A new report by Re/Max Ontario-Atlantic Canada says rising agricultural commodity values and tight inventory levels have “seriously contributed to a significant upswing in the price of Ontario farmland in 2011.”
The report says there are inventory shortages with pent-up demand fuelling “unprecedented momentum virtually across the province.” It says that “despite the current volatility in commodity prices, the long-term prospects for the agricultural industry continue to be bolstered by global realities, including population growth, an international grain shortage and decreased availability of quality farmland from a worldwide perspective.”
“Farming operations are increasing in size as today’s farmers seek to boost production through the accumulation of acreage,” says Michael Polzler, executive vice-president, Re/Max Ontario-Atlantic Canada. “On a national scale, the average farm has tripled in size over the past 50 years. Much of the current expansion is attributed to the booming cash crop business. The shortage of quality farmland has sparked serious competition and exerted upward pressure on prices – a trend that is expected to continue. With commodities on the upswing and greater export opportunities to supply emerging markets, Ontario farmers are now strategically positioning themselves to compete on a world stage.”
The report says farmers have invested heavily in capital expenditures in recent years, spending millions on farm equipment to maximize efficiencies. As commodity prices have risen, so too has the price per acre of workable farmland. The most expensive farmland in the province is in the Holland Marsh/Bradford area, where prices can climb as high as $20,000 per acre. New Liskeard boasts the greatest affordability, where the price per acre of tilled farmland can run from $1,300 to $2,500.
There has been a marked decline in the number of smaller farms, says the report, while larger operations continue to increase in size. “This was evident in all Ontario markets, especially as smaller acreages are harder to come by due to amalgamation and restrictions on severances. The trend – which has been ongoing for years – is supported by the most recent Census data, which shows that the number of overall farms in Ontario shrank from 85,015 in 2001 to 82,410 in 2006,” says the report. “Farmers are acquiring land by either purchasing – their first preference – or renting from adjacent farmers. Because of the severe shortage of farmland listings, the demand for leased land has surged – a fact that has also driven rental rates to new highs within the province. Given this, retiring farmers are increasingly opting to hold on to their land and lease it to neighbours. The strategy – while exacerbating the supply problem – has proven profitable in recent years and less volatile than other forms of investment such as the stock market,” says the report.
“There are a number of clear signs that the market is quite heated at present,” says Polzler. “In addition to supply and demand, the trend toward door-knocking and private sales has increased. Another factor is the presence of investors – a small, but growing segment of buyers. Until recently, investment activity – common in Western Canadian farmland markets – was a rare phenomenon in Ontario. The trend is a promising one, indicating growing confidence in the future of Ontario’s agricultural real estate.”
While investors represent a small percentage of farmland holdings, the report estimates that end users account for 95 per cent of Ontario farm ownership. Investors have been most active in areas where considerable urban sprawl is underway, including Barrie, Innisfil and Bradford, where progress has driven prime development land prices up to as $100,000 an acre in some pockets, the report says. Pending construction, which in some cases can be years down the road, developers are renting the parcels to local farmers in a bid to preserve farm status and a lower tax rate.
To see the full report, click here.
