in liability, why is crop insurance still government subsidized?
A 10,000-acre farm with $500 an acre in crop insurance coverage would be at $5 million in liability. They could still purchase crop insurance above that liability, but it wouldn’t be government subsidized.
This is one policy tool that in at least a minor way could tilt the table towards more moderately sized operations. Tax exemptions on farm fuel are another area that could be considered. Other policy options no doubt exist and should be actively discussed.