How the Spike in Farmland Prices is Affecting Canadian Farmers

The spike in farmland prices has boosted the equity of farmers all across Canada. Are farmers leveraging this new-found equity to generate new business opportunities or farm wealth? To explore what farmland values mean for farms and farming across Canada, Country Guide sat down with Pascal Thériault, agricultural economist at Macdonald Campus, McGill University and vice-president of Quebec’s Ordre des agronomes.

In their interview, Thériault highlights the complexities and challenges farmers face in managing their land assets amidst changing economic and environmental conditions, emphasizing the need for strategic decision-making to ensure long-term sustainability and profitability.

Farmland prices have been rising due to a variety of factors. Thériault notes that the increase in farmland value, however, may not necessarily align with its profitability. 

Farmland, being immovable, has unique characteristics. Farmers sometimes choose to pay higher prices for land adjacent to their existing farms rather than pay the "right value" for land further away, creating reference points that drive up land prices in the region. However, there is a risk associated with purchasing land at high prices, Thériault says, as there may be a point where the land hits a profitability limit which cannot be increased. The increasing unpredictability of crop outcomes due to climate change can also affect the long-term profitability of farmland.

Some farmers are exploring alternative strategies to extract value from their land, such as transitioning to organic farming to increase profitability when conventional cash cropping doesn't make economic sense. Farmers who don't actively manage and maximize their land assets may face challenges in terms of business growth, Thériault says.

From a macroeconomic perspective, increasing farmland values contribute to the overall estate value of farms in Canada, generating internal wealth for the industry. However, Thériault notes that the primary buyers of farmland are other farmers. He suggests that there may be limited options to mitigate the risk of increasing land values, as it is largely driven by supply and demand dynamics.