Canadian Agriculture: Assessing our Exposure to Potential U.S. Tariffs
In recent months, U.S. trade policy has taken center stage, with heightened rhetoric around tariffs and the potential for retaliatory actions from global trading partners. While no new U.S. tariffs have been implemented on Canadian agriculture, for investors in the space, the question still naturally arises: How vulnerable is the sector to these developments, and what are the implications for farmland investment?
At Bonnefield, we have been analyzing these questions closely. While there is no simple answer, understanding potential exposure, and the structural factors that can help mitigate it, is essential. Amid broader near-term macroeconomic and geopolitical uncertainty, we remain confident that Canadian farmland will once again prove to be a resilient, long-term store of value. In fact, tariff uncertainty further reinforces the case for investing in tangible, productive, and uncorrelated assets like high-quality Canadian farmland.
Key Factors That Will Determine The Impact of U.S. Tariffs
Although the full effects of potential future U.S. tariffs on Canadian agriculture are difficult to forecast, we generally expect some short-term downward pressures on commodity prices, and the actual impact will vary depending on the commodity and its reliance on the U.S. market. (We provide a more detailed analysis of key crops and export destinations later in this newsletter).
Several variables will influence the outcome:
The ability of U.S. importers to absorb or pass on tariff-related costs
Consumer response in the U.S. and the substitutability of Canadian products
The extent to which Canadian consumers respond to U.S. tariffs with additional demand for Canadian products
The scope and duration of the tariffs
Canada’s potential retaliatory measures
Broader global supply chain shifts prompted by U.S. protectionism
Ultimately, the global nature of agricultural commodity markets provides a natural buffer from potential tariff impacts as demand displaced by one market often finds a home in another. We saw this pattern emerge when India placed barriers on Canadian lentils in 2017, and when China restricted purchases of Canadian canola in 2019. In both these cases, Canadian production went elsewhere (largely to the EU) to supply crop shortages created by China and India’s changing trade patterns.
Mitigating Forces Supporting The Sector
Several macroeconomic and sector-specific dynamics are poised to help offset the potential downside:
1. Lower Interest Rates
In a recessionary environment, interest rates are likely to remain low or even decline, helping to alleviate some of the financial pressures faced by Canadian farmers.
2. Favourable Currency Dynamics
A weaker Canadian dollar provides a natural hedge for producers, as most agricultural commodities are priced in U.S. dollars. This supports Canadian export competitiveness and farmer profitability, even amidst tariff disruptions.
3. Government Support
Historically, the Canadian government has acted to support the agriculture sector during times of stress. For example, during the 2018–2019 trade dispute with China, the Canadian government provided $150 million in insurance support to canola exporters and expanded the Advance Payments Program, offering up to $1 million in loans – half of which was interest-free for canola producers.(1),(2)We would expect policy intervention if tariffs were to cause sustained disruption.
4. Export Market Diversification
The global nature of agriculture means that if one region imposes trade restrictions, others often increase their purchasing to fill the gap. Canada’s growing network of trade agreements supports this flexibility.
5. Low Agricultural Stockpile
Demand from a growing worldwide population, combined with years of geopolitical and climate change induced production challenges, have resulted in declining global stocks-to-use ratios for most agricultural commodities, e.g., corn stock-to-use ratio is currently at a 10-year low.(3)Consumers around the world will need Canadian crops, regardless of US tariffs and trade disruptions.
U.S. and Canadian Agricultural Trade Flows Have Changed in Recent Years
Most Canadians are surprised to learn that in the last decade, Canada has gone from being a net importer of food from the U.S. to a net exporter.(4) This is true of bulk agricultural commodities (like grains) as well as for intermediate goods (like livestock and feed) and even for branded consumer food products. On the face of it, being a net exporter to the U.S. would suggest that Canada is more vulnerable to U.S. agricultural tariffs than when we were a net importer. However, it is also true that U.S. food manufacturers and end consumers are much more reliant on Canadian crops than they were even a decade ago. A February 2025 policy note from Agrifood Economic Systems concluded:
“…on a net basis, Canada is feeding the U.S.. Tariffs that increase the price of agri-food products imported by the U.S. from Canada will cost U.S. consumers. If tariffs are sufficient to effectively halt Canada-U.S. trade in some products, the U.S. will be shorted in these products to some degree, for some period of time, and prices could increase sharply.” (5)
On balance, U.S. reliance on Canadian farmers suggests that agricultural tariffs are likely to have a big impact on U.S. producers and consumers and are, therefore, likely to be short lived if implemented.
The China Factor
While the focus of much attention is on U.S. tariff policy, Chinese tariffs (both on the U.S. and on Canada) are also important to consider. China’s recent imposition of a 100% tariff on Canadian canola oil and meal, along with a 25% tariff on seafood and pork, marks a significant escalation in the ongoing trade tensions between the two nations. These measures, effective from March 20, 2025, were introduced in direct response to Canada’s earlier decision to levy a 100% tariff on Chinese electric vehicles and a 25% tariff on steel and aluminum imports – actions that Canada justified as necessary to counteract unfair subsidies and market distortions by China.
As noted earlier in this newsletter, China has taken similar steps in the past, most notably in 2019, when it suspended import permits for major Canadian canola exporters. Although this move initially disrupted Canadian canola exports, the industry demonstrated resilience by diversifying its markets and finding alternative buyers. That episode, like the current one, initially disrupted trade and put downward pressure on farm margins and cash receipts. But Canadian producers quickly adapted: displaced volumes found new homes, largely in the EU, where supply gaps created by shifting global trade patterns provided new market opportunities. The current situation is likely to follow a similar trajectory. We also note that China’s current tariffs target canola oil and meal, which are considered processed forms of canola. Most of China’s canola imports from Canada consist of unprocessed canola, such as seeds, (e.g. in 2024, ~80% of canola exported to China was unprocessed) and therefore, the overall impact of these tariffs is relatively limited.(6)
These recurring patterns speak to the resilience of Canadian agriculture and the buffering effect of globally integrated commodity markets. While near-term volatility in prices and cash flows is expected, past experience suggests that Canada’s export-oriented producers are well positioned to weather this period of uncertainty. Diversification of markets and continued investment in trade infrastructure will remain key to mitigating future shocks and maintaining long-term sector stability.
These dynamics are not unique to Canada. Recent Chinese tariffs on U.S. agricultural products, including soybeans and corn, have similarly demonstrated that in a globally undersupplied market, protectionist measures often result in a rerouting of trade rather than a net reduction in supply. As China reduces its reliance on U.S. commodities, countries like Brazil and Argentina have stepped in to meet demand. China’s share of soybean imports from the U.S. fell from 40% in 2016 to 18% in 2024, while Brazil’s share rose from 46% to 74% during the same period. Brazil has also surpassed the U.S. as China’s top corn supplier since gaining market access in 2022.(7)These shifts underscore the adaptability of global supply chains and the limitations of tariffs as a tool for influencing long-term trade dynamics. For Canadian producers, this reinforces the importance of maintaining access to diversified markets and investing in the agility needed to respond to changing global conditions.
Diversification of Canada’s Export Markets is Well Underway
Canada has actively expanded its agricultural trade relationships beyond the U.S. through landmark agreements such as the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP) and the Comprehensive Economic and Trade Agreement (CETA) with the EU. These agreements have unlocked access to new, high-growth markets for Canadian crops, strengthening the sector’s global competitiveness and reducing risks related to overreliance on any single jurisdiction.
Bonnefield recently undertook a review of its farmland portfolios to evaluate likely exposure to the U.S. market. Three of the largest exposures in our portfolios are soybeans, corn, and wheat, which are also the major crops exported by Canada. The table below outlines the U.S.’ share of Canadian exports for each key crop in 2023, its ranking as a key export destination, and the associated compound annual growth rate (CAGR) from 2014-2023, based on total dollar value exported in CAD for each of these crops.(8)
The takeaway from this data should give Canadian farmland investors comfort.
Soybeans: The U.S. share of Canadian soybean exports has steadily declined, with growing demand from Asia and the Middle East driving future growth.
Wheat: Similarly, wheat exports have shifted away from the U.S., also favouring Asian and Middle Eastern markets.
Corn: While the U.S. saw a spike in corn imports from Canada in 2023, European markets, particularly Ireland, Spain, and the U.K., have been rapidly gaining ground, with impressive CAGRs of 19.2%, 8.7%, and 27.2%, respectively. In fact, these three countries represented over 60% of Canadian corn exports in 2023.(9)
This diversification highlights the growing resilience of Canada’s export ecosystem and its ability to adapt to evolving global trade dynamics, specifically in times of trade embargoes and tariffs from certain jurisdictions. Internally, Bonnefield continues to prioritize business development in regions with diverse crop capabilities and export access.
Long-Term Outlook: Still a Strong Case for Investment
Despite near-term trade uncertainty, we believe Canadian agriculture remains fundamentally strong. Canadian farmland continues to offer a compelling investment thesis grounded in:
Stable, uncorrelated returns
Limited volatility relative to other asset classes
Long-term supply/demand imbalances in global food and energy markets
Tariffs may bring temporary volatility, but they do not alter the long-term drivers of farmland value: population growth, dietary shifts, and the transition toward renewable energy sources.
Importantly, periods of market disruption often create attractive entry points. In a sector that has historically suffered from underinvestment, the current environment presents an opportunity to deploy capital in ways that enhance productivity, support farmers, and drive long-term value creation.
In Summary
Canadian agriculture remains fundamentally sound and increasingly diversified. Bonnefield’s portfolio strategy, rooted in high-quality farmland with broad market access, is well positioned to navigate volatility and capitalize on opportunity even in the face of potential U.S. tariffs.
About Bonnefield Financial
Bonnefield is a leading Canadian farmland and agribusiness investment manager. We provide capital to progressive farmers and agribusiness operators through land-lease financing and non-controlling equity solutions. Bonnefield is dedicated to preserving farmland for farming, and the firm partners with growth-oriented farmers and agribusiness operators to help them grow, reduce debt, and finance retirement and succession. The firm’s investors are individuals and institutional investors who are committed to the long-term sustainable future of Canadian agriculture.
Sources
1. Government of Canada, “Canada backs Canadian canola farmers and exporters with $150 million in insurance support,” June 13, 2019.
2. Government of Canada, “Government of Canada implements new regulations to enhance Advance Payments Program,” June 3, 2019.
3. MacroMicro, “World – Corn Stocks-to-Use Ratio” as of April 2025.
4. Government of Canada, “The United States’ trade with Canada and Canada’s trade with the United States,” February, 2024.
5. Al Mussell, Douglas Hedley, and Ted Bilyea, Canadian Agri-Food is Highly Vulnerable to US Tariffs. The US Should Worry Too, Agri-Food Economic Systems, February 2025.
6. Canola Council of Canada: Profiles of Canada’s leading canola markets. August 2024.
7. Reuters, “Chinese buyers switch to cheaper Brazilian soybeans ahead of Trump return,” January 17, 2025.
This document is for information purposes only and does not constitute an offer or solicitation to buy or sell any securities in any jurisdiction in which an offer or solicitation is not authorized. Any such offer is made only pursuant to relevant offering documents and subscription agreements. Bonnefield funds (the “Funds”) are currently only open to investors who meet certain eligibility requirements. The Funds will not be approved or disapproved by any securities regulatory authority. Prospective investors should rely solely on the Funds’ offering documents which outline the risk factors in making a decision to invest. No representations or warranties of any kind are intended or should be inferred with respect to the economic return or the tax consequences from an investment in the Funds. The Funds are intended for sophisticated investors who can accept the risks associated with such an investment including a substantial or complete loss of their investment. This communication is for informational purposes only and should not be relied upon for completeness. Any investment performance data outlined in this document should not be used to predict future returns. Any market prices, data, and third-party information are not warranted as to completeness or accuracy and are subject to change without notice. Prospective investors should take appropriate professional advice before making any investment decision. In all cases where historical performance is presented, note that past performance is not indicative of future results, and should not be relied upon as the basis for making an investment decision. There can be no assurance that any unrealized investments will ultimately be realized at the valuations taken into account in calculating the Funds performance presented herein, where applicable. The performance of such investments when ultimately realized may be materially different. This document may not be transmitted, reproduced, or used in whole or in part for any other purpose, nor may it be disclosed or made available, directly or indirectly, in whole or in part, to any other person without Bonnefield’s prior written consent.
Copying, distributing or sharing this document or its contents is expressly prohibited without the express, written consent of Bonnefield.
Time to Bet on the Farm? The Growing Appeal of Farmland for High Net Worth Investors
In recent years, headlines about pension plans and seasoned investors like Bill Gates and Warren Buffett investing in farmland have sparked interest in the asset class. Unlike traditional stocks and bonds, many investors are unsure how to approach farmland investments. Is it merely the latest high-profile trend, or is there more to its appeal?
The reality is that farmland has been an attractive investment for centuries. Individuals worldwide have acquired farmland as a means of long-term wealth generation and to preserve wealth through uncertain times. However, not everyone has the means to buy and manage a farm. To address this, opportunities to invest in portfolios of farmland assets have emerged, facilitating investment with additional diversification exposure across multiple growing regions.
Over the last few decades, institutional investors have led the charge in global farmland investment. Now, increasing numbers of individuals are adding farmland to their investment portfolios. The interest is rooted in the asset’s unique performance features as well as attractive macro-economic dynamics driving value as outlined below.
The Essential Nature of Farmland
Food is a necessity, and farmland is critical to the production of crops that are required not just to meet the food consumption demands of a growing population, but also to meet demands for livestock feed and alternative energy sources. Globally, the amount of arable land is expected to decline by 50 million hectares (picture 100 million football fields) between 2009 and 2050 in favour of other uses. Additionally, certain regions in the world are coming under pressure from increasingly unfavourable growing conditions and declining water availability which can impact their ability to continue to maintain historical crop production levels. All this can create scarcity value for existing high quality farmland.(1) When investing in farmland and agriculture, it is these macro trends that investors are getting exposure to.
Uncorrelated and Stable Returns
In Canada, farmland is predominantly owned by farmers, with investors estimated to hold less than 1% of farmland acreage.(2) As a result, values are driven by farmer-to-farmer transactions based primarily on farm profitability and largely uncorrelated to traditional asset classes or public markets.
Why is this? At a very high level, it’s because farmers are generally reluctant to sell their land, even during periods of low commodity prices, unless faced with significant financial challenges. Farming is an economies-of-scale business, and farm operators buy and sell land based on long-term business decisions rather than short-term financial speculation. Improved profitability through increased revenues (higher crop yields or planting higher value crops, etc.), or decreased expenses (reduced labour or input costs, etc.) all contribute to long-term value appreciation. These dynamics have contributed to Canadian farmland’s average annual rate of appreciation of approximately 7.5% between 1968-2023.(3)
Bonnefield’s own farmland funds have generated a 10-year annualized return of 8.3% – similar to returns on Canadian equities over that period but with a third of the volatility.(4) From an investor perspective, the long-term value appreciation and stability of the asset class provide attractive risk-return trade-offs. The expected outperformance in times of market sell-downs also reduces the overall volatility of your investment portfolio and provides meaningful downside protection.
We expect heightened geopolitical risks over the coming years, under the Trump administration, with threats of tariffs and escalating trade wars resulting in increased volatility. This will likely result in market sell-downs for risk-on assets, as experienced in the first week of March 2025, We therefore believe that this environment makes investments in farmland appealing given the asset class’s ability to outperform in down markets and act as a powerful stabilizer within investment portfolios.
Inflation-Hedging Characteristics
Another sought-after feature of farmland investment is its outperformance against inflation. During inflationary periods, we experience increased food and commodity prices which generally result in increased farmer revenues. To illustrate, in 2021 and 2022, when Canadian CPI increased to 4.1% and 5.4%, Canadian farm cash receipts surged by 15.8% and 14.6%, respectively. In contrast, in 2020 and 2023, when inflation was lower at 1.5% and 2.6%, farm cash receipt growth was more modest at 8.2% and 4.6%.(6),(7)
With more money in their pockets, farmers are better positioned to reinvest in their operations – often by acquiring additional acreage. These periods of high inflation tend to see greater farmland transactions at higher values which then becomes the new baseline value for similar land in that region. In Canada, farmland values rose by 9.5% in 2021 and 14.6% in 2022, aligning with elevated inflation and despite cooling inflation in 2023 (CPI at 2.6%), they continued to increase at an annual rate of 15.5%, reflecting a lag effect as price benchmarks adjust to validated market transactions.(8),(9)
For investors, these dynamics create an opportunity to gain exposure to a resilient asset class that offers a safe haven for long-term wealth preservation during periods of economic uncertainty and inflation.
Climate and Farmland Returns
Adaptability has always been a defining trait of successful farmers, and today’s agricultural landscape is no exception. While climate change presents challenges—such as increased weather volatility—Canadian agriculture is uniquely positioned to benefit from key structural advantages. Longer growing seasons and increased heat units, along with advancements in crop genetics—such as drought-resistant seed varieties—are enabling diversification into higher-value crops. This expansion goes beyond the cold-weather staples historically associated with the region. Canada’s abundant freshwater resources and reliance on rainfed agriculture provide a significant hedge against the water scarcity risks affecting farmland in many other regions. These factors contribute to the long-term resilience of Canadian farmland, reinforcing its value as a stable, inflation-protected asset class with strong potential for appreciation.
Farmland – A Source of Stable, Long-Term Wealth Generation
As outlined above, farmland offers various attractive features. Its ability to diversify returns with low correlation to traditional public markets and other types of real estate reduces portfolio volatility. As a proven hedge against inflation, farmland can act as a long-term store of value, safeguarding wealth during uncertain economic times. Moreover, Canadian farmland specifically offers unique climate hedging characteristics due to its abundant access to fresh, renewable water sources, and changing growing conditions.
For these reasons, along with its critical role in meeting food production needs, we believe that Canadian farmland provides investors with a relative safe haven in uncertain times and is a great addition to an investment portfolio. It is no surprise that increasing numbers of individual investors are adding farmland to their holdings.
For information on the Bonnefield Farmland Funds, please reach out to investors@bonnefield.com
About Bonnefield Financial
Bonnefield is a leading Canadian farmland and agribusiness investment manager. We provide capital to progressive farmers and agribusiness operators through land-lease financing and non-controlling equity solutions. Bonnefield is dedicated to preserving farmland for farming, and the firm partners with growth-oriented farmers and agribusiness operators to help them grow, reduce debt, and finance retirement and succession. The firm’s investors are individuals and institutional investors who are committed to the long-term sustainable future of Canadian agriculture.
Sources
1. FAO 2030-50 Projections of Arable Land (FAO (2017)); OurWorldInData.org/crop-yields.
2. Based on analysis conducted internally by Bonnefield in 2024.
3. Statistics Canada Value per acre of farm land and buildings at July 1, 2023. (table 32-10-0047-01).
4. Data to December 31, 2023 due to availability of returns at time of publication. Bonnefield figures based on a composite of our open-ended funds.
7. Statistics Canada. Table 18-10-0256-01 Consumer Price Index (CPI) statistics, measures of core inflation and other related statistics – Bank of Canada definitions.
8. Statistics Canada. Table 32-10-0047-01 Value per acre of farm land and buildings at July 1.
9. Consumer Price Index (CPI) statistics, measures of core inflation and other related statistics – Bank of Canada definitions – table 18-10-0256-01).
10. Food and Agriculture Organization of the United Nations – FAOSTAT Land Use Database (total agricultural land and total land area equipped for irrigation; data as of 2021).
This document is for information purposes only and does not constitute an offer or solicitation to buy or sell any securities in any jurisdiction in which an offer or solicitation is not authorized. Any such offer is made only pursuant to relevant offering documents and subscription agreements. Bonnefield funds (the “Funds”) are currently only open to investors who meet certain eligibility requirements. The Funds will not be approved or disapproved by any securities regulatory authority. Prospective investors should rely solely on the Funds’ offering documents which outline the risk factors in making a decision to invest. No representations or warranties of any kind are intended or should be inferred with respect to the economic return or the tax consequences from an investment in the Funds. The Funds are intended for sophisticated investors who can accept the risks associated with such an investment including a substantial or complete loss of their investment. This communication is for informational purposes only and should not be relied upon for completeness. Any investment performance data outlined in this document should not be used to predict future returns. Any market prices, data, and third-party information are not warranted as to completeness or accuracy and are subject to change without notice. Prospective investors should take appropriate professional advice before making any investment decision. In all cases where historical performance is presented, note that past performance is not indicative of future results, and should not be relied upon as the basis for making an investment decision. There can be no assurance that any unrealized investments will ultimately be realized at the valuations taken into account in calculating the Funds performance presented herein, where applicable. The performance of such investments when ultimately realized may be materially different. This document may not be transmitted, reproduced, or used in whole or in part for any other purpose, nor may it be disclosed or made available, directly or indirectly, in whole or in part, to any other person without Bonnefield’s prior written consent.
Copying, distributing or sharing this document or its contents is expressly prohibited without the express, written consent of Bonnefield.
Harvesting New Opportunities: Growing Our Investment Footprint with Okanagan Cherries
2024 has been an exciting year for Bonnefield, as we continue to support Canadian farmers by expanding our investment footprint into new geographies and agricultural regions. In this newsletter, we highlight one of our most recent investments in a cherry orchard in the Okanagan region of British Columbia, Canada, and provide an overview of the key considerations between row crop and permanent crop investments.
Crop Selection for Farmland Investment
Bonnefield’s investment philosophy is to build a diversified portfolio of high-quality Canadian farmland and partner with operationally and financially strong operators. Similar to the Canadian agriculture landscape, our strategy is more heavily weighted towards traditional row crops and specialty crops, with modest exposure to permanent crops.
While many farmland investment managers in Canada and the United States specialize primarily in either row crops or permanent crops, Bonnefield offers our investors diversified exposure to both row and permanent crops across top agricultural regions in Canada. We build broadly diversified portfolios in order to mitigate risk, provide a smoothing of returns, and provide maximum optionality for our value creation activities.
Investing across a diversified geography and multiple crop types, however, requires a thorough understanding of each region, crop, and the unique considerations that come with them.
Understanding the Difference in Risks – Permanent vs. Row Crops
Permanent crops, such as fruit trees like cherries and apples, and bush plants like blueberries and raspberries, are perennial plants that produce the same commodity year after year. In contrast, row crops like wheat or canola are planted and harvested annually, allowing producers to rotate the crop grown each year. Understanding the production, pricing and end markets, as well as the unique risks associated with permanent crops versus row crops is critical to evaluating a potential investment.
Compared with row crops, lands that produce permanent crops tend to be valued on a higher dollar-per-acre basis as a result of the higher prices and gross margins that permanent crops can generate. However, these higher prices come with a number of additional risks and potential costs. Firstly, permanent crops require significant upfront investment to establish the plant, with some plants taking several years to reach full production. Secondly, permanent crops also require a higher level of ongoing farm management, requiring specialized equipment and they can be more labour intensive compared with row crops. Finally, because permanent crops rely on the ongoing health of the plant to produce year after year, there are increased risks from disease, pests and adverse weather to a permanent crop operation versus that of row crops.
Bonnefield mitigates the risks related to permanent crops through diligent research, partnership with leading and established operators, and investing in a diversified portfolio of high-quality properties. Customizing the structures of our capital investment and leases are also important to ensure appropriate risk-adjusted returns.
Identifying an Opportunity in BC Cherries
Bonnefield is constantly monitoring macroeconomic and industry trends to identify attractive areas across Canada to invest. These opportunities typically come to us from Canadian farmers looking to grow or support their succession planning and feel that they can benefit from Bonnefield’s capital solutions. Our recent investment in the Okanagan region of British Columbia highlights how we approach entering a new region.
Earlier this year, our team connected with a leading cherry producer in British Columbia. This family farming business was seeking to expand its partnerships, as it looked to improve its balance sheet following a recent business expansion. The team conducted significant industry research and on-the-ground diligence into the tender fruit growing regions in British Columbia and determined that cherries grown in the Okanagan region were an attractive opportunity, partly due to the competitive advantage that the region has with its late growing season, creating a unique window where the region is the only supplier of fresh cherries to the global market for several weeks each fall. Alongside its comprehensive diligence into farm operations and operators, Bonnefield conducted a critical analysis of historical weather patterns to assess current weather trends in the regions.
Bonnefield collaborated closely with the operator to see how our capital solutions could support their growth and agreed to enter into a sale leaseback on 114 acres of cherry land. Our partner in this venture is one of Canada’s largest sweet cherry producers, boasting a robust export presence. This collaboration not only strengthens exposure to a key agricultural region but also offers our investors added diversification and increased yields within their farmland portfolios.
We are excited about the growth potential and the value this new region brings, and continuing to deliver attractive, stable returns to our investors while supporting our farm partners to strengthen and grow their operations.
For information on the Bonnefield Farmland Funds, please reach out to investors@bonnefield.com
About Bonnefield Financial
Bonnefield is a leading Canadian farmland and agribusiness investment manager. We provide capital to progressive farmers and agribusiness operators through land-lease financing and non-controlling equity solutions. Bonnefield is dedicated to preserving farmland for farming, and the firm partners with growth-oriented farmers and agribusiness operators to help them grow, reduce debt, and finance retirement and succession. The firm’s investors are individuals and institutional investors who are committed to the long-term sustainable future of Canadian agriculture.
This document is for information purposes only and does not constitute an offer or solicitation to buy or sell any securities in any jurisdiction in which an offer or solicitation is not authorized. Any such offer is made only pursuant to relevant offering documents and subscription agreements. Bonnefield funds (the “Funds”) are currently only open to investors who meet certain eligibility requirements. The Funds will not be approved or disapproved by any securities regulatory authority. Prospective investors should rely solely on the Funds’ offering documents which outline the risk factors in making a decision to invest. No representations or warranties of any kind are intended or should be inferred with respect to the economic return or the tax consequences from an investment in the Funds. The Funds are intended for sophisticated investors who can accept the risks associated with such an investment including a substantial or complete loss of their investment. This communication is for informational purposes only and should not be relied upon for completeness. Any investment performance data outlined in this document should not be used to predict future returns. Any market prices, data, and third-party information are not warranted as to completeness or accuracy and are subject to change without notice. Prospective investors should take appropriate professional advice before making any investment decision. In all cases where historical performance is presented, note that past performance is not indicative of future results, and should not be relied upon as the basis for making an investment decision. There can be no assurance that any unrealized investments will ultimately be realized at the valuations taken into account in calculating the Funds performance presented herein, where applicable. The performance of such investments when ultimately realized may be materially different. This document may not be transmitted, reproduced, or used in whole or in part for any other purpose, nor may it be disclosed or made available, directly or indirectly, in whole or in part, to any other person without Bonnefield’s prior written consent.
Copying, distributing or sharing this document or its contents is expressly prohibited without the express, written consent of Bonnefield.
Record-high stock markets, geopolitical crises, US political uncertainty, potential rebound in inflation, currency volatility, interest rate uncertainty… we live in “interesting” times. All this uncertainty has led to an increasing number of investors looking to alternative assets to complement and hedge their investment portfolios. Historically, one of the more attractive assets in times of uncertainty is Canadian farmland. The asset class offers low volatility and has a track record of average annual returns of 7.6%(1) over the last 70 years, without meaningful periods of declining value. More recent data shows Canadian farmland prices have increased by an average of 9.1% on average annually over the last decade.(1) But after several years of strong farmland returns, is now still a good time to invest in Canadian farmland, or are we at a “peak”?
Let’s look at some historic data to see if today’s “timing” is good, bad or indifferent to expected farmland returns.
“Timing the Market” Not a Relevant Concern for Farmland
Determining the right time to invest is typical in stock and bond markets, as no one wants to enter at the top of the market. The situation is different for a low-volatility and uncorrelated asset like Canadian farmland. To illustrate the point, imagine you had invested in Canadian farmland each year from 1975 to 2023. You would have had positive returns on each of those investments, with only eight entry years showing negative returns.(1)(2) In contrast, global equities saw negative returns for 17 of the entry years during the same period.(3) This result is unsurprising for fans of farmland investing who are attracted to its low volatility and uncorrelated returns. We have included in Figure 2 below a summary of the historical holding period returns for both asset classes.
What may be surprising even to long-time farmland investors, however, is that investing in Canadian farmland immediately following a year of heightened value appreciation (10% or above) still resulted in strong, long-term returns in line with historical averages. The data suggest that, rather than waiting for a “dip” in the market to invest in farmland, having exposure to the asset and benefitting from its long-term correlation to inflation should support positive investment returns with limited volatility.
Can the Trend Continue?
As seen in the figure above, farmland prices have historically increased at a steady rate. The typical pattern for this asset class is a period of strong growth, generally linked with commodity super cycles, followed by more muted growth. Very rarely have there been absolute decreases in land values, and only temporary ones. This long-term growth history can lead some to question whether ongoing value growth is sustainable. At Bonnefield, we believe that it is, and that there remains significant upside in farmland values.
As a scarce resource, high-quality farmland in regions supported by positive long-term climate and water conditions will increasingly be in demand. Farmland is the base upon which we will continue to meet increasing crop production requirements to satisfy food and alternative energy demands and understanding this, along with the drivers of farmland value (e.g., farm revenues and productivity growth, farmland consolidation, etc.), helps to understand why we believe that farmland provides strong, long-term value appreciation potential.
Now is a Great Time to Invest in Canadian Farmland
Bonnefield expects to continue to see growth in Canadian farmland values supported by farm revenue and productivity growth. Along with the limited price volatility of the asset class, we believe that investing in Canadian farmland offers attractive risk-adjusted returns and that investors can benefit from earlier exposure to the asset class rather than waiting for “the right time” to enter the market.
About Bonnefield Financial
Bonnefield is a leading Canadian farmland and agribusiness investment manager. We provide capital to progressive farmers and agribusiness operators through land-lease financing and non-controlling equity solutions. Bonnefield is dedicated to preserving farmland for farming, and the firm partners with growth-oriented farmers and agribusiness operators to help them grow, reduce debt, and finance retirement and succession. The firm’s investors are individuals and institutional investors who are committed to the long-term sustainable future of Canadian agriculture.
Sources
1. Statistics Canada. Table 32-10-0047-01 Value per Acre of Farm Land and Buildings at July 1, https://www150.statcan.gc.ca/t1/tbl1/en/tv.action?pid=3210004701.
2. Holding period returns calculated by varying investment entry and exit years and adding a 2% cash yield (mid-point of the cash yield target of Bonnefield’s farmland strategy). Capital appreciation is assumed to be identical to Statistics Canada’s farmland values dataset as at July 1st of each year.
3. MSCI World Index total return, large and Mid cap, reported in CAD, https://www.msci.com/end-of-day-data-search.
This document is for information purposes only and does not constitute an offer or solicitation to buy or sell any securities in any jurisdiction in which an offer or solicitation is not authorized. Any such offer is made only pursuant to relevant offering documents and subscription agreements. Bonnefield funds (the “Funds”) are currently only open to investors who meet certain eligibility requirements. The Funds will not be approved or disapproved by any securities regulatory authority. Prospective investors should rely solely on the Funds’ offering documents which outline the risk factors in making a decision to invest. No representations or warranties of any kind are intended or should be inferred with respect to the economic return or the tax consequences from an investment in the Funds. The Funds are intended for sophisticated investors who can accept the risks associated with such an investment including a substantial or complete loss of their investment. This communication is for informational purposes only and should not be relied upon for completeness. Any investment performance data outlined in this document should not be used to predict future returns. Any market prices, data, and third-party information are not warranted as to completeness or accuracy and are subject to change without notice. Prospective investors should take appropriate professional advice before making any investment decision. In all cases where historical performance is presented, note that past performance is not indicative of future results, and should not be relied upon as the basis for making an investment decision. There can be no assurance that any unrealized investments will ultimately be realized at the valuations taken into account in calculating the Funds performance presented herein, where applicable. The performance of such investments when ultimately realized may be materially different. This document may not be transmitted, reproduced, or used in whole or in part for any other purpose, nor may it be disclosed or made available, directly or indirectly, in whole or in part, to any other person without Bonnefield’s prior written consent.
Copying, distributing or sharing this document or its contents is expressly prohibited without the express, written consent of Bonnefield.
Beneath the Surface: Canadian Drought Reality & Farmland Resilience
After a year marked by wildfires and continued global concerns over water scarcity, the headlines at the beginning of the 2024 growing season across North America, Europe, and South America have included discussion of drought risk and water availability. As a leading Canadian farmland and agriculture investment manager, Bonnefield is regularly asked whether such headlines signal increasing risks associated with investing in agriculture and farmland. The short answer is – it depends.
Geography and ongoing farmland management practices impact the relative risk that drought and water availability have on a farm’s operations. So, whether thinking about buying a single farm, or investing in a portfolio of pooled farmland assets, it is important to consider these factors in determining the relative risk that water availability has on the future operations of the farm(s) and on their long-term performance.
Geography and Canada’s Water Advantage
While increasing numbers of sophisticated investors are interested in gaining exposure to the attractive attributes of farmland and agriculture, as with everything, there are risks that need to be considered. Water scarcity is a major challenge for agricultural systems around the world and shifting climate patterns along with existing water management practices globally demand our attention. Research suggests that 40% of global croplands have already experienced water scarcity.(1) Agriculture remains one of the largest users of water globally, accounting for 70% of current global water withdrawals.(2)
When evaluating a potential farmland investment, it is important to consider geography, as certain countries are experiencing (and expected to continue to experience) greater water stress than others. For this reason, Bonnefield feels that investment in Canadian farmland entails less water-scarcity risk than investment in other countries, and can also hedge against water risk in a broader investment portfolio.
Canada boasts a significant water resource advantage relative to other parts of the globe, with approximately 20% of the world’s freshwater reserves and 7% of the world’s renewable freshwater, while only representing 0.5% of the global population.(4) Estimates suggest that approximately 11% of existing cropland globally could be vulnerable to lost productivity due to water scarcity by 2050. In contrast, it is thought that only 1% of Canada’s cropland is potentially vulnerable.(5) Additionally, Canadian farmland is largely rainfed with less than 2% of Canadian agriculture reliant on irrigation systems.(6)
While Canada offers less risk to water scarcity than other regions, there are still parts of the country (particularly in Western Canada) that exhibit greater risk and instances of drought, so it is important to consider this when investing in a farmland portfolio. In Bonnefield’s case, we do not avoid these regions but rather, take a risk-adjusted approach when evaluating such opportunities. We also examine the water source and storage capacity of various irrigation districts and utilize climate models to estimate the potential impact of water shortages in each district, ensuring that properties in our portfolio will still receive water allocation in the event of curtailments.
Understanding regional variability in climatic conditions, specifically areas with more or less drought risk, is core to Bonnefield’s investment strategy to appropriately diversify farmland holdings across the country and insulate the portfolio from ever-changing weather patterns.
Employing Practices to Mitigate Water Risk
Despite Canada having relatively reliable access to freshwater resources, extended periods of drought still have the potential to negatively impact crop yields. As such, it is important to be exposed to farmland that is being well-managed with high-quality practices designed to ensure long-term, sustainable production. Through innovative practices, Canadian farmers have successfully enhanced water retention in the soil, mitigating the effects of water scarcity. As of 2021, almost 65% of farms across Canada reported using sustainable farming practices, up from 54% in the previous Census of Agriculture five years prior.(7) At Bonnefield, we work with and seek out farm partners who employ sustainable farming practices and function as long-term stewards of the land on which they operate. Some key strategies employed by Canadian farmers include:
Reduced Tillage: One of the most impactful practices is reduced tillage or no-till farming. No till farming, where the soil is not plowed or turned over before planting, minimizes soil disturbance and enhances water retention. In Canada, no-till farming is most common in the Prairies as higher precipitation volumes in Eastern Canada can make implementing no-till farming difficult.
Improved Irrigation Systems: Canadian farmers have embraced advanced irrigation technologies, such as low-pressure pivot systems, drip irrigation and sub-surface irrigation, to manage water more efficiently. These systems are often combined with soil probes and sensors that allow farmers to apply water at variable rates across fields to maximize crop production per unit of water.
Crop Rotation and Cover Cropping: Crop rotation and cover cropping have been integral parts of Canadian farming systems for decades, contributing to soil health and water retention. Rotating crops helps break pest and disease cycles while improving soil structure. Cover crops protect the soil from erosion, enhance organic matter content, and promote water infiltration.
Drought-Tolerant Crop Selection: Crop varieties optimized for local soil, water, and climate conditions can enhance yields. Specifically, breeding plants to have deeper and longer root networks can enhance resistance to drought and heat.(8) Canadian farmers are turning to more drought-tolerant crops, like barley, which saw an increase in planted acreage of nearly 25% from 2016 to 2021.(9)
Furthermore, Bonnefield’s robust and continuous property-level due diligence sets the stage for transformative investments.
So, Are Droughts and Water Scarcity a Risk in Farmland Investing?
Earlier we asked the question whether there is increasing risk associated with investing in agriculture and farmland due to water scarcity. As discussed above, the answer depends on a number of factors, most notably where the farmland is located, the risk mitigation practices, and investments that are made to the properties. By focusing on regions with relatively low water risk and ensuring the farms are operated in a sustainable manner, farmland remains an attractive asset and one that has the potential to offer water-risk hedging characteristics and long-term value in an investment portfolio.
About Bonnefield Financial
Bonnefield is a leading Canadian natural capital investment manager that invests in farmland and agribusinesses. We provide capital to progressive farmers and agribusiness operators through land-lease financing and non-controlling equity solutions. Bonnefield is dedicated to preserving farmland for farming and promoting sustainable production practices. The firm partners with growth-oriented farmers and agribusiness operators to help them grow, reduce debt, and finance retirement and succession. The firm’s investors are individuals and institutional investors who are committed to the long-term future of Canadian agriculture. www.bonnefield.com
Sources
1. Liu, Xingcai, et al, “Global Agricultural Water Scarcity Assessment Incorporating blue and Green Water Availability Under Future Climate Change,” AGU, April 23, 2022.
2. FAO. 2020. The State of Food and Agriculture 2020. Overcoming water challenges in agriculture. Rome. https://doi.org/10.4060/cb1447en
3. World Resources Institute, data August 26, 2015. Projections are based on a business-as-usual scenario using SSP2 and RCP8.5.
4. Environment and Climate Change Canada (2024, March 22). Goal 6: Ensure clean and safe water for all Canadians. Canada.ca. https://www.canada.ca/en/environment-climate-change/services/climate-change/federal-sustainable-development-strategy/goals/clean-water-sanitation.html
5. N. Fitton et al, “The vulnerabilities of agricultural land and food production to future water scarcity”, Global Environmental Change, Volume 58. 2019
6. Food and Agriculture Organization of the United Nations – FAOSTAT Land Use Database (total agriculture land and total land area equipped for irrigation; data as of 2021).
7. Ontario Federation of Agriculture. “Farmers embracing technology, sustainable practices and direct-to-consumer sales” May 19, 2022.
8. Anita, S., Hyat, T., & Wilhelmus, J. PGIM. “Food for Thought: Investment Opportunities Across a Changing Food System” 2023.
9. Ontario Federation of Agriculture. “Farmers embracing technology, sustainable practices and direct-to-consumer sales” May 19, 2022.
This document is for information purposes only and does not constitute an offer or solicitation to buy or sell any securities in any jurisdiction in which an offer or solicitation is not authorized. Any such offer is made only pursuant to relevant offering documents and subscription agreements. Bonnefield funds (the “Funds”) are currently only open to investors who meet certain eligibility requirements. The Funds will not be approved or disapproved by any securities regulatory authority. Prospective investors should rely solely on the Funds’ offering documents which outline the risk factors in making a decision to invest. No representations or warranties of any kind are intended or should be inferred with respect to the economic return or the tax consequences from an investment in the Funds. The Funds are intended for sophisticated investors who can accept the risks associated with such an investment including a substantial or complete loss of their investment.
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