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Investing in land could become a cost – and a big one

A story we posted to our website on Aug. 11 addressed a subject that, on a fundamental level, is nothing new. Whether it involves foreign investment in Canadian farmland or a farmer selling it to an urban developer (from corn to condos?), it amounts to much the same thing: loss of control of farmland by those who know its true value.
  


August 11, 2008
By Ralph Pearce


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A story we posted to our website on Aug. 11 addressed a subject that, on a fundamental level, is nothing new. Whether it involves foreign investment in Canadian farmland or a farmer selling it to an urban developer (from corn to condos?), it amounts to much the same thing: loss of control of farmland by those who know its true value.
  
And it’s a trend that I have always found disturbing.

   Years ago, I wrote an editorial that bemoaned the loss of farmland outside of London, Ont.  In 1991, the city annexed more than 100,000 acres of surrounding farmland, expanding its borders in the hope of adding to its coffers with more tax money.  Seventeen years later, I can say the move has done little but added to the amount of look-alike, cookie-cutter housing that does little to establish a community with character.  I would also argue it only fills the pockets of the developers who gain more by offering residents less.

   One thing is certain though: no matter how one might feel about the look and the longing for such housing, once farmland is paved over or turned into a block of townhouses and strip malls, it will never again be productive farmland that might yield canola or corn.

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   This is a scenario that must stop, and I’ve been saying that for more years than I’ve been writing about agriculture.

   The urgency to slow such rampant development grows with this story from the Saturday, Aug. 9 edition of the Toronto Star, which alerts its readers as to the investment potential that Canadian farmland now holds. In this case, it isn’t the tangible and permanent loss of the land, but the loss of its control by those best suited to manage its value (and subsequent wealth).

   This latest round of speculation into agricultural commodity markets has underscored one recurring fact: contracts for grains and oilseeds are often traded several times before the actual crop makes the move from the field to the elevator, feedlot or processor. The goal  – and not that it’s a bad one – is to make money. However, the ends here do not always justify the means. Ramping up prices simply in the hopes of driving up values for short-term gain is not sustainable. We saw that six years ago with the dot-com and telecom collapse and we’re seeing a repeat with the US sub prime mortgage fiasco.

   Now brokers and financial experts will tell me I’m barking up the wrong wheat stem, that investing in farmland is not of the same ilk as Enron or having to bail out Bear Stearns. My take is that the same short-term goals are at the heart of this trend. And we hear it all the time: if gold and oil aren’t the same sure bets for solid returns, investors look to other commodities or sectors to turn a fast buck.

   The difference here is that farmland is arguably about to become more valuable in the face of media hype concerning global food shortages. This will undoubtedly place pressure on some governments to declare moratoria on building on agricultural land – of any kind. And that move would be fraught with all kinds pitfalls and drawbacks, no doubt.

    And perhaps this where the cagiest of investors are eyeing their fortune-making potential.  They’ve heard the hype, they know the supply-demand forces that will drive-up prices for arable land, so why not create investment funds for large tracts of farmland?

    It’s an opportunity waiting for those with the money to make more.

   But what happens to the resource when it is not in the hands of those who understand it best?
 
   No broker or financial expert under the glare of big city lights is ever going to convince me that he or she knows what’s best for the Brown soil regions of Saskatchewan, or the sands of central Prince Edward Island. They may manage the funds that own the land, but that is the extent of their involvement and their aptitude.

    Certainly they can hire advisors who understand the complexities and nuances of soil and crop management. But when it comes to managing investments, the focus would be on wringing out every dollar possible, instead of balancing the revenue and costs with the long-term sustainability of the soil.

   Again, I am not one of those who view revenues and profits as bad things.  If people have the money to invest  – and the stomach to weather the up-and-down realities of a market – then they deserve to have those higher returns-on-investment.  I’m not about to begrudge that of anyone.

   My concern here is simply the long-term health of the land, and continued and sustainable growth of our farm economy. How that’s done….well, there’s the question that begs to be answered.  And I don’t pretend to have the solutions.

   Actually, if investors are looking for places to sink their money, there are wondrous opportunities in the processing end of the agri-food industry, particularly as our sensitivity to “carbon footprints” and “Buy Local” consumer campaigns continues to evolve.

   As any good company manager will attest, there’s a big difference between an investment and a cost. My concern is that investing in farmland could cost the Canadian agri-food industry  – a lot.