Investment pools provide farmers with options

The stage is being set for a scene that seems likely to elevate farmers into greater roles.

The world demand for food is pushing prices for basic foodstuffs to levels not seen since the 1970s.

Forecasts are that prices will continue to rise as countries struggle to feed a burgeoning world population.

The competition for farmland has some countries such as China and Saudi Arabia looking to ease their food security concerns by buying up farmland in other nations.

Alongside that, private investors have started pouring money into farmland, seeking opportunity for gains as rising grain prices push up land values.

The long-term, bright prospects for farmland value has suddenly presented farmers with an unexpected option most didn’t dare dream of just five years ago.

Investment pools have been scouring the countryside looking to buy land and then lease it back to farmers to carry on their work.

This option is one some farmers could find attractive for many reasons.
Buy Benefits
By freeing up equity many farmers have tied up in land, it could enable them to spend money expanding their operations.

Large farmers don’t necessarily have to be large landowners. In the right situations, it might make more sense for farmers to lease land and equipment and save their money for operating costs and other expenses.

To be sure, there may be problems combating the long-standing prairie tradition of land ownership. As well, keeping land as a retirement fund has served farmers well over the years.

But with the average age of farmers at 52, according to the last census carried out in 2006, it could provide a means for some to sell land now while prices are relatively high and continue to work the land for another five to 15 years under a lease agreement.

It could also provide a smoother transition of land to the next generation. Younger farmers starting out often lack the large outlay of cash needed for down payments on land so leasing could make the transition easier.

Farmers who decide to take advantage of investment pool offers might also find it easier to work with one large lease that encompasses many quarter-sections, rather than a hodgepodge of leases with neighbours, relatives and other landlords.

But such arrangements should not be entered into lightly or considered to be a fix-all.

There are issues to resolve, such as adequate collateral on bank loans for those who don’t own large amounts of land. Banks will have to come up with inventive solutions.

Whether to sell or not to sell is a question that each farmer must answer for himself. It must be the proper decision based on individual data, farm history, business plan, and family and personal situations.

But investment pools could offer a way for a large acreage farm to operate without being cash poor.

And with the federal government recently cautioning Canadians against overspending lest they be caught with hefty loans to pay off when interest rates return to more normal levels, one more option is a good thing.
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