Already Canada's priciest, Ontario farmland could hit new record values, analysts say

Ontario farmlandis set to hit to an average price of $30,000 an acre, doubling its value in a little over a decade, due to tight inventory and high commodity prices driven by global instability and historically low interest rates,according to analysts who watch agricultural real estate closely.

Already considered the most valuable in Canada, Ontario's farmland has come under intense public scrutiny since the uproar over the Greenbelt land swap. Theplan would have seen 50,000 homes built on ecologically protected farmland, until public outrage and an RCMP probe forced the province to reverse its decision.

The controversy has added fuel to an already simmering debateover how much protectionfarmland in Ontario should get against ever-growingurban boundaries, as cities push outwards under the strain of immigration-fuelled population growth.

What's driving the rise in the value of farmland over the last decade, however, isn't necessarily encroaching urban development, according to Ryan Parker, apartner in the agriculture division at Valco Consultants in London, Ont.

The farmland appraiser believes the rise has been driven mostly by farmers themselves, leveraging the value of their land to expand operations.

Farmers 'aggressively expanding'

"With that ability to be able to expand, that ability to be able to leverage and to be looked fondly on by the lending institutions, farmers have been aggressively expanding, and really, that's what's created a lot of the increase in value on farmland in Ontario."

Each year, Parker publishes astudy on the value of farmland across 11 counties that representa large swathe of Ontario's heartland, from the southern shore of Georgian Bay to the north shore of Lake Erie.

We're going to be getting awfully close to an average value of $30,000 a workable acre.- Ryan Parker, agriculture partner with Valco Consultants, in London, Ont.

"Last year in those 11 counties, our median price was around $23,000 a workable acre," he said. He notedthat while this year's study isn't complete, he believes values will be "up significantly again" in 2023, to the tune of about 25 per cent for the third consecutive year.

"We're going to be getting awfully close to an average value of $30,000 a workable acre," he said. "The demand for farmland over the last 10 to 15 years has been significant."

SouthwesternOnt.most expensive farmland in Canada

The trend isn't unique to Ontario, according to Justin Shepherd, a senior economist with Farm Credit Canada.

"All areas of Canada have seen farmland value increases over the last little while," he said, noting Ontario led the country for farmland value growth in 2022 at 19.4 per cent for the calendar year.

The most expensive farmland in Canada nowlies in southwestern Ontario, according to Shepherd, where farms that once went for an average of $15,000 an acre a decade agobetween the Windsor and London areas fetched an average value of$28,900 in 2022.

We've seen farmland sales down across the country and that's helped support price appreciation- Justin Shepherd, Farm Credit of Canada senior economist

"In the southwest, there's producers demanding land, especially in the short term. We haven't seen a huge amount of land come up for sale," he said. He notedthe region's climate, soil quality and scarcity of available landall work to reinforce the land's value, despite recent hikes in interest rates from the Bank of Canada.

"I think that's what 2023 has really shown, is that we've seen farmland sales down across the country, and that's helped support price appreciation even when we're seeing higher interest rates and maybe some bit of a general slowdown in the economy."

Investors still a 'small percentage' of owners

Farmland has always been valuable, now more than ever, but most analysts insist the majority of such land ownership in Ontario is still held by farmers, rather thaninvestors and private equity firms.

"I'd say we're in a good spot right now as far as mix of ownership," Parker said, noting most investors looking to speculate on farmland now are developers, or what he calls "small-town investors."

In Ontario, an increasing numbers of large institutions have been buying up farmland over the last 10 to 15 years, including pension funds, mutual funds and private equity firms. But Parkernoted they remain a "pretty small percentage" of overall farmland ownership in the province.

With the value of farmland so high, it means new farmers are often being priced out, but the next generation of farmers aren't necessarily missing opportunities, according to Parker. Instead, he said, farming families are leveraging the value of their land to expand their footprint and expand the family business.

"By and large, the vast majority of the buyersarefarmers," Parker said. "This is a multi-generational strategy to buy land, and so when they look at their payback, it would be quite different than, say, an investor."

Compared to the value of land, Parker said, rents have stayed relatively cheap, making investing more attractive to existing farms rather than farm startups or investors looking for a quick return.

"They are local farmers. They might be in a township, they might be in the county, they might be a county over, but they areby and large Ontario farmers who are buying this ground, almost all of them. They're not newthey are existing operations, and they are buying more land and expanding."