Sask. farm real estate value continues skyrocketing but what does it mean for farmers?

This story originally published on July 10, 2023.

The value of Saskatchewan's farm real estate continues to skyrocket, growing by a record amount last year, data shows.

Experts suggest the trend is a promising sign for the long-term prosperity of Saskatchewan's agriculture industry. But higher property values are proving to be a barrier for farmers looking to expand their operation or young farmers trying to launch their own.

"The world needs more of Saskatchewan, needs more Canada, when it comes to food production," said J.P. Gervais, chief economist for Farm Credit Canada.

"It's not without challenges, of course."

Statistics Canada recently released balance sheets of the agricultural sector, showing the state of affairs in each province since 1981. The dataset excluded the country's northern territories.

Total farm real estate in Saskatchewan which is mainly driven by farmland, but also includes service buildings and homes was valued at about $16 billion to $23 billion for more than a quarter century, data shows.

But real estate values haveclimbed steadily since 2008, data shows, rising from about $27.7 billion at the time to $114.3 billion last year.

The value rose by about $13.7 billion from 2021 to 2022 alone a record year-over-year increase, data shows.

A similar phenomenon is playing out in the other provinces too, StatsCan data shows. Saskatchewan's growth started later than other provinces, but its farm real estate is the third-most valuable in Canada and the value is growing at similar pace as Alberta and Ontario.

Multiple factors, including basic economics, are contributing to the spike in property value, experts told CBC News.

There is high demand for food globally as populations increase, making farmland a finite resource on which food can grow more valuable, Gervais said.

Nearly 40 per cent of Canada's farmland is in Saskatchewan, according to the 2021 census of agriculture. Supply chain issues exacerbated by the COVID-19 pandemic, or caused by the war in Ukraine, have created ever greater demand for that farmland, Gervais said.

Technological advancements over the years have also made farms more efficient, generating higher profits, said Jason Dearborn, a fifth-generation farmer and the CEO of Dominion Blockchain Solutions, which he saidhas about 50 farm investors.

Dearborn believes farmland was undervalued for years,andsaid the greatest contributor to its increasing value has been the free market an economic system without government intervention.

Gervais acknowledged there is a greater diversity of buyers in the market, but said most transactions involve people or businesses that intend to farm the land.

Researchers have estimated that investors and large corporations only own about two per cent of Saskatchewan's farmland, but Andr Magnan, an associate professor of sociology at the University of Regina, said the increased competition has raised property values.

"If you are interested in buying land and there are three or four buyers, where there might have been one or two previously, then chances are the seller is going to be able to ask for a higher price," Magnan said.

Dearborn suggests this is the new direction of the farm real estate market.

Gervais believes the rising value brought about by the market reflects a positive outlook that is anticipated for farming, despite recent challenges such as drought.

Some farmers and researchers, however, are concerned because competition drives prices and larger operations have more buying power, thus it will be harder for younger farmers to launch their own operations and smaller farms to expand.

Data and experts suggest that is happening now.

Higher value a barrier for expansion

Historical agricultural census data shows that the number of farms in the province has been cut in half over the past 45 years. Mid-size farms have continuously dwindled in that time, while the number of large farms has grown steadily.

This is occurring, in part, because the economic systems in place incentivize growth, said Michael Gertler, Saskatchewan's regional coordinator of the National Farmers Union and an associate professor of the sociology of agriculture at the University of Saskatchewan.

People looking to sell their small- or mid-size farms are also likely going to take the highest bid, Gertler said. Larger operations have more capital and borrowing power, allowing them to outbid their competitors and, in the process, raise the value of the land and grow their operation even more.

"It's disheartening," said Kevin Chutskoff, a third-generation grain farmer in Togo, Sask., near the Manitoba border.

Chutskoff, 57, has grown the family farm from about 700 acres to 2,000 acres over the past eight years, and he and two of his sons are discussing expanding a bit more. In that time, he has watched the price of cultivated acreage more than double in his area, he said.

He has also noticed that, during the last couple of years, farmers looking to sell land put out a tender, where oftentimes larger companies or organizations will outbid other peopleby several hundred dollars per acre, he said.

"You just can't afford to pay that kind of money for it," Chutskoff said.

"We've been fortunate, ourselves, that the people that did sell to us wanted to keep the farmland into a smaller farmer's hands."

Industry focusing on helping young farmers

Higher real estate values often affectfarmers differently depending on their age and experience, said Magnan, from the U of R.

"If you are a well-established farmer late in your career, and you've built up the land that you need to have a successful operation, you like it when farmland prices go up because that means some more money at some point when you exit farming," he said.

"On the flip side, if you're a younger farmer, either trying to get established in the industry or maybe you're trying to expand your operation, it will be more difficult to buy farmland at these elevated prices."

Chutskoff, who also works as an account manager, told CBC News that young people wouldn't be able to afford to pay for farmland unless they had a high-paying non-farm job to subsidize it, in part because interest rates are high.

That was the case for Morgan Follensbee, a 28-year-old farmer in Eatonia, Sask., about 210 kilometres southwest of Saskatoon, when she and her father looked to expand the family farm.

Follensbee, who also works full-time as an agronomist, met with Farm Credit Canada to discuss loans, but realized she would never be able to make the payments.

"I'd have to use my income off-farm to make the payments for this, even with money from the farm coming," she said.

"It's hard not to get down."

Follensbee grew up around a lot of farm kids and said many of them are now unsure about making their living from farming, in part because of the financial burden.

This creates another issue for the industry, because data shows farmers in Saskatchewan are getting older and there are significantly fewer of them working now compared to 30 years ago.

Experts told CBC News helping young farmers enter the industry is a majorpolicy discussion in agriculture.

Farm Credit Canada, for example, has loan programs, such as the starter loan or the young farmer loan, designed to help people break in to the sector. Gervais said the Crown corporation also helps with things like business plans.

"There's just not one single solution that's going to work, so we have to work as an industry to find ways to alleviate some of the challenges that stand in front of young entrepreneurs to scale up their business," Gervais said.

Follensbee considers herself fortunate, because another farmer nearbyoffered to rent some of their land to her, so she didn't have to get into a bidding war, she said.

It was massive upscale in her operation, she said, but it has allowed her to build experience and assets. Over time,she hopes the operation will grow enough for her to be able to afford landherself.