On February 9, 2017, Bonnefield appeared before the Standing Senate Committee on Agriculture & Forestry. The Committee is undertaking a “Study on the acquisition of farmland in Canada and its potential impact on the farming sector”
A video replay of Bonnefield’s remarks can be viewed by clicking here (beginning at the 9:10:30 mark of the video).
And here is the text to what we had to say:
Thank you, Senators. It is an honor to meet with you this morning.
My name is Tom Eisenhauer and I am the CEO of Bonnefield Financial. I apologize for not being able to join you this morning, however, my friend and colleague Wally Johnston is with you in person. Wally represents the 5th generation of a farm family from there in the Ottawa Valley and he is also our Vice President of Business Development at Bonnefield.
Wally and I, along with our partners at Bonnefield, founded our company back in 2009 out of a sense of frustration. Back in the mid-2000’s one of our sister companies – Manderley Turf Products, Canada’s largest turf grass farm – found itself in a situation that is familiar to many Canadians farmers – we needed to reduce debt and to find additional capital to grow our business.
So we tried to do what many non-agricultural businesses do – we tried to arrange a sale leaseback. Simply put, we wanted to find an investor willing to buy some of our land and to lease it back to us under a secure, long-term lease, so that we could use the sale proceeds to reduce our debts and to finance Manderley’s growth. As you know, sale leasebacks of this sort are common financial arrangements in sectors such as commercial real estate, the hotel industry, manufacturing, airlines and even the Canadian banks themselves sometimes use sale leasebacks to finance their operations. However, to our surprise and great frustration, we could find no investor in this country willing or able to provide sale-leaseback financing on farmland. So we decided to form Bonnefield in 2009 to do just that.
Since that time we have raised over $400 million, entirely from Canadian individuals and Canadian pension funds, and we have used that capital to arrange sale and sale-leaseback transactions with Canadian farm families in British Columbia, Alberta, Saskatchewan, Manitoba, Ontario, New Brunswick and Nova Scotia. To date, we have helped over 75 Canadian farm families to:
- reduce debt
- transition their farm businesses from one generation to another
- help young farmers grow their business without heavy reliance on debt; and
- provided farmers with long-term secure access to farmland that they had previously leased from others on a short-term, insecure basis.
In the process, we have, so far, secured over 80,000 acres of prime Canadian farmland and ensured that it will remain “farmland for farming” indefinitely and that it will be monitored, maintained and operated in a sustainable and ecologically responsible manner. In short, we have developed a business model that uses capital from Canadian individuals and Canadian pensioners to support Canadian farm families and to protect Canadian farmland.
So our prime reason for meeting with you today is to ask this Committee to advocate for responsible, evidence-based regulations that protect our farmland, while ensuring that farmers have ample access to the capital they need to operate their businesses profitably – including institutional capital.
I would now like to turn to five key points we would like the Senate Committee to consider in its ongoing study.
POINT 1: Farmers, not investors, determine the price of farmland in Canada
This point has been made by previous witnesses who have appeared before this Committee – notably, by JP Gervais, Chief Economist of Farm Credit Canada . JP pointed out that most farmland transactions in Canada are between farmers, and that the small number of investor purchases in Canada are not sufficient to drive farmland prices.
As further evidence, consider this:
- Statistics Canada, based on farm census survey data, pegs the total value of farmland in Canada at approximately $400 billion. Bonnefield’s internal estimates, based on actual land mapping rather than survey results, suggests that the total value is likely much higher than that – perhaps as much as $590 billion. Compare these figures with the total amount of dollars invested by institutional and high-net-worth investors in farmland across Canada in the past 10 years – likely in the range of $1 billion in total. So by implication, less than ¼ of 1% of Canadian farmland is likely owned by investors. It is simply not credible to assert that investor purchases of farmland – which we estimate constitute only 0.5% to 1% of total farmland transactions in any given year – could drive prices in a market that may be as large as half a trillion dollars.
I would also like to reiterate a point that was made to this Committee by Michael Hoffort, CEO of Farm Credit Canada: that farm producers are sometimes willing to pay much higher prices than investors – especially when a plot of land becomes available that is in close proximity or fits well with their existing farm business. A rational investor, on the other hand, should be willing to pay no more for a plot of farmland than the capitalized value of the sustainable rent that the farmland can yield. So contrary to popular opinion, investors, particularly disciplined institutional investors, may serve to moderate farmland price increases in some markets.
POINT 2: Recent increases in Farmland prices across Canada have, with very few exceptions, been driven by increases in farm profits and are in line with increased profit levels.
Slide #3 of the exhibits we provided, compares the change in average Canadian Farmland prices-per-acre (the grey line) with crop revenue per acre (the green line). You can see that farm income has grown dramatically over the last four decades and in the past decade in particular. Between 2005 and 2015, Canadian farm income more than doubled from $6.8 billion to $15 billion. You can also see that farmland prices have risen in lock step with farm incomes. Indeed, farmland prices have remained generally as affordable today (relative to income) as they were a decade ago.
We agree with Mr. Hoffort from the FCC who told this Committee that “strong land values are an indicator of the farm sector’s financial strength, not a warning signal or a threat to farm profitability”.
POINT 3: Farming is a capital-intensive business, and Canadian farmers need access to a broad range of capital sources – including institutional investors – to finance their businesses and to remain internationally competitive.
The agriculture sector in Canada is predominantly made up of businesses run by farm families – large and small. Some of these farm families operate very large sophisticated businesses but, contrary to popular belief, there are very few if any, “Corporate Conglomerates” operating farms in Canada.
Canadian farm families, however, find themselves competing against well-capitalized, low-cost foreign conglomerates when they go to sell their products on world markets and even when they compete against low-cost imports in domestic markets. To become and remain competitive, Canadian farm families need scale, efficiencies and access to capital. But if there is one area where Canadian farmers are at a significant competitive disadvantage, it is their lack of access to a broad range of capital from investors. We hear time and time again, from our farm partners – their number one complaint – is their inability to access capital.
This problem is especially acute for young farmers. We often hear that “there are not enough young farmers in Canada”. I beg to differ. I think there are lots of young people who want to farm, but they don’t want to farm like their mom and dad did – at a small scale, perennially undercapitalized, heavily indebted and financially insecure. Keep in mind, that to be optimally efficient, a canola, wheat and lentil farmer in Western Canada probably needs secure access to 3,000 acres of farmland, maybe more. In Eastern Canada, a young corn and soy farmer likely needs upwards of 1,000 acres or more to optimize a full line of modern farming equipment. The capital required to establish and operate a profitable farm business is often simply out of reach of many young farmers. As a result, young farmers often leave the farms to find employment elsewhere, leaving small towns to the elderly and our farm communities deserted of young, energetic, vibrant business people.
This is why we urge the Senate Committee to promote farmland ownership regulations that balance the protection of farmland for farming, yet encourages new and varying sources of capital to invest in agriculture – especially institutional capital which can bring the size and scale necessary to fill such a large void, in such a large industry. Canada falls well behind countries like the US, Australia and most South American and European countries in the depth and range of financing vehicles available to farmers. Farm Credit Canada and the Chartered Banks do an outstanding job of lending to Canadian farmers. But sale-leaseback businesses like Bonnefield play an important role in providing an alternative to debt. Private equity players are also needed, as are farm sub-debt providers, revenue streaming companies, equipment leasing, cooperatives and other innovative capital providers. In short – farmers should have the same access to investor capital that other Canadian industries have.
POINT 4: The biggest threat to Canadian farmland is not who owns it. the biggest threats are urbanization and re-zoning and the conversion of farmland for real estate development, quarries and industrial uses.
Indeed, our largest transaction to date was our purchase in 2013 of a large tract of mostly class 1 farmland located in Dufferin County, Ontario, from a US-based hedge fund that wanted to convert it into what would have become North America’s largest aggregate quarry. I am proud to say that 3 years after Bonnefield purchased this land with institutional capital, it is now being sustainably farmed by 6 local farm families, and some 30 farm buildings and 24 houses that were mostly vacant and in various states of demolition and depopulation, have been repaired, sold and now house families who contribute to the local tax base and a vibrant and growing local community. We have been proud to support and work with local groups such as Food & Water First and the North Dufferin Agricultural and Community Task Force, who are examples of grass-roots community groups who have been open to institutional investment as a means of protecting and enhancing their local farm communities, and who present a fantastic model of “how to do it right” for other Canadian farm communities faced with similar threats to their farmland and water resources.
Statistics Canada reports that 2.4 million acres – 2.6% of Canada’s arable land – was lost, primarily to urbanization, in the decade between 2001 and 2011. This is a staggering statistic that dwarfs all other threats to Canadian farmland.
Keep in mind, however, that it is not just institutional and foreign investors who threaten farmland with conversion and redevelopment. There is an old adage that farmers are cash poor but asset rich. As Prof. David Connell from University of Northern British Columbia told this committee in November, farmers sometimes have a perverse incentive – especially those who have made the decision to retire or who live on the fringe of urban centres – to seek rezoning of their land and to sell to it to developers. This is a problem that sale-leaseback financing of the type Bonneield provides, can help solve. With a sale leaseback, a farm family can access some of the equity locked up in their land, without the need to sell it to a developer.
However, preserving and protecting our farmland from the very real threats of urbanization and re-zoning, is remarkably simple. It requires little, if any new regulation. It requires no change in farmland ownership regimes. It does not require Senate Committees to delve deeply into agricultural policy. It is as simple as enforcing existing zoning regulations already on the books of every municipality, in every farming region of Canada.
We believe that rezoning high-quality farmland for non-agricultural use should be expressly prohibited everywhere in Canada. Rezoning applications for farmland should not be the purview of unelected officials (as with the OMB in Ontario) or elected municipal officials who often favor rezoning as a means of increasing their local tax base. We recommend that rezoning applications for high-quality farmland should not be permitted, except with the agreement of elected government officials at the highest levels and only in exceptional circumstances deemed to be in the national interest. Full stop.
POINT 5: Foreign ownership of farmland is not a widespread problem in Canada
As other presenters have repeatedly told this Committee, there are no reliable data on foreign ownership of farmland in this country, and we need to begin collecting and monitoring such data. But what evidence there is, suggests a low level of foreign ownership in most farming regions across Canada.
We have included in your materials, an article by Prof. Brady Deaton Jr. which reports on a survey conducted by the University of Guelph which estimated that non-Canadian ownership of farmland in Ontario (where foreign ownership is not restricted) at approximately 1%. Our experience at Bonnefield supports this conclusion: in the past 6 years we have examined many hundreds of farmland transactions undertaken by ourselves and others, yet we are aware of only a handful of transactions that involved a non-Canadian purchaser – and in these few cases it was typically a non-Canadian who was moving to Canada to become a farmer.
We are aware of, and deplore, isolated purchases of farmland by non-Canadians in places like the lower mainland in BC, where farmland has been taken out of production and where the owners benefit from tax breaks intended for bona fide farmers. But these examples are not reflective of a widespread problem across the Canadian farm sector – and could be easily addressed through local zoning and tax regulations.
In our view, the bigger (and better) question to ask is this: Does it really matter who owns farmland in this country? Unlike other natural resources like oil, water, and minerals, farmland can’t be exported or removed from Canada. And from a farmer’s perspective, if he or she can obtain better terms from non-Canadian investors than from Canadian investors, why shouldn’t they be allowed to access foreign capital just like every other Canadian business owner can?
My bigger concern is not who owns Canadian farmland, but who farms Canadian farmland. We believe that Canadian farmers should farm Canadian farmland. And we’ve put our money where our mouth is: 100% of Bonnefield’s capital has gone to supporting Canadian farm families.
We respect the decisions of provinces like Saskatchewan and Manitoba to restrict farmland ownership to bone fide Canadians and landed residents. We view these regulations as well-intentioned but they are not evidence-based and they are short-sighted because they inadvertently:
- restrict the flow of capital to farmers, making them less competitive
- force farmers in those provinces to rely more heavily on debt than they otherwise would; and
- reduce the value of their farmland below what it would be in a free and open market, and thereby destroy the wealth and nest eggs of many farm families.
If we truly believe that farmland must be protected from foreign ownership – something that we do not see as a problem – there are far better ways of regulating it than by restricting the flow of capital to the sector. Why not follow the example of other industries that Canadians have determined are nationally sensitive – like our broadcast industry and our banking industry? In these cases we have devised ownership regulations that ensure these sectors remain majority controlled by Canadians without unduly restricting capital investment from institutions and non-Canadians. Why not, for example, follow the precedent set in Alberta which has adopted regulations that require farmland to be at least 51% owned by Canadians (including Canadian institutions) and – more importantly – farmed by Canadian farmers?
So to wrap up, we recommend that this Senate Committee advocate for responsible, evidence-based regulation of farmland ownership in Canada; regulation that protects farmland from the larger threats posed by urbanization and re-zoning. But in advocating for responsible regulation, we ask the Committee to consider measures that will not prevent Canadian farmers from accessing the capital that they desperately need – including institutional capital – to compete against global competitors in a capital-intensive industry.
Thank you for your time and attention.
Wally and I would now be happy to answer any questions you have.