Farming on the decline, farm prices on the upswing

September 5, 2013 · 0 Comments

What do crumbling barns and boarded up farmsteads along with disappearing fencerows tell us?

Were it not for the luscious green fields, the mammoth tractors, the shiny new 4x4s and a growing number of virtual mansions throughout the countryside, one might be reminded of the poverty portrayed in The Grapes of Wrath.

But one must be careful of what conclusion to draw from the changing countryside. Fact is, there is no single answer. It might be useful to view some numbers.

Statistically, farm numbers are declining – and have been since 1941, according to Statistics Canada. “Between 2006 and 2011, the number fell in every province except Nova Scotia, where it rose 2.9%. The number of operators was down everywhere in Canada except Nova Scotia, where it increased 2.5%, and British Columbia, where it was up marginally.”

StatsCan says the while the Canadian number of farms dropped by 10.3% between 1996 and 2011, the average farm size grew by almost 7% –to 778 acres in 2011 from 728 in 1996.

At the same time, farmland prices soared drastically and there were significant changes to what was being done on the land: the share of oilseed and grain farms increased while the share of beef farms declined.

How much did prices rise? David Sparling the Ivey Business School at the University of Western Ontario is quoted as saying, “if you’re looking at (buying) a 100-acre farm, which is not a big farm, you’re looking at $1 million to $2 million — as a starting point.”

If, as reported by StatsCan, 83 cents of every dollar generated in farm sales goes to costs of production – not including depreciation – you can’t justify a business investment in a small farm, if that’s the only acreage you’ll cultivate.

In fact, in 2011, Canada had 9,602 farms that reported $1 million or more in gross farm receipts, a 31.2% increase from 2006. These farms accounted for 4.7% of all farms and 49.1% of receipts, up from 3.2% and 42.8% respectively five years earlier.

There’s what appears to be a 100-acre “farm” in the St. Catharines area advertised on the Internet at $2.2-million. Here’s how the owner revealingly describes the acreage:

“A beautiful piece of rural property zoned agricultural conforming to existing uses. Includes 1,800 sqft apartment above business. 35 Acre forest with 2 cabins. 12 acre man-made lake. 53 acres of tile drained farmland, 1/5 asphalt oval go kart track. Site would make an ideal campground, re-zoning required. Suitable uses auto, marine, power-sports, industrial or farm equipment sales and service.”

In 2006-07, Boston-based hedge fund Baupost Group purchased something like 6,500 acres of farms in Dufferin County for $8,000 an acre, which was reported as being at or above market at the time.

Baupost, operating as The Highland Companies, proceeded to consolidate and expand potato operations on the land but also sought to establish a mega-quarry to mine the estimated billions of dollars of limestone that lay beneath the soil to a depth equaling Niagara Falls.

When Highland abandoned its quarry plans under widespread public pressure, Ottawa-based Bonnefield investments purchased all of Highland’s interests for an undisclosed price believed to be in excess of $12,000 an acre.

In the meantime, however, Highland had demolished at least 18 farmsteads along with their barns and other outbuildings.

What’s driving prices upwards? You’ll get three answers, all of which might be correct: city folks are bidding on country property; disappearing land makes it a good long-term investment; and currently low interest rates make it easier to purchase.

While Highland was expanding the potato operations, Ontario’s potato acreage was declining. From about 40,000 acres in 2006, it dropped to 37,000 in 2011.

Ontario’s census farms (those that grow something for sale) are still smaller than the national average, but they are growing. From an average of 206 acres in 1996, they expanded to 244 in 2011. At the same time, the number of operators declined to 75,000 from 97,000, and the area under cultivation dropped to 12.7 million from 13.9 million, according to StatsCan.

On average, farmers are aging. “For the first time, operators in the 55 and over age group represented the largest share of total operators. They accounted for 48.3% in 2011 compared with 40.7% in 2006 and with 32.1% in 1991.

“Farm operators under 35 represented 8.2% of the total in 2011, a decrease from 9.1% in 2006 and less than half the proportion of 19.9% two decades earlier. Those aged 35 to 54 accounted for 43.5% in 2011, down from 50.2% in 2006,” StatsCan reports.

So, if you are a farm operator and labouring well beyond 40 hours a week while nearing retirement age, and if you can become an instant multi-millionaire by selling the farm, how tempted are you likely to be?

If you do sell, especially in some parts of southwestern Ontario, it might be to a hobby-farm aspirant from the city or to a neighbor expanding his farm; in either case, it’s likely that the barn you have so fondly maintained will become redundant and join the throngs of the demolished or crumbling.

By Wes Keller