Agriculture is an integral part of the Canadian economy, accounting for 7.7% of GDP in 2017 and employing 2 million people. The importance of agriculture to Canada is highlighted because it is one of the few industries with a trade surplus with other countries.
In 2018, Canada exported agricultural goods worth $61 billion while importing $51 billion of farm products.
Benefits of Investing in Farmland in Canada
Investing in farmland can provide investors with several advantages, including:
- Long-term Returns: As mentioned earlier, investing in farmland can provide investors with excellent returns over the long term. Farmland values have historically outperformed other real estate investments and are less volatile than other investments, such as stocks and bonds.
- Inflation Hedge with a Tangible Asset: As inflation rises, the value of farmland typically increases as well since it’s a finite tangible asset. Farmland investment is an excellent way to hedge against inflation and protect investors’ purchasing power.
- Diversification: Investing in farmland can also allow investors to diversify their portfolios and reduce portfolio risk by investing in a different asset class.
- A stable income stream from renting or leasing farmland: Renting or leasing farmland to farmers offers a relatively consistent and reliable income stream. Landlords typically receive rent payments based on the acreage of the property, and these payments are usually made annually or semi-annually.
- Potential tax benefits: Investing in farmland in Canada can offer a variety of potential tax benefits. Several types of deductions and credits are available to farmers and agricultural businesses, including capital cost allowances, income tax deductions, and GST/HST rebates.
How to Invest in Farmland in Canada
Buy physical agricultural land.
When selecting a farm property, there are many factors to consider, from the property’s physical features to the local market conditions. Physical attributes such as soil quality, water availability, topography, and climate affect farmland productivity.
Therefore, it is essential to research these characteristics before investing in farm property. Additionally, it is critical to understand local economic conditions and agricultural trends that could significantly impact the property’s value.
Financing options for buying farmland include traditional bank loans and government support programs. The Government of Canada offers several different support programs that provide financial assistance to farmers, including the Canadian Agricultural Loans Act (CALA) program and the Advance Payments Program (APP). Additionally, a variety of provincial and regional loan programs are available to farmers as well.
Finally, it is vital to understand the risks associated with owning farmland. These include potential losses due to natural disasters, changes in market conditions, and unexpected expenses related to managing a farm property. Therefore, it is vital to do thorough research and consult with an expert before investing in farmland.
Invest in Farmland REITS in Canada
Farmland REITs are a type of specialized REIT that invests primarily in agricultural properties. These properties can include cropland, pasture land, vineyards, orchards, and other types of farms. Farmland REITs allow investors to diversify their portfolios while gaining exposure to the agricultural sector.
The advantages of investing in farmland REITs include diversification, portfolio liquidity, and professional management. Additionally, REITs are generally less expensive than physical farmland since the costs associated with purchasing and managing a property are spread out among multiple investors. There aren’t exclusively farmland-based top Canadian REITs, but the following own Canadian assets.
Here are two Farmland REIT investments for Canadians;
Gladstone Land (NYSE: LAND)
Gladstone Land (NYSE: LAND) is an agricultural real estate investment trust (REIT) specializing in investing in farmland across the United States and Canada. The company has ownership interests in more than 126 farms in 19 U.S. states and one province in Canada, representing approximately 82,000 acres of diversified agricultural land with a wide range of commodity types, including row crops, permanent crops, and specialty crops.
Farmland Partners (NYSE: FPI)
Farmland Partners (FPI) is an agricultural real estate investment trust that invests in high-quality, income-producing farmland across the United States and Canada. As of April 2021, FPI owns approximately 170,000 acres of farmland in 18 states and two provinces in Canada.
FPI owns over 33,000 acres of farmland in Canada, primarily in Alberta and Saskatchewan.
Unfortunately, there are no farmland REITs in Canada, just lending companies focusing on farmland lending. But three agriculture stocks on the TSX would be heavily involved in farmland in Canada, which could give you some exposure. Vertical farming company stocks are a new trend in agriculture and farming.
Nutrien (TSX: NTR)
Nutrien provides crop inputs such as potash and services to growers and farm centres worldwide.
Saputo (TSX: SAP)
Saputo produces, markets, and distributes dairy products under various brands across Canada and worldwide.
SunOpta (TSX: SOY)
SunOpta (TSX: SOY) is a leading Canadian provider of natural, organic, and specialty food products and ingredients.
Buying Agricultural Commodities
Investing in agricultural commodities can be a great way to diversify your portfolio and potentially generate some significant returns. Agricultural commodities include corn, wheat, soybeans, rice, cotton and other crops grown for food and raw material use.
Investing in these commodities is becoming increasingly popular as people seek out alternative investments that offer potential long-term growth and stability.
One of the main advantages of investing in agricultural commodities is that they are relatively uncorrelated with other asset classes, meaning their performance is not necessarily tied to the stock market or other investments.
This can provide investors with some diversification and protection from downturns in other markets. Additionally, these commodities are more stable than stocks and bonds, making them an attractive option for long-term investors looking for steady returns.
Farmland Crowdfunding Platforms
Farmland crowdfunding platforms have become a popular way to invest in farmland in Canada. These platforms are designed to allow individuals, families and companies to purchase shares in agricultural land. Investors can choose from various types of farmland investments and benefit from the income generated by the land.
The primary advantage of using a farmland crowdfunding platform is that investors don’t need to bear the total cost of buying the land themselves. Instead, they can invest smaller amounts in various properties and benefit from better returns. Additionally, these platforms provide investors with access to professional advice and help them make informed investment decisions.
Finally, farmland crowdfunding platforms are often more efficient than traditional methods of buying land as the process is usually completed online, meaning investors can purchase shares quickly and easily.
Private Equity Funds that hold Farming Lands
Investing in farmland can also be accomplished through equity funds. Equity funds are investment vehicles that pool investor money to purchase shares of companies in the agricultural industry, such as seed and fertilizer producers or agrarian equipment companies.
Investing in equity funds allows investors to diversify their portfolios and gain exposure to a variety of different agricultural markets while still maintaining the liquidity associated with traditional stock investments.
AgCapita Farmland Investment Partners
AgCapita Farmland Investment Partners is a Canadian-based alternative investment management firm focusing on investing in farmland.
The company offers investors the opportunity to access high-quality agricultural assets in Canada through its innovative and diversified portfolio of farmland investments. AgCapita’s team of experienced professionals has more than 40 years of combined experience in the field, offering an extensive network and expertise in farmland investments.
Investors in AgCapita’s farmland investments have the potential to benefit from a steady stream of rental income, capital appreciation, and tax incentives. Additionally, AgCapita’s diversified portfolio approach helps reduce risk and provides access to an array of different types of properties.
How Will You Invest in Farmland in Canada?
Investing in farmland can be a lucrative and rewarding endeavour for those who understand the risks and rewards associated with the venture. Investing in agricultural land has long been a traditional form of wealth creation, and it is still an attractive option in Canada today. Like the maple syrup producers of Canada, owning your own slice of paradise has it’s pros and cons.
There are several benefits to investing in farmland, including the potential for steady appreciation of value over time, diversification of investments, and tax incentives for investors. Additionally, farmland investments can provide investors with a steady rental income stream.
Before investing in farmland, conducting thorough research and due diligence is essential. This includes understanding the local market, researching potential properties and assessing the risk/reward associated with each investment opportunity. Investors should also consider working with an experienced professional who can guide making the best possible investment decisions.
Investing in farmland can be a great way to diversify one’s portfolio and potentially generate long-term returns with minimal risk. Of course, investing in farmland requires careful consideration and research, but it can be a rewarding experience for those who are willing to take the time to explore their options.