Proceedings of the Standing Senate Committee on
Agriculture and Forestry
Issue No. 21 - Evidence - Meeting of December 6, 2016
OTTAWA, Tuesday, December 6, 2016
The Standing Senate Committee on Agriculture and Forestry met this day at 6 p.m., in public, to study the acquisition of farmland in Canada and its potential impact on the farming sector; and, in camera, for the consideration of a draft report.
Senator Ghislain Maltais (Chair) in the chair.
[English]
Senator Maltais: I welcome you to this meeting of the Standing Senate Committee on Agriculture and Forestry. I am Senator Ghislain Maltais from Quebec, Chair of the committee.
I would like to start by asking the senators to introduce themselves, starting with our deputy chair.
Senator Mercer: Terry Mercer from Nova Scotia.
Senator Beyak: Lynn Beyak from Ontario.
Senator Gagné: Good evening, Raymonde Gagné from Manitoba.
Senator Plett: Don Plett, and I am also from Manitoba.
Senator Oh: Victor Oh from Ontario.
[Translation]
Senator Pratte: André Pratte from Quebec.
Senator Dagenais: Jean-Guy Dagenais from Quebec.
[English]
Senator Ogilvie: Kelvin Ogilvie, Nova Scotia.
The Chair: Today the committee is continuing its study on the acquisition of farmland in Canada and its potential impact on the farming sector.
[Translation]
This evening, we're joined by the Honourable Lyle Stewart, Minister of Agriculture from Saskatchewan; and Rick Burton, Deputy Minister of Agriculture.
[English]
Thank you very much, gentlemen, for your time.
[Translation]
Mr. Stewart, we look forward to hearing your comments. The floor is yours.
[English]
Hon. Lyle Stewart, Minister of Agriculture, Government of Saskatchewan: Thank you very much, senator. I thank the Committee on Agriculture and Forestry for inviting us to submit to you on farmland ownership.
Saskatchewan is managing farmland as the strategic asset that it is in this province. This means, among other things, keeping it available to our farmers and ranchers. Restrictions on farmland ownership in Saskatchewan have been in place in some form for over 40 years.
We recently undertook significant public consultations in Saskatchewan to make sure that we have our farmland ownership provisions right. Our agriculture industry is growing, and it is attracting capital to the sector. As a result, Saskatchewan agricultural land values have shown strong appreciation in recent years.
The Saskatchewan Farm Security Act states that only Canadian residents and 100 per cent Canadian-owned entities can purchase more than 10 acres of farmland in Saskatchewan. These farmland ownership provisions were the topic of a lot of public discussion in recent years as farmland started to be viewed as an attractive investment choice for Canadians as well as foreign entities. Saskatchewan began seeing interest from some Canadian pension plans and other investors who were looking at holding Saskatchewan farmland as part of their investment portfolios.
The increased interest from institutional and out-of-province farmland investors led our government to undertake a province-wide consultation last year. We met one-on-one with key stakeholder groups and hosted an on-line survey. More than 3200 individuals participated in the survey. We asked the people of Saskatchewan who they thought should be able to own farmland in Saskatchewan. The results were clear: Canadians and 100 per cent Canadian-owned companies.
Responses highlighted the fact that farmers are the best stewards of the land. They want to ensure the long term sustainability of their way of life in Saskatchewan, and urban respondents wanted that too. Additionally, farmers and ranchers support local economies, purchasing goods and services from community businesses and sending their children to local schools.
The result of the consultation showed that our rules limiting foreign ownership are in line with public expectations.
We also made legislative amendments to the Saskatchewan Farm Security Act to clarify the act's original intent. The changes reflect the views of Saskatchewan residents, provide clarity around farmland ownership, and give the Farm Land Security Board, the FLSB, the tools it needs to enforce the rules. The amendments further define pension plans, administrators of pension fund assets and trusts as non-Canadian-owned entities, making them ineligible to purchase farmland.
As well, having an interest in farmland is now further defined to include any type of interest or benefit such as capital appreciation that is normally associated with ownership of the land, regardless of whose name may be on the title. When financing a purchase of farmland, the act specifies that all financing must be done through a financial institution registered to do business in Canada or a Canadian citizen.
Saskatchewan's Farm Land Security Board, a quasi-judicial tribunal, monitors all farmland transactions and uses information from land title transfers to confirm that land owners are in compliance with the act. The board investigates files when more work is required to ensure that the rules are being followed.
As part of the amendments, the board also received new and expanded authority to enforce the legislation and to investigate transactions around who is funding the purchase or who or what entities actually accrue the benefits of ownership. This includes a requirement for a statutory declaration. at the board's discretion, and increased fines of up to $50,000 per individuals and $500,000 for corporations, and potential reversal of deals that are in violation of the act.
These amendments officially came into force in January 2016.
We remain open to investment from foreign entities in almost any other business. In fact, we encourage it to further develop our economy. Exemptions to ownership rules for non-Canadians will still be considered, just as they always have been, for economic development initiatives, for example a mine or a processing plant, or for foreign individuals who intend to farm the land themselves.
It is important to note that even though the agriculture industry continues to evolve, the vast majority of farmland sales in Saskatchewan are still farmer to farmer. Saskatchewan farms are much larger today than they were a few decades ago, but most farms are still multigenerational, extended-family farms.
Our government's goal is to ensure the long-term success of Saskatchewan's agriculture industry. We believe the rules in place in the Saskatchewan Farm Security Act help us to do that.
Now, I would be happy to answer any questions.
Senator Maltais: Thank you very much, Mr. Minister.
Senator Mercer: Thank you, minister, for being here. We appreciate your time. We know it's a busy time of year for all of us.
As to institutional holdings of farmland, we have heard from other witnesses in other parts of the country about institutions buying the land and managing the land by only becoming landlords. Has that become an issue in Saskatchewan?
Mr. Stewart: It was becoming an issue with the CPP, Canada Pension Plan, particularly. Canada Pension Plan purchased a substantial amount of farmland, 164,863 acres in total over a few months, and other pension funds from across the country were making inquiries as to their eligibility to do so as well. So yes, it was becoming an issue.
Senator Mercer: You said that this new rule change came into effect on January 1, 2016. We are almost at the end of 2016. Has it worked? What have the bumps on the road been?
Mr. Stewart: We do believe it has worked, certainly with regard to institutional investors. Canada Pension Plan ceased their purchasing of farmland in Saskatchewan at the time that the act was passed, and we believe that we have stopped foreign investment as well, although foreign investment, even previously, was more or less underground. But we have given the Farm Land Security Board more powers of investigation, and we think that we have pretty well stopped any underground foreign transactions that may have occurred.
Senator Mercer: What do you mean by underground?
Mr. Stewart: Generally speaking, foreign investors were using Saskatchewan farmers as fronts to purchase farmland in the province. Really, the financing or the actual cash to make the purchases was, in some cases, believed to be coming from foreign entities, often in foreign countries.
Senator Plett: This underground purchasing intrigues me a bit. How can you really police that? I'm a foreign investor, and I go and give a Saskatchewan farmer a loan. How do you police that? Then the farmer doesn't pay me my loan, and I foreclose on his farm. Explain that to me a little further. I'm interested in that.
Mr. Stewart: For one thing, that's the reason that we require all financing to be through corporations that are registered to do that business in Canada or Canadian individuals. Farm Land Security Board staff search the corporation registry and shareholder information for all transfers to farm corporations not on file. All out-of-Canada shareholders are required to declare residency and citizenship and declare how the farmland was acquired.
Prior to this act, the Farm Land Security Board had to try to chase these investors, back to their homeland oftentimes, to try to determine where the money actually came from. Of course, in many countries, China being the principle one, there was no cooperation with a Canadian investigation in China or of Chinese citizens.
Now, we have reversed the onus so that, in order to be eligible to purchase land, the investors have to prove their eligibility to the Farm Land Security Board rather than the Farm Land Security Board chasing them.
Senator Plett: You talked about fines. Explain that a little more to me. You had two types of fines. Who are you fining? The farmer that sold his land or the investor that tried to come in and buy it?
Mr. Stewart: It would normally be the investor, the purchaser, that would be fined. The fines are now $50,000 per transaction for an individual and $500,000 per transaction for a corporation.
Senator Plett: What success do you have going after a Chinese corporation and fining them $500,000?
Mr. Stewart: Well, that's not the only avenue open to us. We can also reverse the deals, which can be financially onerous. Generally speaking, these corporations from outside of the country have other business in Canada as well. Oftentimes, we expect they will pay that fine, although none have been levied as yet.
Senator Plett: Okay. Fair enough. I guess the proof is still out there.
I am not wanting to be negative here, but this, to me, sounds an awful lot like what Allen Blakeney's government would have been doing instead of Brad Wall's government. I'm trying to get my mind around how a Conservative government is doing this.
I guess my final question to you, minister, is: Are the farmers that are wanting to sell their land happy with this arrangement?
Mr. Stewart: The only pushback came from a small number of farmers at the end of their careers that thought this might hurt them when it came time for them to sell their land, but, like I say, the numbers of them were very small compared to the balance of the survey. Many farmers in that same stage of life — I would say more farmers — actually supported this because what was happening to farming in Saskatchewan, what appeared to be happening in the last five years or so, was not something that they wanted to see either.
In 2006, farmland values rose by 2.1 per cent. That was pretty typical for many years before that. In 2007, 11 per cent; 2008, 14.9 per cent; 2011, 22.9 per cent; 2012, 19.7 per cent; 2013, 28.5 per cent. That's not altogether negative, but when it's thought to be fuelled by non-agriculture investment from out of country, it's an issue. It certainly is an issue for the family farms in this province and raises the question of how they can expand.
Senator Oh: Thank you, minister. According to some researchers, the subsidies provided to farmers help to raise the value of farmland, particularly land that it is leased to farmers. What do you think about that statement?
Mr. Stewart: I can't refute that 100 per cent, that's for sure. But the subsidies paid to Saskatchewan farmers are, generally speaking, in the form of federal and provincial contributions to programs like crop insurance, AgriStability and AgriInvest. Other than that, there are few subsidies. Those that do exist outside of those three major programs are subsidies of low value. So that statement may be broadly true, but not to any large extent, I would suggest.
If I can expand on that, in 2015, out of $14.425 billion of farm cash receipts — those would be net total — only $585 million came from subsidies.
[Translation]
Senator Dagenais: Thank you, Mr. Stewart. In your presentation, you mentioned that you took measures at the provincial level and that the act was amended fairly easily. Can you elaborate on what happened before the act was passed? What types of land were purchased using funds and what did the investors do with this land?
[English]
Mr. Stewart: They generally bought farmland; I'm saying farmland as opposed to grassland. Generally they rented it out to other farmers to farm for them, usually under cash rent arrangements. They charged rent that would sustain their capital purchases, which was fairly high rent at the time, and still is, but there's nothing illegitimate about that. It's just that at some point, producers were asking us to decide how much of the province we want to have owned by these funds. Are we prepared to do anything at all to save Saskatchewan agriculture for Saskatchewan farmers and ranchers?
[Translation]
Senator Dagenais: With your experience, you know that sometimes there is pressure or opposition when acts are passed. Did you face pressure or hear objections with regard to the act?
[English]
Mr. Stewart: No, none that I can really think of since the time that we passed the bill. It should be remembered, though, that before we did this, it was not legal for foreign entities to own Saskatchewan farmland, and it was never deemed to be legal for institutional investors to own Saskatchewan farmland, either. But Canada Pension Plan had a unique structure that some legal opinions said permitted them to do it, so they were getting around our existing law, and the Farm Land Security Board didn't have sufficient powers of investigation to track down foreign investors that were investing in spite of the fact that it was illegal for them to do so. The law hasn't changed that much; we just clarified it and gave the Farm Land Security Board better powers of investigation and enforcement.
Senator Pratte: Good evening. Considering the fact that foreign ownership was forbidden and had been for quite a while, and that even though there were purchases by CPP of an important but still very small part of total farmland in Saskatchewan, to what extent would you say that it was an important factor in the very important price increases in farmland over the years that you just mentioned?
Mr. Stewart: It's hard to quantify, but it was certainly a factor, I would think. Farmland appreciates at a reasonable rate in good times in the industry, and that's normal, but what we were seeing with 28.5 per cent, 18.7 per cent and 22.9 per cent appreciation over single years was not normal. We believe that the purchases by institutional investors and possibly foreign entities were having an effect on that, and a psychological effect, at least, to encourage those selling land to charge what would be considered astronomical prices, and that somebody somewhere may pay it. These were good times in agriculture as well, so we would expect reasonable appreciation, but I believe that a part of that at least would be attributable to institutional investors and illegal foreign investment.
Senator Pratte: These were also times of exceptionally high commodity prices, weren't they?
Mr. Stewart: Yes, that is correct.
Senator Pratte: We would expect, therefore, more moderate price increases over the next few years because of the measures that were taken by your government. And of course the price context has changed considerably.
Mr. Stewart: Yes, that's true. It's so hard to quantify how much difference this really makes, but this is something that has put the minds of our farmers and ranchers at rest over this issue. It was a very prominent issue in the agricultural community. More credit was probably given to potential foreign and institutional investment for raising the prices of farmland than really should be attributable to those things, but for sure it would account for some percentage of the increases. It was a huge issue in the industry, and I think clarifying the act has made quite a difference.
[Translation]
Mr. Chair: Mr. Stewart, I want to continue along the same lines as Senator Pratte. A great deal of farmland in Saskatchewan is acquired through investors, including pension funds, which increases the price of the land. Don't you think it's difficult for a young couple or young farmer — who won't necessarily inherit the family farm — to run a farm as a result of the price increase in recent years? Don't you think this situation could stand in the way of the next generation of farmers?
[English]
Mr. Stewart: Well, yes, that was exactly the point of the industry. They felt that prices were being driven, probably more than they even were, by institutional investment and foreign investment and that it was going to be impossible for Saskatchewan farmers and ranchers to expand their operations and get the next generation involved in the industry.
In order to stay viable, farms have to continue to expand. The average commercial farm is probably 4,000 acres in this province now, where it would have been 300 acres when I was a child a number of years ago.
In order to stay viable, you have to expand. In order to bring new generations into the industry, you have to be able to expand. Farmers and ranchers felt that this ability was being taken away from them by these rapidly escalating farmland prices that seemed to be getting out of sync with the productive capacity of the land. Rightly or wrongly, they attributed a large portion of that appreciation to foreign and institutional investments.
[Translation]
Mr. Chair: Mr. Stewart, what proportion of Saskatchewan's farmland currently belongs to investment trusts?
[English]
Mr. Stewart: We have 61 million acres of cultivated land, and that includes grassland. I think the number I had here for institutional investment was 164,000 acres, but all of that was purchased in less than a year.
[Translation]
Mr. Chair: You're the only province that works this way. We heard witnesses from all the other provinces. Isn't there a risk that Saskatchewan farmers could simply become farm workers rather than farm owners? The profits fall into the hands of investors. Doesn't this turn farmers, who should normally be farm operators, into mere farm employees? When the farmers are employees, do they have the same interests as when they own their farm?
[English]
Mr. Stewart: No. What you say is the motivation behind the changes that we made. Clearly farmers felt that they were going to be relegated to being employees or renters as opposed to owners. There are, as any business person will know, huge benefits to ownership as well as production, but ownership has benefits. Ownership allows producers to leverage that equity to purchase more land or equipment or just to give themselves some security. Yes, that was the fear. Absolutely.
I do take issue with one thing. Quite a number of provinces have similar foreign ownership rules. We're really not that much different. Previously one of the senators made a reference to the Allen Blakeney years. In those days, that government made it impossible for other Canadians to buy farmland. Since then, we have loosened those rules up considerably, and now we're just concerned about foreigners.
The Canada Pension Plan bought a lot of land in a very short time, and farmers saw that as a particular problem because the Canada Pension Plan, being a federal Crown corporation, does not pay capital gains tax or income tax, and they have huge amounts of money to invest annually. They are competing against farmers' tax-paid dollars in purchasing farmland, so that was deemed to be particularly unfair.
The Chair: Thank you very much, Mr. Minister.
Senator Mercer: Minister, what recommendations would you make to the federal government with respect to land? There has been talk that the lack of a national land registry is detrimental to the industry, but we haven't heard a lot of arguments pro or con, particularly from Western Canada. What is your take?
Mr. Stewart: I don't know that I'm well-equipped to offer a constructive opinion on that. Over the last five years, we have seen or at least perceived that we had a problem here. I think we dealt with it in a satisfactory manner.
I just can't say whether such a federal registry would be a great benefit to the industry or not. I think most people in this province would be satisfied with where we are now. I'm sorry I can't be very constructive in that.
Senator Mercer: The other issue that we have encountered as we talked to people across the country is the issue of urban versus rural land holdings and the problem around cities that abut usually very productive farmland with the expansion of urban centres. That's happening in Saskatchewan as well as every other province. How do you regulate that when you are anxious to keep some of the best farmland in the world in production as farmland?
Mr. Stewart: That can be a particularly thorny issue. It's not only the expansion of cities, which is more clear, but we're having a lot of acreage developments spring up right in the middle of farm and ranch land. Of course, they don't always share the same values and believe that residential should always take priority over agriculture. In this province, we have an act that gives agricultural producers the right to go about their business, as long as they are following reasonable farm and ranch practices, so they can't be stopped from operating by encroaching residences.
Senator Plett: What is the average size of a grain farm in Saskatchewan?
Mr. Stewart: We have numbers, but a lot of smaller holdings are people who work off-farm and do a little farming in the off hours from their job, so the average is quite low, at 1,668 acres. For a commercial farm, a farm that generates most of the family income and one that the family could live off, I would say 4,000 acres would be a low average in this province now. Officially, 1,668 acres is the average overall.
Senator Plett: What part of Saskatchewan has the most productive farmland? Is it around the Saskatoon area? I do not want to be specific to Saskatoon, but that general area.
Mr. Stewart: Generally, there are a number of very good areas. The Regina Plains is a large area of very flat, productive land. There is similar land in the Kindersley-Rosetown area west of Saskatoon. North of Moose Jaw, the Tuxford area is a high-value area, and there are substantial pockets of very high-quality land scattered throughout the province.
Senator Plett: I'm trying to do a comparison, minister. I'm from southeastern Manitoba, right up close to the Red River Valley. It's very productive farmland. I'm trying to do a bit of a comparison as to what the value of your land is to that.
Senator Mercer talked about the urbanization and, of course, that is really driving the price of land up, certainly in Ontario and, I'm sure, in Quebec and the very heavily populated provinces. Maybe it's not quite as much in Saskatchewan and Manitoba.
What would some of your more productive land go for per acre?
Mr. Stewart: My farm is in the Regina Plains. The price of good-quality farmland in the Regina Plains is above $3,000 an acre. Overall, because our averages average that kind of land with lower quality farmland and grassland, our averages in 2015 were $1,159 an acre. The kind of quality farmland you're talking about is over $3,000.
Senator Plett: It typically is still among the lowest priced land in the country. One of the reasons some farmland in Manitoba goes for what it does is because farmers are buying it for spreading acres as opposed to really being that concerned about what they make on the land. I'm assuming you would not be facing as much of that problem.
Mr. Stewart: That is correct.
[Translation]
Senator Dagenais: I want to go back to the issue concerning the acquisition of large areas of land. If a farmer decides to acquire a large area of land, what type of financial assistance can be granted to help fund such purchases? I imagine some farmers wanted to purchase land, and not only pension fund investors. What financial assistance can they receive?
[English]
Mr. Stewart: Really none at all. Those kinds of arrangements are typically done with private lending institutions and the farmer. Our government doesn't get involved in helping farmers to purchase farmland at all.
[Translation]
Senator Dagenais: Last week, witnesses from major Canadian banks told us they favoured investments and sometimes pension funds. Despite the surpluses generated, they had trouble telling us how they could help farmers purchase land and whether they offered preferred rates. In your province, when farmers want to expand their land, they don't have access to funding sources other than those from banks or finance companies. Is that correct?
[English]
Mr. Stewart: That is correct.
The Chair: Thank you, Senator Dagenais.
[Translation]
Mr. Chair: Mr. Stewart, I want to ask you one more question. The investment trusts that acquire land hire farm workers. Are many foreign workers hired?
[English]
Mr. Stewart: Farmers in Saskatchewan have hired foreign workers to a very limited extent. It's not particularly common.
[Translation]
Mr. Chair: Mr. Stewart, thank you for taking the time to speak with us this evening. This has been very informative, and I think you were able to see the senators' interest in the issue. Your comments will help us prepare our report, which will be released at the end of the year. Thank you for your time. You've been very generous.
[English]
Mr. Stewart: It's an honour to be able to appear before your committee, and I hope that our experience has been some help to you. Thank you very much as well.
The Chair: Thank you very much.
(The committee adjourned.)