OTTAWA, Thursday, November 24, 2016

The Standing Senate Committee on Agriculture and Forestry met this day at 8:01 a.m. to study the acquisition of farmland in Canada and its potential impact on the farming sector.

Senator Ghislain Maltais (Chair) in the chair.

The Chair: Good morning.

Welcome to this meeting of the Standing Senate Committee on Agriculture and Forestry. I am Senator Ghislain Maltais from Quebec.

[Translation]

I will ask each of the senators to introduce themselves, starting with Senator Beyak on my left.

[English]

Senator Beyak: Good morning, Senator Lynn Beyak, Dryden, Ontario, welcome.

Senator Merchant: Welcome. I'm Pana Merchant, Saskatchewan.

[Translation]

Senator Tardif: Good morning. Senator Claudette Tardif from Alberta.

Senator Gagné: Good morning. Senator Raymonde Gagné from Manitoba.

[English]

Senator Plett: Good morning. Senator Don Plett. I'm also from Manitoba.

Senator Oh: Good morning, Senator Victor Oh, Ontario.

[Translation]

Senator Pratte: Good morning. Senator André Pratte from Quebec.

Senator Dagenais: Good morning. Senator Jean-Guy Dagenais from Quebec.

[English]

Senator Ogilvie: Senator Kelvin Ogilvie, Nova Scotia.

[Translation]

The Chair: Joining us this morning are representatives from the Bank of Canada: Eric Santor, Chief, Canadian Economic Analysis, and Toni Gravelle, Chief, Financial Markets. I'm not sure who would like to start. Let me remind you that we have one hour; the shorter your presentation is, the more questions the senators will be able to ask you.

Mr. Santor, the floor is yours.

[English]

Before beginning, I want to present a new senator this morning, Senator Terry Mercer, from Nova Scotia.

Eric Santor, Chief, Canadian Economic Analysis, Bank of Canada: Good morning Mr. Chairman and committee members. It is a real pleasure to be here today. Thank you for the opportunity. My name is Eric Santor, and I'm the Chief of the Canadian Economic Analysis Department at the Bank of Canada.

My colleague Toni Gravelle is going to speak to you about the impact of interest rates on the financial system. For my part, I'll focus my remarks on the policy rate and our outlook for the real economy, and in particular exports and commodity prices.

In October, the bank announced that it decided to leave unchanged our key policy interest rate, which we, along with many other advanced economies, have maintained at a very low level since the financial crisis of 2008.

The goal of our rate setting is to achieve our inflation target of 2 per cent, that is, to keep inflation low, stable and predictable consistent with an economy operating at productive capacity, in other words, when supply and demand are in balance. Indeed inflation has been low, stable and predictable since the 1990s when we first adopted the inflation target. While we don't provide for guidance in our policy decisions, let me say a few words in general about how the bank's policy rate gets transmitted through the economy and how long that takes.

Changes in our policy rate affect commercial interest rates, asset prices and the exchange rate of the Canadian dollar. They have an impact on people's expectations of future rates, economic growth and inflation, which in turn affect asset prices and the exchange rate. Changes in the policy rate work through all these channels to influence the overall level of demand, both domestic and foreign, for Canadian goods and services.

It's important to note, however, that while the bank controls the policy rate, long-term interest rates are affected by a large number of factors, many of which are global in nature. For example, Canada's financial markets are closely linked with markets in the U.S., and, historically, higher longer-term interest rates there mean generally higher longer- term rates here and vice versa.

Any change we make to the policy rate can take up to two years to have a full effect felt throughout the economy. What this means is that our decision today reflects our anticipation of what we think inflation will be two years from now.

In our view, inflation at 2 per cent creates an environment favourable to stable, healthy growth and output, employment and incomes over time. It is intended to give farmers, like all Canadians, greater confidence about the future, allowing them to plan and to make sound economic decisions.

The bank is currently maintaining a highly stimulative policy for a number of reasons. The Canadian economy continues to work its way back from the post-crisis global recession and the associated collapse in exports that we experienced at that time. At the same time, as we know, the economy is adjusting to lower prices for oil and other commodities as well as a much lower exchange rate. Recovering our exports has been slow, although we expect them to pick up and grow at a moderate rate over our projection horizon as foreign demand improves.

For our non-commodity exports, the somewhat lackluster performance can be explained by a number of factors, including the weakness in U.S. activity in the first half of this year and an unfavourable composition of U.S. demand more broadly, as well as longer-term structural issues such as lost export capacity and competitiveness challenges.

A few words on commodities, and we'll start with oil. Lower oil prices have led to a rebalancing of the oil market. Solid demand growth is expected to continue, while supply growth will be constrained by the deep cuts to capital investments over the past two years and the lag between oil investment and production.

For other commodities, the bank's non-energy commodity price index is modestly lower than it was in July, driven mainly by weaker agricultural prices. In fact, prices for canola, corn, wheat and barley have eased relative to their average over the last five years. Likewise, hog and cattle prices have also retreated from their high seen in the last few years.

That said, prices are expected to be supported going forward by the fact that agricultural yield should normalize from the very high levels seen over the past years at the global level.

More broadly though, globally growth is expected to pick up to 3.2 per cent in 2017 and 3.5 per cent in 2018. This increase will be driven by emerging markets as recessions in some of those countries run their course and progress is made on reforms to support growth in other EMEs. With the rise in global growth there will come an increase in demand for goods linked to household consumption, in particular agriculture products. If you consider the hundreds of millions of people climbing up the income scale in countries such as India and China, their changing diet implies more than just a stronger demand for traditional protein sources. It also implies demand for inputs such as fertilizer, animal feed, fish feed, oilseeds and specialty crops such as lentils and chickpeas.

Finally, I have a quick word on mining. Modest decline in metal prices is expected over the projection horizon reflecting slower growth in both investment and production and commodity intensive industries in China combined with strong supply growth from previously built mines in other countries.

I will pass it over to my colleague, Toni Gravelle.

[Translation]

Toni Gravelle, Chief, Financial Markets, Bank of Canada: Good morning, honourable senators. My remarks will focus on investors, including pension funds, and what the current low interest rate environment means for them.

Asset and pension fund managers are facing increased incentives to take on more risk. Defined benefit pension plans are particularly challenged. They are coping with funding and benefit levels that were based on shorter lifespans, a smaller number of retirees relative to the working-age population, higher discount rates and higher expected asset returns. Defined contribution plans are also facing pressures — the amount that individuals need to contribute to fund a given level of nominal retirement income has increased substantially, given the low interest rate environment.

Over time, both types of managers may seek to increase contributions or lower benefits. But for now, many pension funds are increasing the share of alternative, higher-yielding assets in their portfolios in an effort to generate higher returns. Some pension funds are also taking on more leverage.

Large global defined-benefit plans have the scale and expertise to diversify into less-liquid assets and into regions with higher expected returns, including in emerging markets that have a relatively higher potential to grow.

Having market participants invest in a wider universe of riskier assets may be desirable if it increases access to funding for productive projects. But it underlines the importance of investors being able to properly price and manage the resulting risk.

Now, let me say a few words about what large Canadian pension funds have been doing in this low interest rate environment. As I noted above, the persistence of low interest rates and the concomitant search for yield has led them to increasingly shift toward less-liquid alternative assets, such as real estate. That includes residential, commercial, and potentially other types of assets, such as agricultural. At the bank, we necessarily need to look at this at the macro level, so I don't have any special insights or data specifically with respect to farmland.

Given the long-term nature of their liabilities and their size, the big eight pension funds in Canada are structurally well positioned to capture the liquidity premiums offered by such assets. On the one hand, real estate and infrastructure investments provide fairly predictable cash flows, offer inflation protection and, to some extent, can be seen as partial substitutes for bonds, although with a significantly different liquidity profile.

Private equity on the other hand, though less liquid, is generally perceived as a complement to public equities, offering potentially superior returns to large investors. So these pension funds are often seen investing in roads or airports, for example, as a form of infrastructure investing, as well as in commercial real estate and other more unique forms of real estate, such as timberlands.

Between 2007 and 2015, the big eight's collective allocation to less-liquid alternative assets-real estate, private equity and infrastructure grew from 21 per cent to 29 per cent. This shift occurred through a gradual reduction in their allocations to public equities and fixed-income assets, suggesting that they largely made the change by channelling new contribution inflows into alternative assets, rather than by selling assets outright.

I'd be happy to take your questions.

The Chair: Thank you, Mr. Gravelle. For the first round, I will let Senator Mercer start, followed by Senator Plett.

[English]

Senator Mercer: I didn't quite get the message about how some pension funds are interested in agriculture or in agricultural land. We've heard a couple of stories from people over the last little while about some people investing in land in agricultural areas and holding it for some time, which means that it's not available particularly to younger farmers who might want to expand their operations.

I don't see where the return is for investors that they can't get someplace else other than farmland. I don't see what the attraction is.

Mr. Gravelle: I can speak more generally about the attraction to real estate properties, and farmland would fall into that category. The attraction for pension funds of owning real estate, be it commercial, residential or other particular types of real estate, is that it has a return profile that is very long-term. It has a return profile that is very similar to bonds, if you will. It's a steady stream of income; typically, you get a stream of income based on rental rates and whatnot.

The other thing is that all these pension funds, especially the large pension funds, are patient investors. On their liability side, they don't have draws like mutual funds. One day, a bunch of people might want to move out of equity funds and into fixed-income funds, so they have to have ready a set of liquid assets.

Pension funds don't need to have pressure to have ready that set of liquid assets. They invest in very illiquid assets, infrastructure and real estate. The reason they invest in illiquid assets is because they have this advantage: They are patient. Also, illiquid assets offer a higher return on average rather than liquid assets, so they're capturing that higher return on illiquid assets.

Those are the two reasons why they invest in real estate.

I don't have the particulars, though. Also, they would do that in a very diversified way across very diversified sets of real estate, and across geography as well.

I'm not quite answering your question, but real estate includes agriculture and rural real estate, be it land or other properties related to agriculture; that would be the main reason behind that. It's one of their portfolio allocations.

Senator Mercer: I'm used to getting incomplete answers.

Mr. Santor, you mention that lower oil prices have led to rebalancing of supply. The extraction of oil and the sale of petroleum products is an important part of our economy.

Does the bank have an opinion on the sale of Canadian products to our American friends at West Texas crude prices as opposed to world prices? One of the issues is that we are the third-largest supply of petroleum products in the world. We have one customer, and the customer is dictating that he or she will only pay West Texas crude prices rather than world prices.

What would it do to the economy if we were able to start charging world prices for the sale of our petroleum products, not necessarily just to our American customers but to new customers?

Mr. Santor: From the Bank of Canada's point of view, when we look at the impact of oil prices inside our projection with the Canadian economy, we have a working assumption that is to assume that the price of oil over the projection horizon is going to be roughly what it has been averaging over the last few weeks before the policy rate decision. We found this to be a useful assumption to make simply because it's very difficult to forecast oil prices. Actually, a large body of empirical evidence suggests that the best forecast of the future price of oil is the current price of oil.

For the purposes of the projection for the Canadian economy, we make the assumption that it's going to be flat over the projection horizon.

That said, we do take into account where we think the balance of risks are going to lie in terms of whether prices could be higher than the assumed price or lower than the assumed price. In our most recent report, we have argued that due to continuing growth and demand but also the eventual impact of production cuts caused by the decline in capital expenditures across a large number of oil producers, the risk to the prices over the medium term are tilted to the upside.

The extent to which market access would tilt the price to the upside or downside remains to be seen in terms of how that market access is gained and under what conditions. We have to wait to see how the particular ability to export oil to different markets would affect our ability to price. Once we see that impact, we'd take that on board in our assumption on prices given what we see in the market.

Senator Mercer: But will the bank do some analysis? The government is about to make some decisions on pipelines, and there are two aspects of that I'd like to know about.

I want to know whether the bank has started doing studies on whether the government is positive in its decision to approve some or all of the pipelines and on the effect of the construction of infrastructure that will take place. In the long term, what will be the effect on the price of oil that we'll be selling to the world? It doesn't take an economic genius to figure that if the oil companies can sell their product at world prices as opposed to West Texas crude prices, world prices is where they want to go, and that would be through pipelines, through Energy East or through West Coast pipelines.

Mr. Santor: This is something we'll look at closely. If the projects get approved and construction is under way, we would embed the impact of that capital spending on the economic outlook and we would do our analysis to best understand how we think that's going to affect prices, as you suggest.

Mr. Gravelle: I want to add a bit of a connection to world oil prices and West Texas crude prices. They are tethered. The West Texas crude price has a direct link to the global oil price. Brent is usually the other benchmark. There is a very strong connection between West Texas crude and world oil prices.

Senator Mercer: They may be connected, but they're different.

Mr. Gravelle: They're different because of various quality and delivery differences, and there are always the transitional supply and demand differences.

Senator Mercer: That's in the eyes of the Americans, and not necessarily in the eyes of other consumers.

Senator Plett: Thank you, gentlemen, for being here. I've got a question for you, Mr. Santor. I want to invest some money. What is the interest rate going to do in the next year?

Mr. Santor: As I mentioned in my comments, we don't give forward guidance on the policy rate.

Senator Plett: Thank you. I want to pursue your non-answer to Senator Mercer, and maybe you can give me one of those non-answers as well. You may or may not have this information. I've asked this of people that are more directly involved in agriculture, obviously, than you are.

What are the debt loads today? How much has the average debt load increased on farms over the last few years? Do you have any numbers on that?

Mr. Santor: That's not something that we follow at that level of disaggregation. We spend a considerable amount of time looking at the broader picture of the level of household debt and disposable income. This is something we have focused a lot of attention on, both in terms of the Monetary Policy Report but also our analysis inside the Financial System Review. It's something we're very mindful of because high household debt relative to disposable income is one of the key vulnerabilities in the Canadian economy.

Senator Plett: Why don't you give me that, then? What has happened there? Let's assume that farmers are the average household, although I don't believe that they are. What has it done in the average household?

Mr. Santor: Over the last many years, the level of household debt to disposable income has increased quite significantly. It's currently ranging roughly around 167.5 per cent, which is substantially higher than it was five years ago. This reflects, to a large extent, increases in levels of mortgage debt by Canadian households. Certainly this is one of the number one vulnerabilities that have been identified in our Financial System Review, to the extent that there could be farm households that share that elevated level of household debt to disposable income. That is something we're watching very closely in terms of its implications for financial stability but also its potential impact on the outlook for Canadian real activity.

Senator Plett: Let's assume that farming is the same and there would be a 2 per cent or 3 per cent increase in your rates. How many mortgages would the banks own?

Mr. Santor: That's a good question.

Mr. Gravelle: We do analysis in the Financial System Review about two types of shocks: one is an interest rate shock, as you indicated, and the other is an employment shock, where they lose their job or something like that. The direr one is always the employment shock because a it has a bigger impact on their ability to sustain mortgages.

The interest rate shock, I'd have to go back for the details. It was always a much more minor one. For example, for a 1 per cent increase in unemployment, it would have to be something comparable to a 5 per cent increase in interest rate. Something like that. It's always a much bigger impact.

The bigger concern would be a recession, for example, or a shock to households in certain sectors and geographies that are highly indebted. We worry more about a slowdown in the economy than interest rate increases.

Senator Plett: There is pressure to keep interest rates low because of the increase in debt loads, which would have a devastating effect?

Mr. Gravelle: In the first order we worry about interest rates related to the macroeconomic outlook and its impact on employment more than worrying about debt loads, although that does figure into the thought process. The first thing is the macroeconomic outlook. That drives most of the decision-making process.

Senator Plett: I'm wondering whether you could get us some information. Maybe we'll have other witnesses that will be able to answer this. I'm not sure.

I'm very interested in something you said to Senator Mercer, that you could speak overall to the fact that pension funds were investing in real estate.

This committee, I think, would be very interested in knowing how much of that is, in fact, in agriculture. We've had farm groups here telling us that it's more and more difficult for young farmers to get involved. Land prices are going up, and I've always asked the question whether that is because cities are expanding or because dairy farmers need land for spreading as opposed to for farming.

I would be very interested in how much agricultural land is being purchased for investment for down the road. If there is any way you can get me some numbers through our the clerk, that would be good. If not, we'll have to ask somebody else.

Mr. Gravelle: At the bank we definitely don't track that, per se. We do monitor or have discussions with pension funds. We had a Financial System Review article last June on the big eight pension funds that I mentioned in my opening remarks. Again, we don't dig down to that granular level. The pension funds would have that information, for sure; the larger ones could give you advice. There are certain advisory bodies or consultants that provide advice to pension funds, and they may have those more detailed numbers as well, but we just don't track that.

Senator Plett: Considering I helped approve the witness list, I should know whether we are going to have one of those pension funds here, but I don't; we'll have to check into that.

Senator Oh: Thank you, gentlemen.

With the new administration and a new U.S. president coming in, this is the first time Americans have elected a president with a business background. What is the bank's forecast on the interest rate? I'm sure you have plans for facilitating what is coming in the next year. He will be taking office soon, in two months.

At the U.S. Federal Reserve Bank, Ms. Yellen said lately that the interest rate could rise in December at this week's pivotal interest rate-setting meeting. Are there any plans or forecasts to plan for next year?

Mr. Santor: On the first question, it's far too early to tell what the implications for fiscal policy and the impact on the American economy are from the recent election result. There is a wide range of proposals out there, and until there is something concrete in front of us, we wouldn't be making a call. It is simply too early to tell what the impact will be, given the lack of concreteness of the proposals that will affect fiscal policy.

Mr. Gravelle: At the bank, we have an internal projection that factors in our own U.S. forecast, but we also track closely what the markets believe in terms of interest rates moving, which also helps us understand the future economy. I can tell you that the market thinks the next decision for the Federal Reserve board will be a hike; the probability is almost 100 per cent, at least from the market's perspective, given the way they expect interest rate to moves. But we don't have inside information on what the Fed will do. We take it from the markets and what they expect as well.

Senator Oh: Any possibility of looking in the next two years at how the Canadians dollar will go in the next year?

Mr. Santor: Much like we don't give guidance on the policy rate, we also assume the dollar will be taken as given at the current value over the projection horizon. We don't comment on the future value of the Canadian dollar. That's for the market to decide.

Senator Oh: Any comments?

Mr. Gravelle: The market, strangely enough, has the dollar in a tight range between 73 and 76 cents, last time I checked. But they are wrong as much as everybody else is wrong.

Mr. Santor: I would also add that, recently, our Deputy Governor Lane in his comments made it clear that we do not move lockstep with the Federal Reserve; rather, we have an independent monetary policy in Canada. We make decisions based on the implications for the Canadian economy, and our policy rate is tuned with that objective in mind.

Senator Oh: Looks like we have to have a private talk.

Senator Pratte: In follow-up to Senator Oh's questions, if the Fed raises their interest rates and we maintain ours at the present level, there is a probability that the Canadian dollar will slide a bit in value.

Based on past history I'm interested in, we've seen that when the Canadian dollar fell, the exports did not rise probably as rapidly as expected. You mentioned that in other sectors like commodities there were competitiveness issues.

As far as the agricultural sector goes, where commodity prices are the main drivers of exports, are there also other competitiveness issues in the agricultural sectors that could have impacts on exports? Also, what is the impact of the value of the Canadian dollar? For instance, when the Canadian dollar is low, I suppose it has an impact. Does it have a larger or smaller impact than it does on industrial exports, for instance?

Mr. Santor: The determinants of the level of exports in the agricultural sector will be determined by the extent of foreign demand. To that end, our expectation, as I mentioned, is that there will be ongoing demand, particularly from emerging markets as they move up the income chain. They want high-quality food, and the agricultural sector in Canada is well positioned to take advantage of that.

The level of the dollar naturally affects other cash flows, so most of the commodities we produce and export are priced in U.S. dollars. To the extent that a depression of the dollar would not help cash flows, that is beneficial to producers. It's also important to remember that there is also offset depending on the extent to which the inputs the particular producer uses are also priced in U.S. dollars. That can have offsetting effect at the same time.

So the relative benefit of the depreciation of the dollar will really depend on that mix and where they are being priced.

Relative to other commodities — to make a comparison between that particular sector and another sector will depend to what extent they have pricing power relative to other competitors in the market, given their cost structure and how much that depends on how much inputs are being priced in U.S. dollars as well.

We think they are well positioned to take advantage of the current environment — strong demand for agricultural products.

Senator Pratte: Am I correct to assume that if there is a rise in the U.S. Fed interest rate, that would tend to increase the value of the U.S. dollar and that would affect the value of the U.S. dollar compared to the Canadian dollar but also compared to other major currencies? Therefore, it would advantage other agricultural producers around the world, and our competitors would also be at an advantage, I suppose.

Mr. Santor: That's true. That is something we pay close attention to. When we think about the relative competitiveness of Canadian exports, it is not our relative competitiveness inside the U.S. market with U.S. producers who are priced in U.S. dollars but with other producers who are competing in that same U.S. market.

We have observed over the last few years that while we have depreciation in the Canadian dollar, many of our competitors have also had the same depreciation, such as Mexico, Brazil, Russia; producers of the goods with which we compete have also seen depreciations. We bear that in mind when we think about what the impact of the depreciation of the dollar has been on Canadian exports by that third-party competitiveness.

Senator Beyak: My question is more of a general nature for banking. We have a lot of Canadians who watch this committee, because it's agriculture, and they are all interested in food, but there are a lot of questions. You mentioned the pension funds and infrastructure and an infrastructure bank that the government is proposing. Most Canadians have no idea what that is, if it is actually a bank or if it's more of an insurance company to protect the large pension funds or foreign investors that may be investing.

Could you comment on any of that to give people more comfort about what it actually is and whether it's a good thing for Canada?

Mr. Gravelle: I have only seen what the government has put out in terms of a proposal for the infrastructure bank. There is a lot of stuff they have to do to put more detail behind it.

Conceptually, it is to support greater investment in infrastructure in Canada. There are a couple of loose ideas as to how that would work. One is that they would have seed money where the government would seed this bank with equity, and then other investors, be they institutional or other financial institutions, would piggyback or invest into infrastructure with the government or with the government's backing in terms of the risk mitigation.

That's probably what you know already.

Senator Beyak: I was hoping someone would know a little more about it —

Mr. Gravelle: My understanding is that the government is working on further details.

[Translation]

Senator Tardif: According to your forecasts, exports in 2017 and 2018 will be lower than expected. Given that the profitability of the Canadian agricultural and agri-food sector relies on export markets, what effects could there be on farmland values, which are dependent on commodity prices?

[English]

Mr. Santor: The value of an asset is related to its cash flows. If the evolution of the prices of those particular commodities goes up, that would improve the cash flow of that producing asset. It would be reasonable to assume that, everything else being equal, that would lead to a higher valuation of that asset. That is certainly something we would keep in mind. When thinking about our profile or projection for exports over the horizon, we look carefully to what the expected prices are for the different sets of goods and services that we produce and export. To the extent that we have a view on those particular sets of prices, this will naturally affect both the export profile and, implicitly and underneath that, the assets that back the production of those crops. So, I think that would lead to, everything else being equal, a higher valuation of those assets.

[Translation]

Senator Tardif: If commodity prices were to decline, would the value of farmland increase?

Mr. Gravelle: No, it would decrease as well.

Senator Tardif: That is what I thought.

Mr. Gravelle: There are other factors, but there would be a downward trend in the value of farmland generally.

Senator Tardif: We have heard about a huge increase in farmland prices in the last 10 years. Do you think that trend will continue?

Mr. Gravelle: With the decline in farmland prices over the last two or three years, there would be a downward trend. But as mentioned, several other factors must be considered. The increase in farmland values in the past was certainly linked to the trend over the years when the price of raw materials had increased over time. But, in the past two or three years, the price has decreased and stabilized. This decrease may be delayed due to higher raw material prices in the past and higher farmland prices. So there may be a delay in lowering farmland prices, but as I said, there are several other factors that come into play in farmland prices.

Senator Tardif: What would those factors be?

Mr. Gravelle: Land use for other purposes. For example, in the case of urban expansion, if there are farmlands near urban boundaries, urban developers will want to exploit them. There are a number of issues.

[English]

Senator Merchant: Good morning and thank you.

You know, we like to maintain the myth of the family farm in Canada. It has a good ring to it, and we like to think that young people will get onto the farmland. But from the point of view of the bank, as an investment and in a country that believes in free enterprise, are there two sides to this? Is it a bad thing for the economy that because of the competition, the value of all land but at the same time agricultural land goes up?

Secondly, whether the farm is owned by an individual farmer or a large corporation, we could look at it differently and say that when a large corporation takes over the working of the land, maybe that land becomes more productive or maybe there are economies of scale, because farmers invest a lot of money in machines and sometimes they don't use them very much. But if you have a larger operation, maybe there are economies of scale there, and maybe you can produce more food and employ more people.

From your point of view, can we compare ourselves to what is happening in the U.S.? Is this also a phenomenon where larger entities are taking over assets and working them better than an individual investor might?

Mr. Gravelle: I can speak to that from the pension angle. I don't have the details on pension fund investments in agricultural land, but assuming that they have some as part of a very diverse portfolio of real estate, they are Canadian pension funds and they are investing on behalf of Canadians. To the extent that their investments do well because, for example, real estate prices go up, it's affecting the Canadian pension funds in a beneficial way that affects the Canadian public in a beneficial way.

Increases in agricultural land as a real estate asset, if Canadian pension funds own them, benefit Canada indirectly, if you will. Both Mr. Santor and I have spent a lot of time on farms. I grew up on a dairy farm, and for various reasons none of my siblings or I wanted to continue farming. But on a personal level, I can tell you if my parents were able get a better price for their land, knowing that they're going to live off their retirement and their children are not going into it, that would have been beneficial to my whole family at the end of the day. Farming is a personal decision.

Farming is also actually very much a scale economy, and it's the same thing globally.

Mr. Santor: On a personal level, I spent nine years working as a hired hand on a farm in southwestern Ontario when I was much younger. One observes that there are many different sizes of farms, and it's up to the owner to decide what level or scale of operations they want to have. As you scale up, there are benefits but also costs associated with that.

We haven't done specific work in assessing the optimal size of a farm operation, but my own observation is that it really depends on what the owner would like to do in terms of scale, risk, operational control and how much you have to delegate decision making. When I observed, in my own experiences, there was a size that was optimal for some farmers. Some in the location I was working wanted really big greenhouses, and some wanted smaller units they could manage themselves. Some wanted to bring in hired help, and some wanted to scale up and think about exports and different markets. It is the personal decision of the farmer, the person working the land, what scale they want to operate at.

Senator Merchant: Can you comment on whether this business of farmland and farm operations getting bigger is an international trend? Can you compare it with the U.S.? What are they doing in Iowa and other places where they produce a lot of food?

Mr. Santor: It is a global phenomenon. When you look at the U.S. you see the size of farms going up over time, with the adoption of technology that may lend itself to making scale operations more efficient. We haven't looked at that at that level of disaggregation.

[Translation]

Senator Dagenais: Mr. Gravelle, you caught my attention when you talked about defined benefit pension plans. I was the chair of a committee on defined benefit pension plans for several years at the Caisse de dépôt et placement du Québec. Our primary concern was returns, because we knew that our members were living longer and we had to be careful not to increase their premiums too much and to invest in safe havens. Following the advice of the Caisse, we invested in farmland and Heathrow Airport in London, which was a good investment. The returns were worthwhile.

You can probably see what I'm driving at. Witnesses have told us that they had to go to the National Bank, where interest rates were sometimes higher. However, when a pension committee invests in farmland, the money is available. Can the money be made available to farmers who own family lands? You mentioned that this was the case for you. Could we not make a recommendation in our report for producing or exporting countries to have more realistic values that would be closer to the land values? We have to think about investment, but we also have to think about the producers.

Mr. Gravelle: At the end of the day, it comes down to social values. You may know more about this than I do in terms of the investment management practices of pension funds that seek to increase the return on active investments. If you proposed a new way of managing real estate assets that would provide a comparable flexibility without a negative impact, or at least with a minimal impact, on real estate return, that would be possible. The Government of Canada would have to choose between an economic objective and a political objective, by reducing returns in exchange for social benefits in order to give more people the opportunity to invest in a farm.

This is really a difficult question to answer. However, as I mentioned earlier, the increase in return on pension funds benefits Canadians who contribute to those pension funds. I cannot give you my opinion on this, because it is about societal choice and government policy.

Senator Dagenais: I candidly admit that I did not expect to come across research on our pension fund returns while sitting on an agriculture committee. Interest rates are currently low. Is the Bank of Canada trying to make borrowing easier? There are large farm businesses, but also family businesses. The testimony of some witnesses has particularly moved us, and we ultimately have to think about them.

Mr. Gravelle: Low interest rates make it possible to buy houses, so they should also make it possible to buy farmlands or farms. The reason the Bank of Canada wants to provide low interest rates is to stimulate economic growth, which is very weak. Interest rates promote investment in the residential, real estate and commercial sectors. Our goal is to increase the power of consumption and investment.

Low interest rates must also make the purchase of farmland easier, but, if everyone has access to those lower rates, it also increases demand for real estate, which has an impact on the selling prices.

The Chair: What you have just said is very important, Mr. Gravelle. Despite the fact that interest rates are very low, young farmers find it impossible to acquire or increase their land, because speculation by banks and investment funds is tripling the price of land, even more in some cases. Even if the rates were lower still, young farmers are never going to be able to acquire land that was worth $10,000 15 years ago and is worth $350,000 today.

This is the problem young people are facing. Even if they were offered a rate of 0.1 per cent, they could never buy the land they want. Speculation is preventing young people from buying land. Do you agree?

Mr. Gravelle: It is a difficult question. We would have to determine whether it is a matter of speculation or an increase in the actual value of the land. For fundamental reasons, the price of grain and other agricultural products has increased. That also contributes to an increase in the value of the land under cultivation.

The Chair: You are right, but it has created a perverse effect. When trusts buy up the land and rent it to someone to work, you are not going to find one of their presidents driving the plough unless he is forced to. The problem is that the people renting the land can grow only one crop, because that is what pays and is the only way for them to make the rental payments to the trust companies. Unfortunately, that brings about the degradation of the land and the Canadian countryside. That is the problem that new farmers are facing.

[English]

Senator Mercer: I don't want you to misinterpret what I am about to say as criticism of either one of you gentlemen, but I'm a little surprised that the bank doesn't have more of a focus on agriculture and on the agricultural industry, and how the value of land, interest rates, et cetera, affect agriculture and the importance of agriculture to the economy. None of the answers that we've received refer directly to bank focus on agriculture. We're lucky enough that both of you have an agricultural background and some understanding of the industry, but I am a little surprised.

I'm also guilty in my first round of questioning of going off on a tangent, talking about pipelines and oil production when we wanted to focus on the availability of farmland in Canada and the acquisition.

There are so many opportunities to analyze what is going on. I think of a greenhouse north of Trois-Rivières. It is a large greenhouse — about the size of five Canadian football fields. They grow only one product: cherry tomatoes. They are very good at it. I haven't looked at their financials, but they probably do very well. There are a number of operations like that across the country. The people on the committee have been fortunate enough to visit some of those locations.

I would have thought that the bank would have perspective on those types of industries as well as a perspective on the value of a family farm and the importance of the effect the bank, interests rates, et cetera, have on agriculture in general.

Is there not in the Bank of Canada system some section that focuses on rural Canada, on agriculture and probably fisheries as well? I'm not on the Fisheries Committee — don't want to be — but it seems to me that it probably falls in the same category as agriculture in terms of analysis from the bank.

Instead of talking about General Motors and about Suncor, there are tens of thousands of Canadians working in and relying on the agriculture sector. Is there not a focus on agriculture in the bank?

Mr. Santor: There are several elements that we look at closely. First, when we look at our export profile, clearly agricultural products and agri-food manufacturing are an important part of that, so we do work looking at assessing the prospects, how big the sector is and what the impact will be on the outlook.

Senator Mercer: I'm talking about production. You are talking about exporting. That's the end game.

Mr. Santor: We also look at production that lies behind that. We look at it closely inside the context of the data on real GDP at basic prices. Also, we cover the sentiment in the sector, both through our ongoing Business Outlook Survey where our regional offices go out and talk to a wide spectrum of firms — everything from IT service exporters, to miners, to oil and gas companies, to agri-food producers. In fact, we have an ongoing survey specifically looking at that sector. That will be part of our analysis, coming for the future Monetary Policy Report.

Senator Mercer: Is that new?

Mr. Santor: That's coming. Just last week I was in Moose Jaw, Saskatchewan, talking about a policy report to a large group of grain farmers, because this is a sector that's important to us. I attended a day-long conference there and talked to producers and other participants in the industry in Saskatchewan. Part of our mandate is to go out and talk to people making real decisions in real time about their businesses and what they're going to do.

[Translation]

The Chair: We thank you sincerely for the answers you have provided to the senators. As you have been able to see, there is no lack of interest here. Thank you; we look forward to meeting again.

Honourable senators, given the current emergency situation in the Western provinces at the moment — a situation that could extend to British Columbia, Ontario, Quebec and the Maritimes — a number of people have asked us to hold a special session next week with the CFIA, so that they can give us information, first, about the current status, second, about the measures they intend to take, and third, about when they expect the epidemic to be over. The lives of Canadian farmers are at stake. Major producers are involved and we cannot allow that to happen.

I also have to apologize to Senator Plett and Senator Mercer, because I was not able to inform them yesterday evening. I received this request only after everyone had left. The clerk reached Senator Mercer yesterday evening and I communicated with Senator Plett this morning.

So I have to submit a motion on the floor of the Senate in order to get permission for the committee to hear from CFIA and to report the following week. I present that to you and I will let you discuss it and decide on the way to proceed.

We could meet next Tuesday. We could push some witnesses until later, but, if that is impossible, we would have to extend Tuesday's session by an hour at the most. We do not need any more time than that. These people are professionals. They are well organized. If anyone decides not to attend, nothing will change.

Senator Pratte: That would be Tuesday evening.

The Chair: Yes.

[English]

Senator Mercer: This is an important issue. I think you're absolutely right that we need to talk about it. However, I would word the request to the chamber in such a way that would allow us, if need be, to meet again when the Senate is not sitting. If the situation were to worsen and to become critical, perhaps we would need to meet in January when the Senate is not sitting.

I think we need that to give us the authority to do that. If the situation worsens and becomes much more critical than it is now, this is an opportunity for the Senate to respond much more quickly — certainly more quickly than the House of Commons can — to address these issues.

Those of us who have been on this committee for a number of years may remember that when I joined the committee, we were just starting in the BSE crisis. Our ability to respond quickly was extremely helpful to farmers.

Were we able to solve the problem immediately? No, but we were able to hear the problem and start framing some recommendations to government quickly so that government could respond. At that time, government, with all good intentions, did come up with a program to help them, but the program proved to be so wrong that one of the international companies that dealt with beef in those days had an asterisk in their annual report a year later to try to explain the extraordinary profit they made in Canada. It was because of the government's response to the BSE crisis. Well, that was not what the government intended. They intended to help farmers, not international companies.

I think we need to have some flexibility there. I hope we don't have to meet again; I hope our response will not simply be sufficient, but helpful. I think we need to have flexibility so that if things worsen we can come back in January when the house is not sitting and deal with it, if necessary.

[Translation]

The Chair: Thank you very much. That is an excellent suggestion. As you see, experience grows as hair is lost.

[English]

Senator Plett: First of all, for the record, I'm not sure what you said in French, but the translator said we were having somebody from CFAO coming here, but it's CFIA. I think we need to be clear on who we're having here as witnesses next week.

Secondly, I want to second Senator Mercer's idea about being able to come when the Senate is sitting. Even aside from coming in January, I think it's imperative that when you make the motion, as we heard yesterday, we're now going to start sitting at least Mondays and probably Fridays, and we could well be sitting late. I think this meeting needs to take place on Tuesday, even if we are sitting late in the chamber.

I think you need to make it clear that this happens even though the Senate would be sitting. We should have this meeting Tuesday, regardless of whether we're sitting or not.

[Translation]

The Chair: Very good idea, Senator Plett. The motion will be made accordingly. Now, would any other senators like to comment?

[English]

Senator Ogilvie: This is a very busy time of year. This isn't the only issue before many of our committees. I want to urge, at all possibility, that you do it within the normal sitting times that are already scheduled for this committee. Many of us have issues before our committees, commitments that we've made to deal with important Senate business, and we are getting budget issues before us that have to be dealt with and a time constraint for December 6. The idea that some of us would miss this simply because you set a meeting on such a critical issue at an inopportune time is not one that I favour. I realize you will do what you have to do, but I wanted to express the concern that most of us should have as much possibility to participate as possible.

[Translation]

The Chair: You are perfectly correct, Senator Ogilvie, because members of this committee are also members of other committees. We are coming to the end of the season and we are all very busy. We will ask the clerk to postpone the appearance of some witnesses, because the situation is urgent. We can easily explain our reasons, and I believe that the witnesses will be able to understand the urgency of the situation. Our motion could include the permission to sit during our normal time slot, even if the Senate is sitting at that time.

Kevin Pittman, Clerk of the Committee: Another possible option for next week would be to add one hour on Tuesday evening, to sit from five to seven o'clock. We have provincial ministries scheduled for Tuesday evening and it is difficult for them to be present. We could perhaps add an additional hour, if you are in agreement.

The Chair: That is not possible, because members of this committee also sit on other committees.

[English]

Mr. Pittman: On Tuesday evening from five to seven o'clock, there are no committees.

Senator Ogilvie: It doesn't mean we haven't made other commitments that relate to our issues.

Mr. Pittman: That's fine. I'm just proposing an option, that's all. We could maybe cancel someone on Thursday morning, then, if that's the case.

[Translation]

The Chair: Let us look at that option. Otherwise, we still have the option of sitting one hour longer.

[English]

Senator Plett: Chair, for the sake of your motion for today, you need to make a motion that includes "even though the Senate may be sitting.'' Then steering can meet on this and take Senator Ogilvie's concerns into account, because I share those concerns. We can decide whether we have it Tuesday after the regular ones or Thursday and cancel witnesses there. Steering can make that decision.

For the motion, if you simply move "that even though the Senate may be sitting,'' then we can deal with it.

[Translation]

The Chair: That is a very good suggestion.

What do you think, Senator Beyak, Senator Mercer?

[English]

Senator Beyak: I agree with Senator Ogilvie. We also have a motion to meet on Tuesday at five o'clock, whether the Senate is sitting or not, because we have the premiers coming, right? So why don't we just change the witnesses. I'm sure they'd all like to have time off at Christmas. We can hear from them next year. That is not crucial. This is crucial.

Senator Mercer: These are provincial minister. We've been fighting to get some of these people in front of us for a while. Finally, we have them coming. I don't think we can pass this up. If need be, we can switch Thursday's meeting entirely to the other subject. We also have two witnesses waiting to be heard now.

I would be anxious that we move on, chair. If need be, if we can't come to a conclusion in the next two minutes, we should extend this meeting 15 minutes at the end so we can discuss it. We've got witnesses here and by conference call.

[Translation]

Senator Dagenais: I have a suggestion, Mr. Chair. If people have other committees to go to after 7:00 p.m. and we have permission to sit at the same time as the Senate, let's start at 4:00 p.m. instead of 5:00 p.m. That doesn't get in the way of anything. If we have permission to leave the chamber at 5 00 p.m., why not leave at 4:00 p.m.? I don't think that it would mess anything up.

The Chair: The steering committee will make the decision in the interests of each member and, above all, in order to respond to the urgency of the crisis. Thank you very much; I now call this meeting to order.

[English]

Senator Plett: Chair, I want to interject. Senator Tardif had her hand up long before many others did, and she has not been recognized. I would like to hear her suggestion.

Senator Tardif: My suggestion was that the steering committee come to a resolution and that we move forward, because there are witnesses waiting.

[Translation]

The Chair: So, the discussion is closed.

Now, we are going to hear from more witnesses. André Magnan is an associate professor in the Department of Sociology and Social Studies at the University of Regina; he appears as an individual. We also welcome Annette Desmarais, Canada Research Chair in Human Rights, Social Justice and Food Sovereignty in the Department of Sociology at the University of Manitoba. Welcome and thank you very much for agreeing to appear before the Standing Senate Committee on Agriculture and Forestry.

Our order of reference is specific, and you have certainly prepared your brief as a result. But I have to ask you to present it as quickly as possible so that senators can ask you questions. I would also ask senators to show some more discipline and to ask shorter questions.

André Magnan, Associate Professor, Department of Sociology and Social Studies, University of Regina, as an individual: I am happy for this opportunity today to speak to you about my research on investments in farmland in Saskatchewan. I will talk mostly in English, because my research was done in English, but I am ready to answer your questions in English or in French.

[English]

I've been conducting research on financial investment in Saskatchewan farmland for the past five years. My colleagues and I have been particularly interested in understanding who these investors are, what their business models are and the impact that they may be having on farmland ownership and farmland markets in Saskatchewan.

I would like to give you a little bit of background to the research that my colleagues and I have been conducting. This investment trend in farmland is part of a larger international trend that different academics and civil society organizations have been paying attention to for the last 10 years or so. Some people call this the financialization of agriculture or the financialization of farmland. We're talking about investors of different kinds — pension funds, sovereign wealth funds, wealthy individuals and others — who are pouring fairly important sums of money into buying farmland in many different countries around the world. Canada is no exception.

There are some good reasons why investors would be attracted to Saskatchewan farmland. It is very cheap compared to farmland in other developed countries like Europe and Britain. It is quite cheap compared to the U.S., as well.

For the last 10 or 12 years, there has been a great deal of interest in buying Saskatchewan farmland on the part of certain kinds of investors. As you may know, Saskatchewan has fairly restrictive laws around farmland ownership, which means that Canadians and 100 per cent Canadian-owned companies only can own all but a small amount of farmland.

Why are investors doing this? Mostly they are motivated by financial returns. Some are motivated by wealth preservation and portfolio diversification as well. Farmland is considered a good investment as a hedge against inflation. Certain investors have been of the mind in the last 10 years that with the rising demand for food around the world, farmland and agriculture sectors are good to invest in.

The types of investors that we've documented in our research who have been acquiring farmland in Saskatchewan include pension funds, such as the Canada Pension Plan; private farmland investment companies, which are basically private trusts made of Canadian individuals who want to acquire an interest in farmland; and also some wealthy individuals who have purchased quite large tracts of land.

For the most part, these investors buy farmland and rent it to farm operators, usually farmers in the region who are looking to lease land to perhaps expand their operations. The investors benefit from these investments through capital appreciation of the land and also by getting income flowing from renting the land to farm operators.

In terms of capital appreciation, you may know that Saskatchewan farmland values have risen very rapidly in the last eight years. Between 2007 and 2015, they rose by nearly 140 per cent. So investors who bought land seven or eight years ago would have more than doubled their investment.

I want to say just a little bit about the way that we conceptualize this financial investment in farmland. My colleagues and I have given some thought to how this differs from the traditional family farming model. What we see as the main difference is that when a farm family owns their own farmland, they're really making an investment beyond a financial one. They're investing in their communities, they're living and working in the places where they're farming, and they're engaged in agricultural production.

Financial investors who buy farmland for the income stream and capital appreciation are not making that same sort of connection to their rural community, and they're not connected in the same way to the agricultural sector.

We see a lot of value in preserving and maintaining the model of farmland ownership that we have had in Saskatchewan for many years, which is to say, farm families owning and operating their own land.

I'm going to ask my colleague, Ms. Desmarais, to present some of the main findings from our research, and I'll be happy to answer your questions after.

[Translation]

Annette Desmarais, Canada Research Chair in Human Rights, Social Justice and Food Sovereignty, Department of Sociology, University of Manitoba, as an individual: Good morning, thank you for your invitation. I am pleased to appear before your committee.

[English]

I think that the study that you're doing on the acquisition of farmland in Canada and its potential impact on the farming sector is extremely important because, as you know, we are experiencing a significant demographic shift in the sector.

I also wanted to mention that before I became an academic, I actually was a cattle and grain farmer in Saskatchewan for about 14 years.

As part of the global effort to document who owns farmland and how much of it is actually being bought up by investors, we really wanted to understand what that picture looks like in Canada. Because we were quite aware of the fact that investors were particularly interested in Saskatchewan, we focused our study on that province, where 38.6 per cent of Canada's dependable agriculture land is actually located.

It's very interesting to note that neither the provincial nor the federal government was actually keeping track of this shift in farmland ownership.

Before I continue to present some of the findings of the research that we did as a team, I do want to recognize the important research funding that we received to be able to actually do the work that we did. That came from the Canada Research Chairs Program, the Social Sciences and Humanities Research Council of Canada and the University of Manitoba.

I think that our research sheds light on the reasons behind the increasing value of Canadian farmland by providing concrete evidence of the changing patterns of farmland ownership. What we did was analyze the land titling data, and by doing that we were able to identify exactly how much land is being bought up by investors, who is buying up that land and the precise locations of the land that is changing hands.

We were also able to document an increasing process of land concentration among farmers themselves. These two processes — increasing investor ownership and land concentration — are occurring simultaneously. Both have contributed to a significant increase in the price of farmland and, consequently, a growing inaccessibility of land for the younger generation.

How much farmland are investors buying up in Saskatchewan? If you look at the second slide that I provided you with — the one that's titled "How much land do investors own?'' — we saw that what happened between the years 2002 and 2014 was investors actually increased the amount of land that they own by 16 times. Our research also found that the concentration of land ownership is also on the rise, with the share of the farmland owned by the largest four private owners increasing sixfold.

I also want to explain why, on that slide, we chose 2002 and 2014. We started at 2002 because that's the year that farmland legislation in Saskatchewan changed.

From 1974 to 2002, only Saskatchewan residents could own farmland in the province. In 2002, new legislation was introduced that effectively opened up the land market beyond Saskatchewan residents to allow Canadian residents, citizens and corporations to own agricultural land.

By looking at the data between 2002 and 2014, you can actually see some concrete evidence of the impact that changes in legislation can have.

I also want to point out the fact that on slide 2 the total percentage of the land investors own is fairly small. It's only 1.44 per cent, but I'm going to get back to that number in a little while.

If you go to the third and fourth slides, both are a way of presenting the data in a much more visual way. Each one of the black dots on that slide represents investor ownership. If you compare those two, you see a significant shift in the amount of land that investors own.

I want to point to the slide showing the 10 largest investors. You will see at the bottom of that slide, where it mentions the Canada Pension Plan, there is an error. The CPP is actually not the largest owner; they own 13 per cent of the land that has been bought up by investors, whereas one private investor, Robert Andjelic, owns 21 per cent.

This is important to point out because the recent tightening up of the rules in land legislation in Saskatchewan is geared to limiting the purchase of land by institutional investors, but it doesn't actually stop private investors from accumulating more and more land.

If you go to the next slide, you see that this gets back to that 1.44 per cent. Where you see darker shades of some of the rural municipalities, the ones that are darkly shaded are where investors have actually purchased anywhere from 8 per cent to 10 per cent of the land that went on the market in those particular rural municipalities.

This whole issue of keeping tabs on how much land comes up for sale and who is buying up land in any given place is really critical. I'd like to turn it over to André Magnan to explain how that works on the ground.

Mr. Magnan: That refers to some additional research I did with a student of mine. We gained access to all of the farmland transactions in Saskatchewan going back a number of years, and we were able to analyze the database of transactions to ask some more specific questions about how involved investors have been in the farmland market.

So we looked at the scale of investor purchases in relation to arm's-length transactions — in other words, when there are two distinct parties who are transacting some farmland. We found that in certain years between 2007 and 2014, investors accounted for as much as nearly 10 per cent of farmland transactions. The highest year that we could see was 2012, when about 9.5 per cent of farmland transactions were actually related to investor purchases.

When we zero in on certain parts of the province where it seems investors have purchased more land, their share of transactions is even much higher. In certain years, close to 30 per cent of the farmland transactions in 16 rural municipalities were accounted for by investor purchases.

Another question we were able to address by looking at the transactions data was how much different parties are paying for farmland. When my student and I looked at these 16 rural municipalities, we were able to see that investors, on average, were paying more than other kinds of buyers in many of the years that we looked at. In some years, the gap was quite considerable; in some years, in fact, investors were paying almost double what other private buyers were paying for farmland in those specific rural municipalities.

Again, we continue to learn about the investment activities of these different groups and individuals, and I'm very happy to answer your questions about our research.

Senator Mercer: Thank you both for your very informative presentations today. It is an interesting study, and it's one that we would probably like to see in other parts of the country.

You've demonstrated quite clearly the increase in land ownership by non-farm entities or, at least in some cases, non-Saskatchewan residents. Ultimately, what has it done in the industry in Saskatchewan?

Mr. Magnan: As far as I'm concerned, we need to understand the impact it's having at a local scale, because clearly the investments are spread out quite unevenly in different parts of the province. Ms. Desmarais and I are about to start more on-the-ground research where we can ask those kinds of questions in particular communities.

For right now it's hard to say what impact that's having on the ground. In a rural municipality, when a third of the transactions are accounted for by investor purchasing, I suspect that will impact on the farmland market in those areas. It could be having an impact on the prices people are paying for farmland. Certainly, it has an impact on competition for farmland when you've got investors on one hand and farmers on the other competing for the same kinds of land. I suspect that's probably driving up prices and creating some challenges for people who want to buy land.

Senator Mercer: We heard testimony the other day from a couple of young farmers from Quebec where land was being purchased but not necessarily being worked. We heard from people in Prince Edward Island where some land was being purchased and perhaps taken out of production.

Are all of these pieces of farmland still being worked in one form or another?

Mr. Magnan: I can't say for sure, but my suspicion is that yes, they are being worked, because in almost all cases this is land that investors are buying to rent out to a farm operator. If that land is producing, that means they can get rent from the farm operator from that land.

Our research didn't look at that directly, but my hunch is that yes, it is being worked.

Senator Mercer: The return is going to be based on a fixed price for renting the land, but that return will also be affected directly by the quality of the crop that comes in. As we know, there are no guarantees in agriculture. If we had a very bad crop year because of weather, there are no guarantees, but what is the effect on the renter when he or she is unable to pay the rent to the landowner?

Mr. Magnan: That's a great question. I'd be very interested to know the difference between the kind of traditional rural landlord who may be a retired farmer versus one of the investor landlords. I have heard some of the investor landlords say that they are partly bringing discipline to the rental market. That might suggest they are more rigid than the traditional farmer landlord on collecting rent on time and probably at the agreed rate.

Senator Mercer: That's usually what "disciplined'' means.

Senator Plett: My first question is to Ms. Desmarais. I'm coming back to Winnipeg tomorrow. Will the weather be decent?

Ms. Desmarais: We don't have any snow yet.

Senator Plett: I wanted to make that point because everybody is knocking us in Winnipeg all the time, using phrases like "Winterpeg'' and all that stuff, and we have the best weather in the country. We have lots of snow here in Ottawa. Senator Gagné is agreeing with me.

I have a few very simple questions and maybe observations.

You said you aren't sure what the impacts are on investor purchases and so on. I want you to give me your own guess — and I agree it's no science, and we won't hold you accountable if your observations aren't entirely correct. But the impact is in the eye of the beholder, whether it is positive or negative. There are those who would say that having investors buy this land, the seller would say that's positive. Someone who wants to buy the land and prices are being driven up would say that's negative. We live in a free-enterprise system.

I have a larger concern about foreign investment, possibly, than just simply somebody in Canada or an investor in Saskatchewan coming along and wanting to put his or her money somewhere, investing in land and renting it out to the farmer. Someone is being helped by that. The person who is selling the land is being helped by that.

We had a farmer here who had a concern about some of this with the urbanization and prices of land going up. I asked him point blank what he would do if he had 1,000 acres adjacent to Toronto and could get $100,000 an acre for the land. He said, "I would sell my land in Toronto and move out a ways and buy cheaper land and farm it.'' He himself admitted that he would do that, even though he was concerned about the price of land.

So I would like your observation on that.

Mr. Magnan: Sure. Maybe I will give Ms. Desmarais a chance to chime in as well.

You are right that there are interests on both sides. A farmer looking to sell their land in order to retire is probably pleased to have more people bidding on that same land. However, I think the really rapid increase in the price of land in Saskatchewan has been a big challenge for younger farmers who want to expand or establish themselves in the industry. It's fair to ask if that kind of farmland inflation is healthy for the sector.

Things seem to be slowing down a bit in terms of the increase in farmland values, but they have increased dramatically in the last few years. I'm sure that has been a challenge for younger farmers.

Ms. Desmarais: Yes. It really comes down to a question of whether we're committed to family farming. If we're committed to family farming, then we have to develop some legislation that facilitates that. What we're seeing right now is a significant shift, and the impact of that shift has yet to be measured.

We have already seen some of the impact. Some of the interviews we did in some of the rural municipalities clearly demonstrated that people are very worried about what is going on. We don't quite understand the environmental impact of this shift, and we have no sense yet of the social impact of this shift.

First of all I think we have to better understand what is happening as a result of the shifts that have already occurred. If you are committed to family farming, it's not just about financial investment, it's about social investment. It gives agriculture a social meaning rather than just a financial meaning, so I think all of those things need to be considered when we're thinking about how all of this is affecting the sector as a whole. Certainly, right now, it means that a whole generation of potential young farmers is being left out of the equation, which I think is a very serious problem.

Senator Plett: Have you done some research into how much farmland is being sold by the farmer only for that same farmer to rent back that land?

Ms. Desmarais: It's actually happening quite a bit. We don't have the numbers, but in the interviews that we did there certainly was a lot of talk of farmers buying up land and renting it back out to other farmers. That is part of the issue with the increased concentration of land, for sure.

Senator Plett: Thank you very much.

Senator Merchant: Welcome, Mr. Magnan; it's nice to see you here. André is a neighbour who lives only a couple of blocks away from me in Regina. Welcome to you also, Ms. Desmarais.

Ms. Desmarais, you indicated that you would recommend that there be some legislation to protect the issue of farming and how we perceive farming as part of a community.

In your research, did you find out whether, first of all, among parents that farm, children are interested in continuing on with farming? We've had a lot of people appear before us who said they grew up on a farm but they are not farming any more. Is there interest among younger people in carrying on with farming if their parents have a farm?

The second thing is that in Saskatchewan, we have legislation, as you indicated, and maybe that's sufficient. Do we want government to interfere in the business of the country? Is it your recommendation that we use public funds to maintain what I call the myth of the family farm, or should we let free enterprise work out the way that we allow other businesses to work in this country?

I see in Saskatchewan, by the dots on your slide, that a lot of that transfer or purchase of land is concentrated in the southeast part of Saskatchewan. Is that because of urban sprawl? Is it because that land is, maybe, more productive than land in the northern parts of the province? What did your research show? I think that those are my questions. Either one of you can answer.

Ms. Desmarais: I'll address this question of the myth of the family farm. A lot of research, not only in Canada but international research mostly in the U.S., indicates that family farming is actually the most efficient kind of farming. There is research that demonstrates that you actually can get too big and that beyond a certain point your return on investment in agriculture then starts to go down. I think we need to keep that in mind. Dr. Magnan can also talk, historically, about the collapse of the huge farms that have been started in Saskatchewan.

I think we need to keep in mind that the family farm is actually a very efficient production unit. We're talking only about economics, never mind the social and community-based aspects of that.

I will let Dr. Magnan address your second question, if that's acceptable.

Mr. Magnan: I believe the question was about why we are seeing more activity in some parts of the province than in others. I think it does have to do with the quality of the land. Certainly, areas south and southeast of Regina are known as having good, productive land. It doesn't hurt that it's not too far away from Regina because many people like farmland that is not too far away from a big urban centre. But we haven't systematically looked into how to explain the patterns.

I know from talking to certain investors that they have their own processes for identifying the kind of farmland they want to buy, and as you can appreciate, farmland is owned by many thousands of different owners all around the province, so if you are an investor looking to buy farmland, you might look at properties all over the province. I think they each have their own process for identifying a good parcel of land to buy. They are looking at things like the productivity of the land, the farm operators who have been using it and many other factors, as well. Those are great questions for further research, as well.

Senator Merchant: When the family farm is passed on to family members, do they keep it, or do they sell it because they see an opportunity to make a life somewhere else and get the money? Have you done any research on that?

Mr. Magnan: What we are seeing is a complex situation where, in some cases, there is a younger generation that is prepared to take over the farming business, and in some cases this is a very good living for this younger generation. But in other cases, as you suggest, some people are exiting farming, and this is part of the process of consolidation that has been happening for decades now, where a farm family will exit the industry, sell their land, usually to another farmer, and that other operation gets that much bigger.

We are seeing that happen all the time. We are continuing to lose farmers and see the number of farms go down, but there is a younger generation in certain cases that does want to take up the family business. I think we do need to think about the factors that could be presenting a challenge for that takeover to happen; high land prices and competition from investors could be impeding that process.

The Chair: Before moving on to Senator Plett, I will ask senators to ask short questions and the witnesses to give short answers, because we have more senators who have questions for you.

[Translation]

Senator Pratte: I would first like to thank you for providing us with precise, complete and detailed data. Very few witnesses have done so beforehand. Can you tell us about the connection between the price of farmland and what you have been able to observe? A good number of witnesses, including Farm Credit Canada, have told us that the international price of agricultural products and urban development explain the increased price of farmland, rather than this phenomenon. What do you think of that statement?

Mr. Magnan: In general, I agree that it is the price of the products. Farm income has a major influence on the price of the land. We were not able to quantify it in our research, but I suspect that the presence of investors could have an effect on the price of farmland and that it is possible that the impact will be more concentrated in areas where there is more competition and more activity.

Senator Pratte: To what extent should we be concerned, given that your data shows that, of all the farmland in Saskatchewan, only 1.4 per cent of the land is involved? There is some concentration in some areas, but the fact remains that a very small percentage of the land is affected at the moment.

Mr. Magnan: You are right, but you have to understand that this is a trend. It was only less than 15 years ago that the market really opened up to people from outside Saskatchewan. If that trend continues for 20 or 30 years, it could eventually be that the proportion of farmland belonging to investors would be quite significant. So, you are right, only a small percentage of all land is involved now, but I believe that we still have to watch the trend.

[English]

Senator Oh: This committee just came back from China about 15 days ago, and we had a visit in China, including joining up with the Canadian agricultural products exhibition in China. I happened to be talking to some of the farmers from Saskatchewan over there. Earlier, you mentioned immigrants coming in. I talked to a few farmers of Asian background, and they were in Saskatchewan. One of the farmers won as much as over 4,000 acres of farming land — and doing well, exporting a lot of products to the Asia-Pacific region, including China — shifting wheat, canola oils and all other types of crops.

Is there a trend going on with the new immigrants from Asian regions who've started farming and exporting our Canadian products overseas?

Mr. Magnan: Yes. I've read in the press some stories about farmers from China establishing themselves in Canada as permanent residents in order to start farming. I think that's a fairly small-scale phenomenon. In Manitoba, for many years there was European immigration to the province because the land was so much cheaper in Canada than in Europe. I think that's something the industry should welcome — when people want to come and live and establish themselves in Canada to farm. That can be one of the solutions to the issue of taking up farming and the changeover in generations.

But I see that as quite different from investment money just coming in to buy the land and not establishing a presence.

Ms. Desmarais: I completely agree. There is a huge difference between people who are buying up land to farm the land versus an investor who is plunking money down and is not interested at all in farming itself, except for getting a good return, not only on the land but on the crop also.

I did want to make one comment to the earlier question about the younger generation of people who come from a farming background but are not getting into farming. There is certainly a case of that occurring, but interestingly, we're seeing that young people who are not from farms actually are very interested in buying up farms. This is a new phenomenon, but there is even a new coalition called the National New Farmer Coalition that includes urban people who actually want to buy up land and farm. They are finding that they are not able to do it because the price of land is so high.

[Translation]

Senator Tardif: I echo the comments of my colleague Senator Pratte in also thanking you for the quality of your research. Last night, I took the time to read some of the articles provided to us, and I must say that they gave me valuable information that will be very useful for us as we write our report.

As a result of your research and analysis, what recommendations would you make to the federal government that we could include in our report?

Mr. Magnan: Annette, do you want to answer first? I was not quite ready to answer that question specifically.

Senator Tardif: You can send us an answer later.

Mr. Magnan: The legislation on access to farmland is in provincial jurisdiction. Depending on the provinces, different laws and different regulations are in effect and their effects have to be analyzed.

In Saskatchewan, we have recently amended the legislation to prevent some investments, specifically investments from pension funds. However, that does not prevent very rich people or private investment funds to continue investing. If the objective is to prevent investment from large private investment funds, I think that our legislation is inadequate. In my opinion, the matter will have to be debated in each of the provinces.

Senator Tardif: Do you have a comment, Ms. Desmarais?

[English]

Ms. Desmarais: Yes, I agree completely with what Mr. Magnan has just said. At the federal level, there could be some general guidelines that help to maintain land ownership in the hands of farmers. Land legislation is rightfully in the hands of the provinces, and we want to see that continue, as we think that's very important. But there should be also some kind of national guidelines on what the principles are that might be of concern, namely around this issue of who should own land, investors or family farmers.

The other thing that would be really essential is some kind of tracking process put in place at the federal level so that we would know how the patterns of land ownership are changing at any given time. That's something that could be considered at the federal level.

I would really like to think a little bit more before answering your question to any greater length, because it's the third part of the objectives of your study, which I think is critical. But I would prefer to think a little bit more before I can actually say something clearer.

[Translation]

Senator Tardif: Thank you. If you have any other information for us, feel free to send it to the clerk of the committee.

Senator Dagenais: Thank you for your presentations. Your remarks concern me a little. I live in a semi-urban area where land development is expanding, bringing a good deal of wealth to the city. In the centre of the municipality, there are strawberry farms producing very good fruit. In that region, the land is very fertile. I know the owner of one fourth-generation strawberry farm. He is very concerned for the next generation. He sees a lot of residential complexes springing up all around him. He could sell his land for a very good price. Can you imagine that a 10,000 square foot lot is currently selling for $200,000?

Farmers are feeling pressure from municipalities. They cannot count on the next generation and they have no pension funds. They know that their land is extremely valuable. I don't know what solutions we can consider in order to help them. Those farmers no longer know what to do because their children do not want to take over the business.

As you know, strawberry crops vary from year to year and there can be major losses. What can we do to help them? It is not easy to find a solution but we have to find a way. What could you propose? Urban sprawl is a problem for farmers like that and cities want to collect property taxes.

Mr. Magnan: That is a very good question. I think that we are able to see the issue too, near large cities like Saskatoon and Regina. Saskatchewan investors are interested in farmland that will stay in production, growing canola, and so on. In my opinion, in Saskatchewan, competition between urban development and farmland is not as significant. The next generation is a critical problem, though. When farmers want to retire, they sell their land to the investors offering the best price. The new generation of farmers is very important for us too.

Senator Dagenais: We often talk about major operations, like canola, but market gardeners are under enormous pressure. I can certainly tell you that, in urban areas, such as Laval, land is being sold at a high price, and there are almost no farmers left.

Senator Gagné: I will be quick. I am going to continue along the same lines as Senator Tardif because I heard some hesitation in answering her question. I have a suggestion to make if you as a researcher are interested. By the way, I appreciate the quality of your work a great deal; your data are very useful for our study.

In your April 2016 publication, you came to the conclusion that the impact of social investment, as opposed to financial investment, and its impact on communities needs to be studied in greater depth. It would be helpful to examine the public policy that could support those trends if Canada wants to attain ecological sustainability and food sovereignty. I pass that suggestion on to you, because we have little published material on public policy in terms of Canada's agriculture and food production. Thank you.

[English]

Senator Ogilvie: First of all, I want to thank both of you for your research. This is, as others have said, the first clearly defined results. Obviously, you are even more aware than we are of the other issues around further research, and we want to encourage you to continue in this, particularly in the area of where the ownership of land is.

It's that that I want to comment on. I think that really the big issue is whether it's Canadian or foreign ownership. Farmland is in a similar category to our freshwater resources. They're absolutely essential resources for the future. There are a number of reasons that people would be investing in the land area, and I would suggest that investors do care whether the land is being operated profitably or whether it isn't. They aren't investing to lose money.

Generally speaking, we know that there are two sets of areas of return on it, and one is the value of the land itself, like buying stocks. There's the fundamental value, and there's the annual yield.

As we look at population increase and the decrease in arable land around the world, obviously, investing in land is a possibility. We've got the problem, within a country, as to whether that land is zoned exclusively for agriculture or whether it's open to other options. So investors would be investing in different kinds of land depending on what those circumstances are, but whether or not it is corporate ownership or individual ownership, to me, is not so critical because what I see is an increasing number of family farms becoming individual corporations. In fact, it is a way to ensure that there may be a way of passing the land into the future and maintaining stewardship or control of that land within a family.

I want to urge you to look into the issue of whether the ownership is Canadian or foreign. I think that's absolutely essential to us. I think it is of interest to know how many of those corporate purchases are individual corporations, that is, former farmers. The former farmer who owns the land and rents it out is not much different than a larger corporation if the land is being used for agriculture.

I think we absolutely have to know, in detail, the kind of information that you are launching in this area, and so I want to simply encourage you to continue this because, without that information, it's speculative. Basing our decisions on how land should be controlled in this country based on pure speculation is the worst way we can possibly do it.

As I said, yours is the first really detailed information we've had. So thank you. I encourage you for further studies.

Mr. Magnan: I'd just like to clarify that. In our study, we did take some pains to distinguish between owners of farmland who were local or retired farmers versus absentee investor owners.

We weren't looking at the question of a corporate structure per se. We were looking at who owns the land and whether we can determine whether they are an investor in the sense that they're an absentee owner and have no real connection to that farmland other than as an investor. So we're fairly confident that the investors that we identified were of that kind and not simply a family farming operation that happens to be incorporated.

On the question of foreign ownership, the land titles analysis that we did didn't find any evidence that there were non-Canadians who owned farmland. The rules are really quite strict in Saskatchewan.

The government has recently, with its 2015 legislation, tried to close some additional loopholes so that they are even more confident that it's not foreign money behind a Canadian resident or citizen in those investments. I do think that part of the legislation is working quite well.

Senator Ogilvie: Thank you very much.

Ms. Desmarais: Very quickly, I just wanted to emphasize that I think you're absolutely correct in pointing out this problem of concentration of land among farmers themselves, and that is precisely why we wanted to try to keep track of both of those processes that were occurring in Saskatchewan, the shift in land ownership in that investors were purchasing more land but also this whole serious and very important process of ongoing concentration of land ownership among farmers themselves.

I think both of those are very important. We have to continue to keep tabs on what's going on there. We just wanted to let you know that we really do hope to continue to do research in Alberta and Manitoba, and we do know that some other academics are using our methodology to look at Ontario and Quebec. We're all going to keep our eyes open for that research.

[Translation]

The Chair: Thank you very much, Mr. Magnan and Ms. Desmarais. As you were able to see, the senators were very interested in your briefs and your research. If you have other comments, you can always send them to us through the clerk of the committee. They will certainly be useful when we are ready to produce our report. Thank you for visiting us.

(The committee adjourned.)

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