A recent poll in Ukraine showed that around 70% of respondents opposed the lifting of the moratorium on agricultural land sales. The poll further stated that almost 60% of respondents believe that agricultural land should be “mostly owned by the state as in Canada”.
This latter perception is false as agricultural land in Canada is predominantly privately owned and there exists a vibrant and thriving market in agricultural land. As I intend to explain, the market in agricultural land in Canada supports an agricultural sector which is a significant part of the economy and export trade.
First, an explanation of the confusion on the ownership of agricultural land in Canada. It needs to be recognized that Canada is one of the territorially largest countries in the world. However, most of the land is simply boreal forest and tundra with only 7% classified as agricultural. Most of the country is very sparsely inhabited and is not conducive to farming. It is a fact, that most of such land areas are Crown lands owned (89%) either by the Federal or Provincial governments. If based on this fact, Canada’s land is predominantly owned by the state. Of course, this is not the land which is being used for agriculture and the governments of Canada own only a minor portion of agricultural land.
The largest portion of agricultural land in Canada (around 60%) is owned by private farm operators. Another 24% of land is rented or leased from other private owners. The areas leased from Governments is only 13% of agricultural land. Sharecropping and other methods account for the balance. It is important to note that agriculture is strictly in the private sector with both individual farmers and farm corporations. The resulting values for farmland in Canada have recently ranged from a low of $1,200 up to $10,000 per acre depending on quality and location.
It is important to note that agricultural land in Canada is critical in the financing of farming activity. Both through commercial banks and Farm Credit Canada, private farmers can obtain loans in support of acquiring both land and equipment for their operations. Without a functioning market for agricultural land, such credits would not be possible. Further capital is attracted to the agricultural sector through the operation of specialized funds which purchase and lease land to farm operators. Such activities stimulate the development and functioning of the sector through the provision of investment capital. In fact, over $106 billion in farm debt funding* was outstanding in 2018.
Another important function for the market in agricultural land, is the liquidity which it can provide to farmers. For farmers choosing to exit from active farming, the agricultural land market provides the facility to realize on the value of the land. A particularly important role in this regard occurs upon retirement when a farm operator can use the value of the land to provide either a fixed amount of capital through a sale or through an income stream from land rental. Thus the market in agricultural land provides for mobility and generational transition.
The issue of foreign ownership of land is a factor of consideration in Canada. Since the control of the land markets is a Provincial responsibility in Canada, the regulations governing foreign ownership vary across the Provinces. Most Provinces, ban or restrict foreign purchases of agricultural land. Some require that foreign owners must become residents or put limits on the size of holdings. However, other Provinces, including Ontario (the most populous), have no restrictions on foreign ownership. Despite such relatively open markets, the foreign ownership of agricultural land is quite limited. Clearly a benefit of permitting foreign ownership is the increase in capital inflow into the sector. Nevertheless, the potential for excessive control by foreign purchasers must be recognized, particularly when considering the Ukrainian context.
Finally, the issue of excessive holdings of agricultural land needs to be considered. In Canada, the industry is quite fragmented with a large number of individual farm operators. Laws against monopolies exist in Canada though their application to farming has not been an issue. (Conversely, a number of farm product boards in dairy and poultry restrict entry into the sector.) Given the open and transparent market for land, competition among buyers is generally sufficient to limit control and establishing dominant positions in the industry is difficult.
In conclusion, if Ukraine wishes to look to Canada for an example, the Canadian experience would dictate that the moratorium on agricultural land sales should be lifted. A properly regulated market for agricultural land contributes to the effective functioning of the sector. Concerns expressed over a land market such as foreign ownership or monopolization can be dealt with through regulation. At the same time, a land market would provide stimulus for establishing more small and mid-size farming operations while providing the opportunity for the many holders of land certificates (“paii”) to realize on the value.
* Most of this funding is secured by land as farm real estate assets were $469 billion of the total farm sector assets of $623 billion, Statistics Canada, Farm Capital Structure.
The author doesn`t work for, consult to, own shares in or receive funding from any company or organization that would benefit from this article, and have no relevant affiliations