How will the next generation afford to farm?

I was chatting with some young producers on X (Twitter) recently about what is top of mind for them.  No surprise, it was the cost of getting started in farming. 

We already have a huge problem in this country with getting young people interested in farming. Now, even for those who want to farm, they simply can’t afford it. And, it’s a shame since we know record amounts of farmland will be coming up for grabs over the next few years.

For a young person who wants to buy land, prices have made it cost-prohibitive – the average price per acre has increased tenfold, going from about $500 to $5,000 over the last three decades, depending on area of course.

Even a young producer who is lucky enough to already own, inherit or buy land from family members, will still struggle to expand and grow the operation in the future. 

At the same time, a generational shift is coming. The average age of Canadian farmers today is 56 and, over the next ten years, 40% of them are set to retire. 

From a capital investment standpoint, never before has the prospect of becoming a farmer been this unaffordable. And it doesn’t look like that’s going to change soon. I don’t see land prices or interest rates dropping significantly any time soon. Yet, I have never been more excited about the coming opportunities in Agriculture.

So, what are we going to do? Agriculture has both a labour and an ownership problem. 

As I see it, there are five strategies we need to think about – some of these are already happening and some of them we may need to consider in the future:

Private investment

Farmland is a great investment. With projected population growth and the worldwide demand for food growing, farmland offers steady returns even in periods of high inflation. In the US and Canada, we are seeing investment funds buying up farmland. Some believe this is part of the problem and is exactly what’s driving up the price, putting it out of reach for young farmers. In many cases, land is being purchased by non-farmers who rent to younger farmers. Is this the worst idea? No, it can work and, in fact, we rent land from some landowners in our area and the relationship works quite well. 

HGV Yard

The concern is that if this continues to happen across the Prairies, where 70% of Canada’s farmland exists, we simply won’t have farmers owning land anymore and I don’t want to see that happen. My concern is that when there are fewer ties to the land, there’s also the chance that there will be less sustainable practices used. Let’s face it, at times non-farm owners are looking for a top dollar investment rather than the legacy of the farm continuing. The whole model is less tied to relationships, and more about accepting the highest bidders, which turns the land more quickly leaving the renter back at square one.  However, I do think there are many cases where investors and farmers can be very aligned, with similar long-term views and outcomes. The key is to pair these types up, to form a cohesive relationship.

Joint Ventures

This is an idea that I think has a lot of merit. It’s a creative way of pairing up a retiring and experienced farmer with a younger farmer or bringing together several smaller operations to gain economies of scale by sharing acres, resources, equipment and labour costs. Oftentimes, JVs work well as one provides the land, capital and equipment while the younger farmer provides the labour, energy and long-term vision of the farm. Mentorship and knowledge-sharing work well in this model; let people do what they’re best at. Right people in the right seats, I always say.

Joint ventures are easily dissolved and can adapt without large legal or accounting costs, the compensation and structure can change with ease and they allow for strong income tax benefits. 

At HGV, we have a joint venture between multiple owners even though the farm bears our family name. Word of caution, when it comes to joint ventures, the details are important.

Other cautions would be to know who you are getting into business with, always have an agreement in place that dictates compensation, exit strategies, and duration of the agreement

Family offices 

This is another interesting strategy and one that we may want to consider. Hear me out. A family office is a privately held company that manages investments typically for a wealthy family or other high-net-worth individuals with around $50–100 million in investable assets. 

With the belief that farmland is going to appreciate over time and the fact that land is inflation-hedged, a family office could provide the capital and help a young farmer get started in the industry. This could be seen as a great way to diversify a more traditional portfolio.

Many of today’s family offices are interested in investing in sustainable companies and operations. There’s a huge trend of investing in ag tech and vertical farming, but I would argue that farmland is also a smart ESG or “impact” investment. It’s going to be interesting to see if Canada’s agriculture industry can do a good job of showing them just how sustainable our industry really is and…if they will be willing to listen.

If this is done right, I think private investors can provide funding, mentorship and expertise to young farmers, enabling them to scale their operations and acquire land. You may not agree, but I think these investors have good business sense, can provide strong advisors and offer different points of view that we, as farmers, may not always be willing to consider.

Of course, there are potential pitfalls too. It can be expected that they will want some kind of control/decision making which is a no-go for most operations, including ours, they may want to dictate the sustainable practices. Again, the devil is in the details, and it would require a thoughtful approach to how the agreement is structured. 

Lending institutions 

I think banks, credit unions and other lending institutions have a role to play here. Perhaps they need to consider offering hugely discounted borrowing rates, subsidized by the government, to young farmers who want to buy land. And, just as important, is an investment in their future education. As farm incomes decrease due to lower crop prices, higher input costs and rising cost of farmland, a farmer’s financial acumen to weather this volatility needs to be better than it’s ever been.

Lending money and providing education is a win-win scenario for both investors and young farmers.

We know that there is a strong international demand for Canadian-grown crops and food production. I do believe we have every reason to be optimistic about the future of farming, our industry and future generations.

Succession Planning

A pet peeve of mine in our industry is too many times I see farms “selling” to the next generation.  The younger generation is saddled with debt for 30 years while the older generation sits with millions in a T-bill or chequing account.

One of the largest opportunities to deal with the access to capital issue is proper business succession planning. I can’t stress this enough. Treating the business as an investment that provides cash for labour, land rent and return on other equity.  This can give the retiring generation certain cash flow, continued equity growth as well as an enterprise that can use the equity to maintain or increase growth.  Once again, the parameters must be set correctly to ensure family equity is not put at significant risk, etc.

I personally believe that this option could be the most optimal and significant portion of the strategy to move forward.  As always, every situation is different and portions of the other strategies with be utilised farm by farm.  

I know there may be hesitation among producers to consider alternate ownership strategies. There’s an element of uncertainty and skepticism that it can be done right – I get that. But, the most dangerous saying in agriculture is, “We’ve always done it this way.” I believe the time has come that we need to do things differently if we want the next generation to be able to afford to farm. 

Just some thoughts for this snowy winter week… I’d be interested to hear and see other options you have seen.

Here are some interesting companies and funds to check out if you’re interested in investing in farmland real estate or renting land.

Farm Credit Canada

Andjelic Land

Avenue Living 

Area One Farm Partnership