Water is a central component of the Canadian farmland investment thesis – indeed Canadian farmland (as distinct from US or other farmland) might be seen as a proxy for investing in water itself for several reasons:
- Because the impacts of water shortages, droughts and climate change are anticipated to be less in Canada than in most other major Ag exporting countries, it stands to reason that Canadian farmland should, over time, attract premium values as compared to farmland that is more subject to these risks.
- As relative yields suffer and/or even decline in other parts of the world, it is anticipated that yields will increase in Canada (along with Brazil and potentially Russia). We are already seeing this trend in a significant shift in the corn belt north and west into Ontario and Manitoba.
- Some Canadian farming regions like Temiskaming and Grand Prairie should benefit disproportionately as compared to other countries and other regions that face climate, water and drought pressures.
- It is becoming apparent that China has adopted a policy of effectively “importing water” from countries like Canada by increasing imports of water-intensive products like soy and corn and concentrating domestic production on more less water-intensive crops due to the serious drought and water pollution issues they face at home. This trend will benefit Canadian farmland disproportionately as compared to farmland in water-stressed regions.
We here at Bonnefield view water as a key competitive advantage of Canadian farmland as compared to farmland in many other parts of the world. This is not to say that farmland in some parts of Canada will be immune from periods of drought as climate change progresses. But drought-related risks in Canada tend to be location and property specific. It could be argued that for Canada as a whole, the bigger water-related risk over time will be too much water as opposed to too little, since much of Canada is expected to see increased precipitation as a result of climate change rather than less. The risk of excess water is as important a consideration as too little water, when Bonnefield invests in farmland. Do the soils have natural drainage characteristics or can excess moisture be mitigated through tile drainage and surface shaping? Conversely it may be best to avoid investment in properties and regions that face a significant drought risk that can not be mitigated through some combination of irrigation or high-quality, moisture-retaining soils, etc.
Overall, Canada can expect to suffer less stress from climate-induced water shortages than many other parts of the world. Canadian farmers will certainly face increasing challenges in some parts of the country from both drought and excess moisture, but on the whole, these risks should be manageable through careful farming techniques and proper risk mitigation.