The landscape of foreign farmland investments in Canada

Recent discussions in Canada about the ownership of agricultural land by large corporations illustrate the dilemma faced by young farmers who wish to acquire new land, as well as individual farmland investors who want to take advantage of rising values and returns of Canadian farmland. The following article presents an overview of the global development of farmland investment and analyses the opportunities for foreign individual investors to purchase Canadian agricultural land.

Global increase of premium farmland values

In 2021, the Savillis Global Farmland Index, tracking average capital value performance for premium agricultural land (principally cropland) across the world in USD/hectare, recorded an average global farmland value growth of 18% during 2021 and a 11% compound annual rate over 20 years.

Within 20 years, from 2002 to 2021, farmland values in North America (USA + Canada) recorded impressive gains of around 400%, with Hungary, Romania and Poland showing the best performance with value increases of up to 1600 %.

Increasing inflation and food prices have driven financial portfolio managers to diversification – with the result that the development of global Farmland Values also compared very favorably to other commodities such as gold, oil, or food. As a matter of fact, the Global Farmland Index reached 700% growth in 20 years, compared, for example, with gold which reached around 530% growth during the same period.

Development of Farmland values in Canada

According to the 2022 FFC Farmland Values Report, farmland values in Canada increased again in 2022 by an average 12.8%, compared with a growth of 8.3% in 2021. The highest average increases are reported for Ontario, Prince Edward Island and New Brunswick, with respectively 19.4%, 18.7% and 17.1%.

Source: FCC Farmland Values Report 2022

What drives farmland investments?

Here are some of the various reasons supporting the expansion of prices for investments in agricultural land:

• Global population growth requires increased access to food;
• Land scarcity caused by natural catastrophes, as well as nurtured by a growing need for land for housing and industrial development;
• Strong and stable income over the years;
• Diversification and hedge for inflation, particularly since 2020, when inflation rates crept over 8.5% in North America;
• Potential new revenue streams based on the implementation of renewable energy projects on the purchased land and the opportunity of commercializing carbon certificates obtained through sustainable farming and forest management initiatives.
• Agricultural land is a long-term, cash-generating asset that is favored by institutional investors with very long liabilities, such as pension funds.

Who is investing in farmland?

Large pension funds, alternative investment funds, family offices, and lately private market funds have discovered agricultural land for the multiple reasons mentioned above.

While numbers for non-farmer investors are scarce for Canada, an article in the magazine Barron’s, citing the National Council of Real Estate Investment Fiduciaries (NCREIF), reports that pension funds and other tax-exempt vehicles currently hold about 1,331 U.S. farmland properties valued at US$16.2 billion.

A good example of farmland investments by institutional investors is Quebec’s pension fund Caisse de Dépôt et Placements (CDPQ) which announced in June 2021 its deployment of approximately C$2bn over the next five years in farmland and timberland.

As far as individual investors are concerned, according to the Toronto Star, the largest farmland owner in Canada is Robert Andjelic who owns 225,500 acres (91,257 hectares) in Saskatchewan, a Canadian province representing around 40% of Canada’s cultivable farmland. His investment thesis was simple: “What has Canada that the world needs, and that China can’t dominate?” The answers were water and agriculture (see article also in The Globe & Mail). Having started in 2009 with a small plot of land, his properties are evaluated today at between C$ 500M and C700M.

How to invest in Canadian farmland as a foreigner?

Ownership rules for foreign investors vary from province to province. For example, the provinces of British Columbia, New Brunswick, Nova Scotia and Ontario allow foreign ownership by non-residents, while Quebec and Saskatchewan require residence status by the individual or corporate purchaser. Alberta restricts foreign ownership to 20 acres, while Manitoba allows the purchase of 40 acres by non-residents (see the article by the law firm Gowling WLG on “Restrictions on Foreign Ownership of Agricultural Land in Canada”).

Generally, there are two options to invest in Canadian agricultural land as a foreigner:

• Invest through a private equity retail fund dedicated to Canadian farmland (open to qualified retail investors)
• Invest as an individual investor in a Canadian province that allows foreign investors to purchase agricultural land.

Here are the Pro’s and Con’s for investing directly in Canadian agriculture versus choosing an investment in a retail fund.

Comparison of Direct investment vs Investment through a Retail Fund

FIAN’s support for foreign direct investment into Canadian agriculture

FIAN’s clients are composed of individuals, family offices, and foundations outside Canada who wish to diversify their portfolio and invest directly in Canada, and who appreciate:

• Canada’s political stability
• Canada’s legal system and protection of legal titles for land
• Canada’s important water resources (Canada has over 2 million lakes and rivers).

While there are many advantages for investing directly in Canadian farms, it might seem difficult for out-of-the country investors to identify suitable investment objects, go through the purchasing process, choose farm operators, and take care of the operational and financial management of the purchased land.

That’s where FIAN comes in. Its team

• Assists in the decision-making about the profile of the ideal investment object (ex. location, type of operations, size of investment);
• Activates its network to identify land purchase opportunities, even before the land is on the market;
• Analyzes market pricing;
• Accompanies the investor through the bidding/purchase process;
• Takes charge of all operational and administrative work once the land purchase has been settled.

Would you be interested in learning more about agricultural investment opportunities in Canada? FIAN’s multilingual team (English, French, German) is here to answer your questions.