Surprise increase in farmland prices

The article in Le Bulletin des Agriculteurs, published in early March 2023, covers the development of Canadian farmland prices, which again in 2022, as in previous years, showed surprising increases.  Indeed, the value of Canadian in Canada jumped again in 2022, increasing by almost 13%. This is the largest increase in land values since 2014. In Quebec, the recorded increase was 11%. Farmland values in Canada overall rose by 8.3% in 2021 and 5.4% in 2020.

Change in farmland prices by province

The largest average increases in farmland values were reported in Ontario, Prince Edward Island and New Brunswick, with increases of 19.4%, 18.7% and 17.1% respectively. Saskatchewan followed with an increase of 14.2%. Five provinces had average increases below the national average: Nova Scotia (11.6%), Manitoba (11.2%) and Alberta (10%).

Interest rate increases had no impact

The increase surprises even Farm Credit Canada’s (FCC) expectations, says Chief Economist Jean-Philippe Gervais. “Difficult economic conditions could have slowed the demand for farmland and therefore lowered the price paid for it in 2022. However, the underlying fundamentals of the farmland market paint a very different picture.”

Rising interest rates across the country, which have climbed 4% in 12 months, have not played the expected role as they have in real estate. Instead of slowing down purchases, they have continued unabated, even with prices for high input. According to Jean-Philippe Gervais, high farm incomes are supporting demand, but the most important factor is the scarcity of available land. “The land market is very localized among certain buyers. Available land is scarce, so that creates competition. You have to look at the supply side to explain the trend.”

Jean-Philippe Gervais acknowledges that rising farmland prices are a challenge for young producers, new farmers and other landowners who want to expand their operations.

According to Hermann Miehe, President of FIAN Farm and Forest Management Canada, price increases in recent years demonstrate the attractiveness of this investment category: “Canadian farmland investments have always been an attractive diversification strategy. The consistent returns of this type of alternative investment in recent years confirm the attractiveness of this sector for local and foreign investors.”

Here is the complete article of the Bulletin des Agriculteurs (in french):

https://www.lebulletin.com/actualites/hausse-surprise-du-prix-des-terres-125677