A number of recent reports about population growth, climate change, decreasing crop yields, droughts and farmland loss suggest that these problems are getting worse, not better. These long-term trends suggest that the farmland investment thesis for Canada is still very much intact:
- Population growth – a recent report by the United Nations warned that global population could reach 11 billion by the end of the century, significantly above previous estimates of potential maximum global population of 9 billion.
- Increasing food demand – the USDA recently predicted that the world must grow an additional 50 million acres of corn, soy and wheat in the next decade to meet worldwide demand.
- Climate change – 2014 was the hottest year on record worldwide and 9 of the 10 hottest years on record have occurred since 2000.
- Declining crop yields – The University of Nebraska recently released a studythat found soy yields in the US to be 30% lower than they should be due to climate change impacts.
- Water shortages and drought – despite the current el Nino weather pattern (that typically brings additional moisture to the US west), drought conditions remain extreme in California, the US southwest and parts of Brazil and Australia.
- Farmland loss – Statistics Canada recently reported that nearly one million hectares of dependable Canadian agricultural land has disappeared from cultivation in the past 10 years – much of this loss was due to urban expansion and much of that urban expansion occurred on some of the best farmland in Canada – located near urban areas of the GTA in southern Ontario.
Much has been written recently about the potential impact that current low crop prices may have on farmland investment returns, however, none of these long-term trends are reversed by the current short-term crop price environment that resulted primarily from two consecutive years of back-to-back record harvests in the United States (2013 and 2014). And it is helpful to keep in mind just how rare the current environment is: according to USDA statistics, the bumper crops of 2013 and 2014 were the first such back-to-back record harvests in the US in more than 30 years.
So while it is indeed likely that farmland investment returns will cool somewhat from the outsized gains recorded in recent years, the long-term outlook for Canadian farmland remains bright – in contrast to the dark picture painted by worsening global trends.