Proceedings of the Standing Senate Committee on
Agriculture and Forestry
Issue No. 22 - Evidence - Meeting of February 9, 2017
OTTAWA, Thursday, February 9, 2017
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.
[English]
The Chair: Welcome, everyone. My name is Senator Maltais, and I am the chair of this committee. I would like to start by asking the senators to introduce themselves. We will start with the deputy chair.
Senator Mercer: Senator Terry Mercer from Nova Scotia.
Senator Gold: Senator Marc Gold from Quebec.
[Translation]
Senator Tardif: Claudette Tardif from Alberta.
[English]
Senator Beyak: Senator Lynn Beyak from Ontario. Welcome.
Senator Bernard: Senator Bernard from Nova Scotia.
Senator Plett: Don Plett from Manitoba.
Senator Oh: Victor Oh from Ontario.
[Translation]
Senator Gagné: Raymonde Gagné from Manitoba
Senator Pratte: André Pratte from Quebec.
Senator Dagenais: Jean-Guy Dagenais from Quebec.
[English]
Senator Ogilvie: Kelvin Ogilvie from Nova Scotia.
The Chair: Thank you senators.
[Translation]
Today the committee is continuing its study on the acquisition of farmland in Canada and its potential impact on the farming sector.
This morning, from Ducks Unlimited Canada, we welcome James W. Brennan, Director of Government Relations, Scott Stephens, Director of Regional Operations (Prairie Region), and Mark Gloutney, Director of Regional Operations (Eastern Region).
[English]
Welcome, gentlemen. You have some remarks before questions from the senators, Mr. Brennan?
James W. Brennan, Director of Government Relations, Ducks Unlimited Canada: Yes. Good morning, Mr. Chair and members of this committee. Thank you for inviting Ducks Unlimited Canada to speak to you about your study into farmland acquisition in Canada. We're delighted to be here with you this morning. I'm Director of Government Relations at Ducks Unlimited Canada, based here in Ottawa. With me today is Dr. Scott Stevens and Dr. Mark Gloutney, who are Directors of Regional Operations for the Prairie and eastern regions of Canada respectively.
As you may know, Ducks Unlimited Canada is a federally registered charitable organization founded in 1938. Since that time, we have partnered with thousands of landowners, businesses, governments and other NGO partners to conserve Canada's wetlands and associated habitats for the benefit of North America's water fowl, its people and for the health of our environment. We are a science-based organization that uses various tools, including on-the-ground habitat conservation projects, scientific research, education and public policy to advance our mission objectives.
Of note to this committee is that many unique and ecologically valuable wetland and upland habitats are located on the settled southern agricultural landscape. According to Statistics Canada's latest census in 2011, nearly one third, or 19.6 million hectares, of Canada's agricultural land base functions as important wildlife habitat. This includes natural grasslands for pasture, woodlands and wetlands.
The ecosystem goods and services, also known as EGS, produced by such habitats are critical to the survival of thousands of plant and animal species, including many that are listed as threatened or endangered. By extension, these habitats are also important to the productivity and resilience of Canada's agriculture sector and the overall well-being of our country. For example, crop pollination, soil health, provision of clean water and natural pest control are among the EGS that support the production of food, help farmers adapt to a changing climate and weather any other environmental stresses that may affect food security. Wetlands and surrounding habitats also deliver critical services, including air and water purification, flood attenuation, drought mitigation, as well as carbon capture and storage.
As mentioned, Ducks Unlimited Canada has been building and maintaining strong partnerships with farmers and the broader agricultural community for nearly eight decades. In fact, partnerships with individual landowners and agricultural producers are at the heart of our conservation efforts. They form the foundation of our biggest impact on the southern Canadian landscape.
Thanks to the environmental commitment of 18,000 individual landowners and our other partners, Ducks Unlimited Canada has been able to conserve nearly 6.4 million acres of habitat to date nationwide.
However, despite our combined efforts, wetland and other habitat loss in Canada continues to increase at an alarming rate. Since the arrival of European settlers, an estimated 70 per cent of Canada's wetland base has been lost or degraded in the settled regions of our country. To this day, we continue to lose more than 29,000 acres of wetlands each and every year. The consequences of this ecological loss are significant and are proving to have long-term ramifications not only for Canada's finances and climate resiliency but also for our agricultural sector's growth, competitiveness and the necessary public trust that underpins it. Agricultural producers are already experiencing a number of environmental challenges that affect their bottom line, including more frequent flooding and soil erosion. These impacts will only be magnified by a changing climate.
A key driver behind this loss is the fact that wetlands and the EGS they provide are systemically undervalued. Most Canadian provinces, with the exception of the Maritimes, do not have comprehensive wetland protection policies. Further, existing incentives that would encourage habitat restoration and conservation are insufficient. As such, most private land conservation efforts and initiatives continue to be strictly voluntary.
At this point, I would like to hand over the balance of this presentation to my colleague, Dr. Scott Stevens.
Scott Stephens, Director of Regional Operations (Prairie Region), Ducks Unlimited Canada: Ducks Unlimited Canada recognizes that market forces incent rural land owners and agricultural producers to increase cultivated acres at the expense of conserving or restoring wetland habitats. We also recognize the various economic pressures producers face with increasing land values, commodity price fluctuations and rising global demand for food. Ironically, many of these same forces also affect our ability to conserve habitat on private land. In light of this economic reality, we have developed a number of conservation incentive programs that help us meet our acre goals and, at the same time, provide a financial benefit to the producer.
This committee will be interested to know that most of Ducks Unlimited Canada's conservation programs do not involve the purchase of agricultural land. In fact, acquiring and holding farmland is by far the most expensive method of habitat conservation. As a not-for-profit charitable organization, we prefer to engage in voluntary conservation activities that can help us achieve the maximum benefit for habitat with minimal resources. This is why partnerships with individual landowners and producers are so important to our work and to our success.
A couple of examples of our conservation programs include cost-sharing with producers interested in converting existing crop land to forage. In other situations, we provide incentive payments to producers interested in restoring drained wetland basins back to functioning natural wetlands.
We also work with producers who have land containing important natural features and who, for a number of different reasons, are only interested in selling their land. In those cases, we typically employ our Revolving Land Conservation Program. Under this program, we purchase the land from a willing seller at a value based on multiple appraisals. We then restore any lost or degraded natural areas on that land and then list the property for sale on the open market along with its restored habitats, which are protected by perpetual conservation easement attached on title. On the remaining portion of the property, subsequent buyers are permitted to farm and develop the property as per their economic need and as their municipality will permit.
While the Revolving Land Program is in place across Canada, it has been especially popular and successful in the Prairie region, where we have purchased 29,000 acres over the past three years and sold 15,000 acres back into private ownership. The remaining acres purchased are either currently for sale or are being restored in anticipation of future sale.
Another example of our collaboration with the agricultural community can be seen through our recent purchase of the Tamino Lands located on the Tantramar Marsh near Sackville, New Brunswick. This thousand acres of land was acquired by foreign real estate investors decades ago and has been out of agricultural production since the 1970s. Ducks Unlimited Canada purchased this land in order to restore its lost wetlands but recognized the agricultural potential on some parts of the property. Working with the local farming community, we identified 240 acres that were sold and/or leased back to local farmers, a win-win for conservation and for agriculture.
Of note to this committee is that rising agricultural land values are making habitat conservation on private land increasingly difficult. This is because the financial incentives we offer through our various conservation programs must, at a minimum, equal current land use values. Without this benefit, it becomes unattractive or uneconomical for the producer to undertake any form of conservation or restoration of habitat. As such, increasing agricultural land values demand a significantly higher financial incentive for conservation, which DUC and other conservation organizations are struggling to provide.
For example, in 2014, St. Luke's hunt club on Ontario's Lake St. Clair was put up for sale. The listing price for the 512 acres of important coastal wetland habitat was $3.9 million, a value based only on its farming potential. Because this price was more than three times the value of a comparable Great Lakes coastal wetland habitat, neither DUC nor any other conservation organization could afford this property and thus avoid risks of habitat conversion.
Development pressures and urban growth are also affecting land values and habitat conservation. Farmers that own agricultural lands near major city centres are more likely to sell their properties and take advantage of high prices. When this occurs, any residual habitat usually gets converted to residential or industrial development, as does the farmland.
As you can see, skyrocketing prices and the loss of agricultural land not only negatively impact Canada's agricultural sector but also have serious consequences for our country as a whole as it translates into the loss of critical ecosystem services mentioned earlier.
We believe that the development of the next agricultural policy framework presents a great opportunity to rethink how Canada views, governs and grows its agricultural sector. With the right tools and policy frameworks, we can and must develop meaningful, economic values for on-farm ecosystem goods and services.
The vision we as a country should aspire to is one where those farmers and rural landowners who already embrace environmentally sustainable land management are compensated for delivering critical ecosystem services to Canadians. This will, in turn, help protect critical habitats in the larger agricultural landscape upon which they reside.
Finally, government should support industry initiatives, practices and emerging technologies that help improve agricultural production on our existing land base. Such innovations will remain key to Canada's ability to grow a competitive and environmentally sustainable agricultural sector while retaining those natural features that Canadians value deeply.
Thank you, Mr. Chair. We will be pleased to answer any questions you may have.
The Chair: Thank you very much, gentlemen.
[Translation]
Before our question period, I would like to introduce a new senator, Senator Gold from British Columbia. Senator Gold will represent independent senators on our Subcommittee on Agenda and Procedure. Welcome and thank you, Senator Gold.
[English]
Senator Mercer: Good morning, gentlemen. Thank you for being here.
I think all of us are familiar with Ducks Unlimited Canada and the good work that you do. I have a couple of questions. I'm not looking for controversy; I'm just trying to dig into this. In your final statement, Dr. Stephens, you said government should support industry initiatives, practices and emerging technologies that help improve agricultural production on our existing land base. Is that an endorsement of GMOs?
Mr. Stephens: Yes. We have taken a look at the science around genetically modified crops and those technologies, and we do think those provide a meaningful way to increase production and provide the food that society needs across the globe while also maintaining in other parts of the landscape the important features that we talked about that provide those other services to society, like flood control and carbon storage and those kinds of things. Yes, we have embraced the use of genetically modified technology to do that increased production.
Senator Mercer: Thank you. We don't get many people coming here doing that. I wanted to get that on the record.
The co-existence of wetlands and arable land is a unique opportunity for us in Canada because of our size. However, by 2050, we will have 9 billion people plus on this planet, and we have to be prepared to feed them or it will lead to civil unrest, wars, et cetera, not because of ideology or because of religion but because of hunger. Nothing motivates people more than a growl in the stomach.
How do we manage that? I'm very supportive of what you're doing, but how do we manage? We're one of the only countries in the world that can produce more arable land or put more land into agriculture, so we're part of the answer to the problem. How do we do that and also preserve our wetlands and our nature?
Mr. Stephens: Maybe I'll take a crack at that. My colleagues may have useful perspectives here too.
I would say that what we're trying to find here in the challenge before us is how do you find the balance in using the land to provide the whole suite of services that we need. I would say, across the Prairie provinces where I spend most of my time working and trying to think about these challenges, we already have signs that we may have pushed some of those landscapes into a position where they are not sustainable. We have seen increasing frequency of floods across these areas as we have lost some of the wetlands. We have done a bunch of work around the science of why this is happening, and it shows that when you lose those wetlands, you lose the ability to buffer those floods. Some of the science suggests that because of the wetland loss that we have already seen, we saw an increase in those flood peaks by up to 30 per cent.
I think the challenge is how do we address the food needs that you described, which are obviously growing, but also maintain the components of the landscape that provide other important services.
We all know that climate change is a challenge that we are trying to address. It puts stress on agricultural systems and all of the economic systems that we have out there across the landscape. Wetlands store carbon. When we're draining those wetlands, there is lots of carbon release that contributes further to the problem.
It's finding that balance, and I think figuring out how to increase those productivity gains on the existing land that is already in production is probably the highest and best use for that. On other areas that have these natural features, they may be more important for the other services that they provide.
Mr. Brennan: One of the other factors to consider is that market forces at play not only compelling increased production but increased sustainable production at the same time. You have standards that are developing in Europe, for example, where the acquisition of crops for the production of biofuels are done conditionally on no new additional cropland being put into production. While the market is demanding higher output, it's demanding that it be done in a more sustainable manner, so we come back to the point that Scott raised a moment ago about GMOs and biotechnology.
In Canada, we're looking at choices. We're looking at how are we managing our watersheds and how are we managing our drinking water. In places like Manitoba, where you have significant agricultural run-off and nutrient- loading into the largest bodies of water, we have to look at how we're managing our whole watersheds. There are other factors obviously at play beyond the food production as well.
Senator Mercer: Thank you. Before I relinquish the floor, I want to say that if we ever find somebody who will take this seriously, being ready for 9 billion plus people in 2050 and trying to figure out how to feed everybody, I hope they remember to bring organizations like Ducks Unlimited to the table, because it's important that we not have that conversation in isolation and go for what might be a quick fix. We have a culture and a country to preserve as well.
Senator Plett: Senator Mercer already touched on and you answered my first question. It was: How do we feed 9 billion people when we're doing away with more farmland? I, as well as Senator Mercer, support your efforts and what you are attempting to do, but clearly, over a period of time, the need to eat will overpower the need to conserve farmland. That's just simple reality that we have to accept. We have to find a way of getting a balance.
I have a couple of brief questions, Dr. Stephens. In number 31 of your report, you talk of a perpetual conservation easement attached to the title. Explain that a little bit. Does that mean that grain cannot be grown on there if I buy that property? Explain the perpetual easement to me, please.
Mr. Stephens: The way the perpetual easement works is on those properties that we purchase, we would put the easement on the natural areas that have the greatest value for these other benefits that they provide, and it's attached to the title of the property. As the property changes hands, it restricts the activities on those areas covered by the easement.
The other feature that is worth noting here is that when we place that easement on the property and then sell the property, right now there is typically a reduction in the resale price of about 30 per cent. That is attempting to value the loss of use that is restricted by the easement. When we sell the property back into private ownership, the reduction in the available use is being reflected in the value that they are paying for that property.
Senator Plett: Many of us — and it has gotten me and others like me into trouble occasionally — tend to ask for forgiveness rather than for permission. If I own the property and start clearing forage on that property and put it into cultivation, what is going to happen later on? I understand what you're doing. If you put an easement on for hydro, telephone or gas, they will come along and dig in their cable because the easement is there and whatever is in their way will, obviously, be moved. If the forage has been cleaned and there is a crop of wheat standing on that property, what happens?
Mr. Stephens: We have a significant amount of acres that we have easements on. We deal with the landowners. We are typically notified when the land changes hands to a new producer. We will then go and try to have a conversation and explain to them what the easement is and how it works. Because it's attached to the title, that should be picked up in the process when someone buys it, recognition of that and an understanding of that, but we try and maintain a relationship with the people who own the properties that have the easements on them.
If there is a violation of the structure of the easement, we go to the producer and work with them to fix it. We haven't ended up in court or in arbitration over easement violations. We have been able to work those out with producers.
Senator Plett: No farmers standing there with shotguns.
Mr. Stephens: No, none of those challenges yet.
Senator Plett: Speaking of shotguns, you talk about the hunt club property. I would entirely support that type of an issue because, I would suspect, the property there that you talked about is probably going to be used for large residential properties. Maybe not, but it would seem to me that in that type of an area, I would certainly support you and maybe we don't need the big mansions on the lake because they are purely for pleasure and for private use.
Farmers have been here in front of us. They have been upset about the fact that Ducks Unlimited is buying farmland. Does Ducks Unlimited make any profits when they sell? Do they sell at losses? It would seem to me that certainly it wouldn't be profitable to buy farmland and turn it into land where we can't grow any grain and then sell the property. That can't be very profitable.
Mr. Stephens: I can address that. Maybe just a little bit about the process we go through when we purchase a property.
Senator Plett: Please.
Mr. Stephens: We're required by the policy of our board to obtain appraisals of the fair market value of the property. We are limited in what we can pay for the property based on those appraisals. We're not able to pay whatever we want; we're limited by the appraised value of the property.
Senator Plett: That would be higher when you buy it than when you sell it.
Mr. Stephens: That's right. As I discussed, typically when we are buying these areas and restoring some of these natural values, the reduction in value with those areas protected is about 30 per cent. We're able to get reimbursed for that easement value from some of the funding sources that we have. They will pay for us protecting those ecosystem services and those other values, so we use that payment to offset the loss.
The answer to your question is yes, in most cases the value we're selling that property for would be about 70 per cent of what we bought the property for.
[Translation]
Senator Dagenais: You spoke earlier about urban sprawl, but I think real estate promoters must maintain protected zones in new developments. What proportion of your activities do you conduct in our province?
Mark Gloutney, Director of Regional Operations (Eastern Region), Ducks Unlimited Canada: Funding in Quebec amounts to approximately 5 p. 100 of our activities throughout the country. We are mainly concerned with restoring the environments along the banks of the St. Lawrence River. We also do a lot of work around Lake Saint-Pierre. We acquire few agricultural lands in Quebec, because they are regulated by the CPTAQ, the Commission de protection du territoire agricole. We do not have the right to acquire farmland because we are non-residents.
Sometimes we acquire wetlands along the river that are considered agricultural zones, and in that case we submit a request to the CPTAQ in which we indicate which lands we wish to acquire. The CPTAQ then examines our submission. Sometimes we are given the authorization, sometimes not. Acquisitions mainly target non-arable lands. When we acquire a coastal lot, sometimes a band along the river can be farmed. When that happens we work with local producers to see what we can do with those strips of land.
Senator Dagenais: Are there provinces where you have more trouble with your productions? You say it is not easy in Quebec due to the provincial government. Are there other provinces where it is more difficult to cultivate your land?
Mr. Gloutney: It depends on where we work. In Nova Scotia, when we acquire coastal land strips, we must deal with the Agricultural Marshland Conversation Commission and its organizations. We work with them. Their mission is to protect agricultural activity in coastal zones where there are a lot of levees. In this type of situation, we work closely with marshland protection organizations. Ducks Unlimited Canada does not acquire highly agricultural lands. The ones we acquire are low production zones. For instance, we acquired 1,000 acres in the Tantramar marshland, where only 240 acres had agricultural potential, and so we used those for production.
[English]
Senator Tardif: Thank you for your very interesting presentation. I was very interested by your Revolving Land Conservation Program. Does that program apply as well to land used for industrial development? I know that you collaborate with big partners such as Enbridge and Trans-Canada. How does the program apply to land that is used for industrial development?
Mr. Stephens: Is your question whether we purchase land that might be used for industrial development?
Senator Tardif: That's right.
Mr. Stephens: We have not done any of that. Typically, our partnership with some of the corporations like Enbridge or any of the other people that we partner with would help us to do the restoration or help to fund the restoration work on the natural lands, but we haven't purchased land specifically with industrial development purposes in mind. It just doesn't fall within our mandate of focusing on natural lands.
Senator Tardif: You have indicated that they help finance. Could you elaborate on that, please?
Mr. Stephens: When we purchase land, there are costs with restoring the wetlands and restoring the grasslands and those sorts of things. In many situations, we've had corporations come to us, and they have been looking for opportunities to help offset some of their impacts in other places by doing restoration or helping to restore some of those environmental goods and services. They would provide us with funding. We would find the appropriate natural areas and do the restoration work, and we would use their funding to do that restoration work.
Senator Tardif: That 30 per cent that you were indicating in answering Senator Plett's questions about the difference?
Mr. Stephens: Yes. It can be used to offset the easement value or the restoration costs. There are also the costs of our staff to go out and work with producers and local contractors to do the restoration work. So all of those costs would be covered by our various funding sources.
Senator Tardif: With regard to your work with other scientific organizations, you indicated that you are a science- based organization that uses various tools. How do you leverage the work that you do with other scientific organizations?
Mr. Stephens: We do spend a lot of time leveraging both our science expertise and the conservation work that we do. We have a number of items that may be of interest on our science.
We have fellowships that we award to students who are pursuing either master's degrees or doctoral degrees doing research on natural areas and the benefits. We award those each year. We work with professors at academic institutions across Canada to co-sponsor students who then collect information and do studies on restoration work or other work that we are doing out there.
Maybe the most relevant: What we usually think of in terms of leveraging is that any of the funding that we get from any of the sources, we're typically leveraging that and matching with other sources. If a dollar comes to the table to us from a corporation, say, we would match that with dollars from government agencies. There are dollars that come North internationally from the United States. All of those require matching funds to deliver increased value for all of the partners that are putting those dollars in place.
Senator Tardif: Thank you.
Mr. Gloutney: Maybe I can add just one other point. We have our own science team that sits in Winnipeg. We have an Institute for Wetland and Waterfowl Research. Those folks work for us, but they also work with industry and agricultural producers to help to understand the many different aspects of the work that we do, whether they are the ecological goods or services consequences or the production consequences of different types of activities on the landscape. Our scope is pretty varied and pretty broad.
Mr. Brennan: It also goes without saying that we have worked for many decades with the Canadian Wildlife Service — the scientists there — and also with the scientists at the United States Fish and Wildlife Service as well.
Senator Oh: First, thank you for being here. I would like to recognize DUC for doing such a great job. I first came into contact with DUC in 1982-83 through wildlife artist and conservationist Robert Bateman who introduced me to Ducks Unlimited stamping and painting. For many years, you have been doing a great job.
Do you have any idea what the acreage is that DUC holds in the wetland or conservation lands across Canada?
Mr. Brennan: Are you referring to ownership or just where we have conservation agreements in place?
Senator Oh: Both, where you are involved. How big is the acreage?
Mr. Brennan: In terms of direct interests and what we would call "influenced acres,'' where we've worked with governments to protect vast tracts of land, that number is about 6.5 million, which I outlined in the presentation. In terms of direct land ownership, we own approximately 405,000 acres of land, on an agricultural land base of about 60 million hectares in Canada.
Senator Oh: When you go to a farmer or pick up land and restore it, is there some kind of formula that you need to maintain to keep you going? When the land is sold, do you have profit sharing or whatever you tack into the agreement?
Mr. Stephens: Typically, when the property is bought, we use the appraisal and pay the producer the fair market value, and then we use our funding sources to do the restoration. We get compensated for that easement value that is the reduction. Then, when we put it back on the market, individual producers are then bidding or deciding what they think the land is worth with those restrictions on it. Our track record has been that we are in the neighbourhood of that 70 per cent of the original value.
That is what most of the producers who come back to purchase the land are willing to pay for it. That would be on the purchases.
Any time we work with a land owner or producer who is keeping their land and we are just engaging with them to help them with programs or expertise to restore or do those things, yes, we are making a payment that's based on either what their rental value would be that they could get from agriculture or some percentage of the fair market value of the land. That's what most of our incentive payments are based on.
Senator Oh: So besides buying and selling the land and restoring the land, you increase the value. Where is your funding coming from? Who supports you? How do you do fundraising?
Mr. Brennan: We get funding from a variety of sources. The source that many of you have may be most familiar with is our community-based fundraising. We have about 500 fundraising dinners across Canada in every province and territory. We have a major donor program as well, where we take donations from supporters of the organization. We receive funding from Canadian government sources, provincial governments, sometimes municipalities as well that are doing remedial work, wherever they may be.
We also receive funding through the North American Waterfowl Management Plan, which is a tri-national agreement between Canada, the United States and Mexico. Waterfowl are treated as a continental resource, and the habitats that they depend on are critical to the stability and health of that resource. There is money that is raised by our sister organization in the United States, which is matched by the sale of revenues from fishing and hunting permits in the United States. That gets matched by the U.S. federal government, and they create a pool of funds that we are able to access in order to do restoration work in Canada.
Approximately 70 per cent of North American waterfowl are hatched and fledged in Canada. So it's important, from a continental management standpoint, that we manage the full life cycle and migratory cycle of the birds.
Senator Plett: I want to follow up a little on Senator Oh's last question and your somewhat evasive answer. I think it's public record, so I would like to know who your top five donors are, aside from any government organization. This could be organizations — and I'll just use one but I have no idea if they are one — like the David Suzuki Foundation. Who are your top five donors?
Mr. Brennan: I would have to get back to you. I don't have that information at my fingertips, unless my colleagues do.
Mr. Stephens: I'm not aware of money that we've received from the David Suzuki Foundation.
Senator Plett: I only used that as an example. I find it strange that you wouldn't know who your top five donors are.
Mr. Brennan: We tend to get a lot of smaller donations, senator. There are no large, massive donations that tend to role in. It tends to be more grassroots based.
Typically, in terms of the land acquisition process, we will have targeted and focused engagement by larger funders. For example, in southern Alberta, maybe Scott will want to talk about the Buffalo Hills Conservation Ranch. We had a significant partnership with an oil and gas company.
Mr. Stephens: In southern Alberta, there was a ranch for sale with significant habitat values, and it had been used for cattle production. The gentleman was looking to get out of cattle production so, through a partnership, we were able to purchase this ranch. There was a big chunk of Canadian federal money available through Canadian Wildlife Service and Environment Canada. They were a partner. We used some of the matching funds that came out of the U.S., and Shell was an important partner on this. They were looking to voluntarily offset some of the impacts of their production work in more northern regions of Alberta, so they were interested in —
[Translation]
The Chair: There are only 15 minutes left, and five senators have asked for the floor. I'm going to ask you to shorten your questions and answers.
[English]
Senator Plett: I would ask that you send to the clerk the list of your top five donors.
Mr. Brennan: Sure.
Senator Plett: Thank you.
Senator Woo: Thank you, witnesses, for your presentation. I'll keep my question quite concise. It's a question on the concept of environmental goods and services and whether there is a methodology you can use to measure or quantify EGS and, if I can put it this way, rank the relative importance of different tracks of wetlands because of higher EGS that require more priority attention?
Mr. Stephens: That's a very good question. Mark talked about our science group, and they invest a lot of time in quantifying those ecological goods and services. Over the past 10 years, we've been focused on quantifying ecological goods and services like the number of nutrients removed by wetlands, carbon storage and volume of water stored relative to flooding. We have quantification of those. We know, on a per acre basis for each acre of wetland that we may restore, what the benefits are in terms of carbon, nutrients and those things. We can then look at individual tracts of land and rank those across a watershed.
We are developing that information in collaboration with academic partners. In fact, this week we have a group of partners from across the country talking about ecological goods and services here in town and how to rank and do those things. That information is available. I'm sure we'll continue to learn more and be able to better quantify that moving forward, but some of that information is already available.
[Translation]
Senator Gagné: Thank you for your presentation, which I found very interesting and instructive. Congratulations on the work you do!
[English]
I would like to come back to the Revolving Land Conservation Program. I was wondering if you could comment on the percentage of farmland acquired by your organization that goes back to the producer, and do you track what happens after you sell the land?
Mr. Stephens: One point I should make is that historically, our model was that we bought the land, kept it forever and managed it. We recognized there were a number of challenges to that. First, it's costly to maintain it, and we quickly realized that we couldn't impact the acres across the landscape to have a meaningful impact on biodiversity and the ecological goods and services we talked about, so we shifted, and the board policy currently is that unless there is a funding requirement or other requirement, all of the land we purchase will be revolved and resold. We have been doing that for about three years.
The properties we buy will be sold back into private ownership. At times, there are funding partners — maybe provincial governments — that want us or someone to hold the land so there is public access and things like that, but if there are no restrictions like that, all of the land is resold back into private ownership. Those numbers we gave in the testimony were where we are at in the process. It typically takes a couple of years to do the restorations and get those complete so it is ready to be resold, but any land that enters into revolving land will ultimately end up back in private ownership.
Senator Gagné: Does it go back to the agricultural community?
Mr. Stephens: Yes. It would be. Even land that we own and hold is leased out to local producers for hay or grazing. It continues to be in agricultural production.
Senator Gagné: I have another question pertaining to your donation program. I notice on your website that you do accept land donations.
Mr. Stephens: We do.
Senator Gagné: Is that program successful?
Mr. Stephens: We have had some interest in that across the country. There are individual landowners whose values match with ours and they see that as a legacy. They want to see the land protected and remain in its natural state.
When we get approached with those, we have to make sure they fall within our priority areas and have the high biodiversity values we would be interested in. We don't accept every one that comes to us, but if they fit our mandate, we accept them. Many times with those donations, they may ask us to hold it forever and not resell it because they want the values protected and they want public access. It's fairly small scale. We may have a couple hundred acres every other year that might be donated. It's not very large.
Senator Gold: Your last answer probably made my question less relevant, but it is under the heading of the law of unintended consequences. The work you do is fundamentally important and I subscribe to it 100 per cent.
Could you comment on the following hypothetical scenario, even if it has not happened often: A landowner holds land that is zoned agricultural and there are wetlands on it. If he or she wishes to get it rezoned for major residential development on the outskirts of a major city, they approach you to donate the wetlands part, they get some tax break and tax credit, and then turn to the municipality or regional authority and propose their development, which always requires some green space and buffer. The wetlands become the green base and the buffer, the agricultural land then becomes more likely — because it's never easy — to get rezoned. And the agricultural land becomes condos, office buildings and industrial parks. We preserve wetland, but you may have inadvertently and unintentionally assisted in the transformation of agricultural land to pavement. Do you have any concerns with that scenario? Is that a realistic scenario or am I worrying too much?
Mr. Stephens: I would say that if the intention was to develop it, we typically would view those wetlands as having lesser biodiversity value.
Now, we do have a group that does some fee-for-service work to provide ecological services and restorations in urban settings. I would say it's not the core of our mandate, but they do provide that to development so the ponds that catch storm water runoff are done ecologically and are lower maintenance. We are involved in those, but we typically wouldn't protect the wetlands if development were going to happen just because, with the housing development there, the biodiversity value would be less because of all of the activity. It's not something that we'd look to be engaged in, I don't think.
Mr. Gloutney: We share your concern. I think it's as simple as that. The impact on the land around cities is dramatic, and it's impacting all of the land. The next crop seems to be houses. We need to look at what that means and how we are going to respond as a society to that changing pressure on the landscape. How do we find and strike the balance that makes sense for urban development and expansion and economic growth, but recognizing that that expansion is going onto some of the most valuable lands that exist in Canada.
Mr. Brennan: Those are issues that are happening across the country but particularly in the east where you have the greenbelt ring that goes around southern Ontario, which was intended to hem the development into the GTA. What we've noticed over the last 10 or 15 years is that the development has actually leapfrogged over on top, past the greenbelt area. In areas that we have previously worked fairly extensively, that are priority areas for us, we are seeing more and more of the type of thing that you talked about. So it is definitely a problem.
Senator Pratte: To be really on the topic of our work, you've been in the field for a very long time. What, in your view, are the major factors in the increase in value of farmland and wetlands with farmland and the loss of farmland over the recent years, especially the increase in prices? Certainly your work is well-intentioned, but some witnesses have said that you are part of the problem, as you know. So are you part of the problem? But, first of all, I would like to hear you on the major factors explaining the increase in prices.
Mr. Brennan: I think that's a very good question. It's all contingent on the current activity in the market. Ten or fifteen years ago, it was foreign investors coming in and bidding on farmland. Farmland is extremely expensive in Europe, for example, and there was quite a bit of interest. I originally worked in the real estate sector. There was tremendous interest from foreign investors to buy farmland, and, consequently, there was more demand in the market.
As for other factors, commodity prices are at record highs and have been for some time. It's putting more pressure on the land. As far as conservation impacts are concerned, we impact about 0.3 per cent of the agricultural land base in Canada. We own about 0.3 per cent of the agricultural land base in Canada. I think those numbers speak for themselves.
Senator Pratte: Could you have some impact locally?
Mr. Brennan: Sure. In targeted priority areas where there is very high waterfowl value, where we want to focus our efforts, there is no doubt that we could have an impact in small areas, but in the aggregate, I think it's fair to say that we're not a significant impact by any stretch of the imagination.
Mr. Stephens: I would just add that, with respect to the price, I don't think we are affecting the price. On average, we looked at how many properties we would tender a bid on when they are put up for tender publicly. It's about 30 per cent of the time that we are successful in those. Many of those are when producers come to us and have an interest in selling directly to us. When we go through a process that is unsolicited, it's about 9 per cent of the time that we are successful with our bid. It's driven by the policies that we have. We have to base our prices on appraised value. Appraisals are always trailing the market a bit. The idea that we are escalating prices is not true. It does not seem like that's possible with the scale of purchases that we do and the way that we buy the land.
Senator Pratte: Thank you.
[Translation]
The Chair: With your permission, Senator Mercer, I would have a brief question to put to our group. Let me reassure you, gentlemen, I am not a duck hunter. However I am a salmon fisher. You are nodding, but you are no doubt aware that the salmon rivers in eastern Canada do not necessarily benefit from some of your duck species, which unfortunately feed on parr. Fish farmers make extraordinary efforts to restock salmon rivers. What they see is that it is not the fishers who decimate the salmon rivers, but your ducks.
That said, what type of relationship do you have with the Atlantic salmon protection organisations?
Mr. Gloutney: This is not the first time we have heard that question.
The Chair: I don't doubt it.
Mr. Gloutney: You are correct. Unfortunately ducks eat fish, and they like it. Several studies on duck diets have confirmed that from time to time they eat salmon. However, that is not the major part of their diet, in the sense that they do not eat only salmon and trout; they mostly eat very small fish.
We cooperate with the Atlantic Salmon Federation because we think it is important to protect wetlands and salmon. We focus on habitat conservation to maintain the quality of rivers.
The Chair: Happily, American eagles right the balance, in that they sometimes eat your ducks.
Mr. Gloutney: Precisely.
[English]
Senator Mercer: Gentlemen, I've spent most of my career as a fundraiser for some of Canada's largest charities, and mine is again a fundraising question but more to talk about the market. The fundraising market has always been crowded, and, in conservation, there are really only two major players in the country. Do you work with the other player on identifying something that you can't handle but that they can or vice versa?
Mr. Brennan: Absolutely. I think what you say may have been more true 10 or 15 years ago. There are many players in the conservation area right now. We work collaboratively on a number of fronts with all of the major conservation players in Canada through our work in the Green Budget Coalition. We have been involved with many of the players who have been historically involved in the Hunting and Angling Advisory Panel. These are the largest conservation organizations in Canada and, in some instances, in North America.
We have a positive, synergistic relationship with them. They have different mission objectives than we do. We're very much focused on our wetland conservation work, and they tend to focus on other areas. Some of the other players are very much focused on land acquisition. Our model is more to work with individual landowner partners and to, as Scott has pointed out, limit our acquisition impact for economic reasons. But in policy work, we are quite collaborative on that front.
Senator Mercer: And the tax implications for the municipality is that the land you purchase then gets removed from the tax roll?
Mr. Brennan: No, we get a reduction. We get a preferential conservation environmental tax rate.
Senator Ogilvie: I want to make a very positive comment with regard to Ducks Unlimited. I'm from Nova Scotia. I'm very aware of a number of your activities in Nova Scotia and New Brunswick and the incredible work that you have done to reclaim wetlands within developed areas in Kentville and Nova Scotia, generally. There is a big area right in the middle of the town that was wasting, and it is now one of the most popular sites for walking, family outings and so on. It's right in the middle of the town.
In the agricultural areas, there are sloughs that had simply gone abandoned, unsuitable for fish migration and so on. You have restored activities throughout the Tantramar Marshes and so on, and throughout Nova Scotia and New Brunswick. I think you do exceptional work in these areas of enormous benefit to not only the natural habitat but to us as citizens. Thank you.
Mr. Stephens: Thank you.
Mr. Gloutney: Thank you. We had 4,000 people in Kentville at the pumpkin watch at Miners Marsh.
Senator Ogilvie: As an example.
Senator Plett: I will be quick. I want to make this brief comment. Senator Maltais talked about the ducks not always being friends of the fish. I live close to the mint in Winnipeg, right in the flight path of the ducks, so there are other reasons why some people are not necessarily the friends of the ducks. It's not because of what they eat, but for other reasons.
My question is this: According to Stats Canada, nearly one-third of 19.6 million hectares of Canada's agricultural land base functions as important wildlife habitat. If we were to take all wildlife habitat that would be possible to use for farmland — and clearly it isn't all. Senator Ogilvie talked about swamps and so on and so forth. You can use them for this but you can't use them for farmland — how much more farmland would we be able to have if all forage that we could use for farmland was cleared up? If you don't have the answer, please see if you can get it for us.
Mr. Stephens: Yes.
Senator Plett: I'm happy with that through the clerk. Thank you very much.
Mr. Brennan: I think we would need to have a discussion about that. I don't have an answer for you off the top of my head.
Senator Plett: That's fine. We would like to know how big the problem is. Farmers are saying you're using too much, and you're saying you're not using enough, so if you could see if you can get us a number? Thank you.
[Translation]
The Chair: You can send the information to our clerk when you have it.
Mr. Brennan: Certainly.
[English]
Senator Beyak: I wanted to echo Senator Ogilvie's thanks for all you have done in northwestern Ontario as well. Our riding is on the border of Manitoba, Minnesota and Ontario. You're like gods up there. So thank you very much.
Senator Plett: You have great paintings in all the hotels.
[Translation]
The Chair: Thank you, gentlemen, for your very instructive testimony. We hope that in future ducks will get along better with salmon.
For the next part of our meeting, we will hear from Mr. Wally Johnston, Vice President of Business Development with Bonnefield Financial Inc., and by videoconference from Mr. Tom Eisenhauer, President and Chief Executive Officer.
[English]
Welcome, gentlemen. Mr. Johnston, you have the floor.
Wally Johnston, Vice President, Business Development, Bonnefield Financial Inc.: On behalf of Bonnefield Financial, thank you for having us here at the table. On the screen, we have Mr. Tom Eisenhauer, who is the President of Bonnefield Financial., and Tom will provide our opening address.
Tom Eisenhauer, President and CEO, Bonnefield Financial Inc.: Thank you very much, senators. It's an honour to be with you this morning. I am Tom Eisenhauer, and I am President and CEO of Bonnefield Financial Inc. I apologize for not being able to join you in person this morning. However, as you know, my friend and colleague Wally Johnston is there with you. Wally represents the fifth generation of a farm family from the Ottawa Valley. He is also our Vice- president of Business Development at Bonnefield.
Wally and I, along with our partners at Bonnefield, founded our company back in 2009 out of a sense of frustration. Back in the mid-2000s, one of our sister companies, Manderley Turf Products, which is Canada's largest turf grass farm, found itself in a situation that is familiar to many Canadian farmers. We needed to reduce debt and to find additional capital to grow our business. We tried to do what many non-agricultural businesses do and arrange a sale leaseback. Simply put, we wanted to find an investor willing to buy some of our land and to lease it back to us under a secure, long-term lease so we could use the sale proceeds to reduce our debts and finance Manderley's growth.
As you likely know, sale leasebacks of this sort are common financial arrangements in sectors such as commercial real estate, the hotel industry, manufacturing, airlines; even the Canadian banks themselves sometimes use sale leasebacks to finance their operations. However, to our surprise and great frustration, we could find no investor in this country willing or able to provide sale leaseback financing on farmland, so we decided to form Bonnefield in 2009 to do just that.
Since that time, we have raised over $400 million entirely from Canadian individuals and Canadian pension funds. We have used that capital to arrange sale and sale leaseback transactions with Canadian farm families from British Columbia, Alberta, Saskatchewan, Manitoba, Ontario, New Brunswick and Nova Scotia.
To date, we have helped over 75 Canadian farm families to reduce their debt or to transition their farm business from one generation to another. We have helped young farmers grow their businesses without heavy reliance on debt, and we have provided farmers with long-term, secure access to farmland that they had previously leased from others on a short-term, insecure basis.
In the process, we have so far secured over 80,000 acres of prime Canadian farmland and ensured that it will remain farmland for farming indefinitely, and that it will be monitored, maintained and operated in a sustainable and ecologically responsible manner. In short, we have developed a business model that uses capital from Canadian individuals and Canadian pensioners to support Canadian farm families and to protect Canadian farmland.
Our prime reason for meeting with you is to ask this committee to advocate for responsible, evidence-based regulations that protect our farmland while ensuring that farmers have ample access to the capital they need to operate their business as profitably, including institutional capital.
I would now like to turn to five key points that we would like this Senate committee to consider in its ongoing study.
The first point is this: Farmers, not investors, determine the price of farmland in Canada. This point has been made by previous witnesses who have appeared before your committee, notably J.P. Gervais, Chief Economist of Farm Credit Canada. He pointed out to you that most farmland transactions in Canada are between farmers and that the small number of investor purchases in Canada is not sufficient to drive farmland prices.
As further evidence, consider this: Slide 2 of the exhibits we provided you shows that Statistics Canada, based on farm census survey data, pegs the total value of farmland in Canada at approximately $400 billion. Bonnefield's internal estimates, based on actual land mapping rather than survey results, suggests that the total value is likely much higher than that, perhaps as much as $590 billion. Compare these figures with the total amount of dollars invested by institutional and high net-worth investors in farmland across Canada, likely in the range of $1 billion in total.
By implication, less than 1 quarter of 1 per cent of Canadian farmland is likely owned by investors. It is simply not credible to assert that investor purchases of farmland, which we estimate constitute between a half a percent and 1 per cent of total farmland transactions in any year, could drive prices in a market that may be as large as half a trillion dollars.
I would also reiterate a point made to this committee by Michael Hoffort, CEO of Farm Credit Canada, that farm producers are sometimes willing to pay much higher prices than investors, especially when a plot of land becomes available that is in close proximity or fits well with their existing farm business. A rational investor, on the other hand, should be willing to pay no more for a plot of farmland than the capitalized value of the sustainable rent that that farmland can produce, so contrary to popular opinion, investors, particularly disciplined institutional investors, may actually serve to moderate farmland price increases in some markets.
The second point is this: Recent increases in farmland prices across Canada have, with very few exceptions, been driven by increases in farm profits and are in line with increased profit levels.
Slide 3 of the exhibits we provided you compares the change in average Canadian farmland price per acre, the grey line, with crop revenue per acre, the green line. You can see that farm income has grown dramatically over the last four decades and in the past decade in particular. Indeed, between 2005 and 2015, Canadian farm income more than doubled, from $6.8 billion to $15 billion. You can also see that farmland prices have risen in lockstep with those farm incomes. Indeed, farmland prices have remained generally as affordable today, relative to income, as they were a decade ago.
We agree with Mr. Hoffort from the FCC who told this committee that strong land values are an indicator of the farm sector's financial strength, not a warning signal, nor a threat to farm profitability.
The third point is this: Farming is a capital-intensive business. Canadian farmers need access to a broad range of capital sources, including institutional investors, to finance their business and to remain internationally competitive.
The agriculture sector in Canada is predominantly made up of businesses run by farm families, large and small. Some of these farm families operate very large, sophisticated businesses, but contrary to popular belief, there are very few, if any, corporate conglomerates operating farms in Canada. Canadian farm families, however, find themselves competing against well-capitalized, low-cost foreign conglomerates when they go to sell their products on world markets, and even when they compete against low-cost imports in domestic markets.
To become and remain competitive, Canadian farm families need scale, efficiencies, and most important, access to capital. If there is one area where Canadian farmers are at a significant competitive disadvantage, it is their lack of access to a broad-range of capital from investors. We hear this time and again from our farm partners. Their number one complaint is their inability to access capital.
As you have heard from other presenters, this problem is especially acute for young farmers. We often hear that there are not enough young farmers in Canada. I beg to differ. I think there are lots of young people who want to farm, but they don't want to farm at a small scale, perennially undercapitalized, heavily indebted and financially insecure. Keep in mind that to be optimally efficient, a canola and wheat and lentil farmer in Western Canada probably needs access to 3,000 acres of farmland, maybe more. In Eastern Canada, a young corn and soy farmer likely needs upwards of 1,000 acres or more to optimize a full line of modern farming equipment.
The capital required to establish and operate a profitable farm business is often simply out of reach for many young farmers. As a result, young farmers often leave farms and find employment elsewhere, leaving small towns to the elderly and our farm communities deserted of young, energetic, vibrant business people.
This is why we urge the Senate committee to promote farmland ownership regulations that balance the protection of farmland for farming, but yet encourage new and varying sources of capital to invest in agriculture, especially institutional capital, which can bring the size and scale necessary to fill such a large void for such a large industry.
Canada falls well behind countries like the U.S., Australia and most South American and European countries in the depth and range of financing vehicles available to our farmers. Farm Credit Canada and the chartered banks do an outstanding job of lending to Canadian farmers, but sale-leaseback businesses like Bonnefield play an important role to providing an alternative to debt. Private equity players are also needed, as are farm sub-debt providers, revenue streaming companies, equipment leasing companies, co-operatives and other innovative capital providers. In short, farmers should have the same access to capital, and investor capital in particular, that other Canadian industries have.
The fourth point I would like to make is by far the most important. The biggest threat to Canadian farmland is not who owns it. The biggest threats are urbanization, rezoning and the conversion of farmland for real estate development, quarries and industrial uses. Indeed, our largest transaction to date was our purchase in 2013 of a large tract of mostly Class 1 farmland located in Dufferin County, Ontario. We purchased it from a U.S.-based hedge fund that wanted to convert it into what would have become North America's largest aggregate quarry. I am proud to say that three years after Bonnefield purchased this land, with institutional capital, by the way, it is now being sustainably farmed by six local farm families. Some 30 farm buildings and 24 houses that were mostly vacant and in various states of demolition and depopulation have been repaired, sold and now house families who contribute to the local tax base and a vibrant and growing local community.
We have been proud to support and work with local groups such as Food & Water First and the North Dufferin Agricultural and Community Taskforce, which are examples of grassroots community groups that have been open to institutional investment as a means of protecting and enhancing their local farm communities and who present a fantastic model for how to do it right for Canadian farm communities faced with similar threats to their farmland and water resources.
Please note that Statistics Canada reports that 2.4 million acres, which is almost 3 per cent of all the arable land in Canada, was lost to urbanization in the single decade between 2001 and 2011. Think about that for a moment. That is a staggering statistic that dwarves all other threats to Canadian farmland.
Keep in mind, however, that it is not just institutional and foreign investors who threaten farmland with conversion and redevelopment. There is an old adage that farmers are cash poor but asset rich. As Professor David Connell from the University of Northern British Columbia told this committee in November, farmers sometimes have a perverse incentive, especially those who have made the decision to retire or who live on the fringe of urban centres, to seek rezoning of their land and sell it to developers. This is a problem that sale-leaseback financing of the type that Bonnefield provides can help solve. With a sale-leaseback, a farm family can access some of the equity locked up in their land without the need to sell it to a developer.
However, we believe that preserving and protecting our farmland from the very real threats of urbanization and rezoning would be remarkably simple. It requires little if any new regulation. It requires no change in farmland ownership regimes. It does not require Senate committees to delve deeply into agricultural policies. It is as simple as enforcing existing zoning regulations already on the books of every municipality in every farming region across Canada.
We believe that rezoning high-quality farmland for non-agricultural use should be expressly prohibited everywhere in Canada. Rezoning applications for farmland should not be the purview of unelected officials, as with the OMB here in Ontario, or elected municipal officials who often favour rezoning as a means of increasing their local tax base. We recommend that rezoning applications for high-quality farmland should not be permitted, except with the agreement of elected government officials at the highest level, and only in exceptional circumstances deemed to be in the national interest, full stop.
The last point I would like to make is a brief one. Foreign ownership of farmland is not a widespread problem in Canada. As other presenters have repeatedly told this committee, there are no reliable data on foreign ownership of farmland in this country. We need to begin collecting and monitoring such data. What evidence there is suggests a low level of foreign ownership in most farming regions across Canada.
We have included in your materials an article by Professor Brady Deaton Jr. that reports on a survey conducted by the University of Guelph which estimated that non-Canadian ownership of farmland in Ontario, where farmland ownership is not restricted, at approximately 1 per cent. Our experience at Bonnefield supports this conclusion. In the past six years, we have examined many hundreds, probably thousands, of farmland transactions closely, and these are transactions undertaken by both ourselves and by others. Yet, we are aware of only a handful of transactions that involved a non-Canadian purchaser. In these few cases, it was typically a non-Canadian moving to Canada to become a farmer.
We are aware of, and deplore, isolated purchases of farmland by non-Canadians in places like the lower mainland of B.C. where farmland has been taken out of production and where the owners benefit from tax breaks intended for bona fide farmers, but these examples are not reflective of a widespread problem across the Canadian farm sector and could be easily addressed through local zoning and tax regulations.
In our view, the bigger and better question to ask is this: Does it really matter who owns farmland in this country? Unlike other natural resources, like our oil, water and minerals, farmland can't be exported. It can't be dug up and removed from Canada. And from a farmer's perspective, if he or she can obtain better terms from non-Canadian investors than from Canadian investors, why shouldn't they be allowed to access foreign capital just like every other Canadian business owner can?
My bigger concern is not who owns Canadian farmland, but who farms Canadian farmland. We believe that Canadian farmers should farm Canadian farmland, and we have put our money where our mouth is. One hundred per cent of the capital we have raised at Bonnefield has gone to supporting Canadian farm families.
We respect the decisions of provinces, like Saskatchewan and Manitoba, to restrict farmland ownership to Canadian individuals and landed residents. However, we view these regulations as well-intended but not evidence- based. They are short-sighted because they inadvertently restrict the flow of capital to Canadian farmers, therefore making them less competitive. They force farmers in those provinces to rely more heavily on debt than they otherwise would, and you can see that from farm financial statistics. They reduce the value of their farmland below what it would be in a free and open market and thereby destroy the wealth and nest eggs of many farm families.
If we truly believe that farmland must be protected from foreign ownership — something that we do not see as a problem — there are far better ways of regulating it than by restricting the flow of capital to the sector. Why not follow the example of other industries that Canadians have determined to be nationally sensitive, like our broadcast and banking industries? In these cases, we have devised ownership regulations that ensure these sectors remain majority controlled by Canadians without unduly restricting investment from institutions and non-Canadians. Why not, for example, follow the precedent set in Alberta, which has adopted regulations that require farmland to be at least 51 per cent owned by Canadians, including Canadian institutions, by the way, and more importantly, farmed by Canadian farmers.
So to wrap it up, we recommend that this Senate committee advocate for responsible, evidence-based regulation of farmland ownership in Canada — regulation that protects farmland from the larger threats posed by urbanization and rezoning. But in advocating for responsible regulation, we ask this committee to consider measures that will not prevent Canadian farmers from accessing the capital they desperately need, including institutional capital, to compete against global competitors in a capital-intensive industry.
Thank you very much for your time and attention. Wally and I would be happy to answer any questions that you have.
The Chair: Thank you very much, Mr. Eisenhauer.
[Translation]
We have 30 minutes left, and there are 13 senators here. We are going to have to be disciplined so that everyone can ask questions. We have to limit ourselves to one-minute questions and two-minute answers. Otherwise, I will have to interrupt you.
You have touched on something that is central to our work, and I am sure that all of our senators have questions for you.
[English]
Senator Mercer: Thank you for being here, gentlemen. We appreciate your time.
One of the basic questions would be: You have described a new style of investing in agriculture, and it's an interesting one, but how profitable is Bonnefield?
Mr. Eisenhauer: We are profitable today. One of the keys to attracting investors to continue to support Canadian farmers is that we are going to have to make it profitable. Investor capital, in my experience, is not charitable. The returns that we've generated for farmers would be in keeping with, say, long-term, low-risk government bond returns. These are not high venture-capital returns. The returns that we promote and advocate are modest returns but sort of steady bond-like returns.
Senator Mercer: Are your investments on the same scale as major investments would happen in industry, where risk would be higher?
Mr. Eisenhauer: It tends to be very low risk. It would be analogous to, say, commercial real estate. We don't operate the farms that we buy. As I said, we support Canadian farm families in their operations and helping them to finance their operations through sale leasebacks with us. We take title and ownership of the land, but the operations are still conducted by the farm families.
Senator Mercer: My final question is this: In Canadian agriculture, succession planning is a major issue. How does that play into the leaseback situation if I am a farmer leasing back the land from you and want to retire. Normally, I may want to pass it on to my son who wants to farm. How does that work?
Mr. Eisenhauer: I think that, actually, Wally Johnston, who is with you there in Ottawa, is probably best placed to answer that question because that's what he spends a lot of his time doing.
Mr. Johnston: Thank you for the question. We tend to look at our value proposition by way of sale leaseback to be not to the exclusion of debt financing to retire mom and dad. Mom and dad certainly need cash to retire on and sufficient amounts to carry them through their day.
The fact of the matter is that there are many farm families in this country who, for reasons of their own, are not particularly comfortable with taking on more debt to encumber their balance sheet in the marketplace. We feel that our sale leaseback model will, of course, provide mom and dad with cash to retire on, and then they have the ability to crystallize capital gains exemptions, to make further investments, whatever they choose to do. That's an alternative to debt financing to put cash into mom and dad's hands to retire on. Then our long-term relationship with the next generation provides that long-term secure access to the land to farm under. The difference is, of course, that they don't have the deed to the land, but they do have the long-term secure access to it to carry on with their business of farming.
At the end of the day, what we find is that farm families who choose to use our model to implement intergenerational transfers find that that ability to preserve capital for the next generation makes the likelihood of success of the next generation all that much higher.
We look at ourselves as an alternative, not to the exclusion of.
Senator Plett: Thank you, Mr. Eisenhauer, for a great presentation. Governments today need to protect farmland, they need to protect wetlands, they need to create urbanization, and they need to feed 9 billion people by 2050. That, to me, isn't all going to be possible. Somewhere, we're going to have to give up on some of that.
I have two questions. You say that you buy the farmland and lease it back, but there are conditions or guarantees that it will stay farmland indefinitely. How do you guarantee that it will stay farmland indefinitely?
Mr. Eisenhauer: Our model, if it works — there is always risk to this, no question. This is one of the attractions, actually, of using institutional capital, which has a long time horizon. This land will be maintained. The investors may come and go, but the land will be preserved as farmland and managed as farmland indefinitely.
Senator Plett: It's not done by legislation.
Mr. Eisenhauer: No, no. It's part of the business model. Is there a risk that that business model could change? Of course, but we certainly have built the business using long-term investor capital to ensure that it remains farmland for farming, as we said.
Senator Plett: And the farmers wouldn't be able to lease the land any more if the investor said that selling it for condos may be the better return on investment. That could happen. But thank you.
On your point number four talking about the piece of land that you bought in Dufferin county, was there another quarry purchased by this company, or are we short one quarry in the county of Dufferin?
Mr. Eisenhauer: They did not invest in another quarry, to my knowledge, but there are certainly several other quarries that are being developed in that area. To be clear, we don't have a complaint with quarry development. We have a complaint with quarry development that occurs on class 1 farmland. There are a lot of other potential quarries that can take place on marginal farmland or on other lands that are not as rare and valuable for the production of high quality food in Canada. Keep in mind that class 1 farmland constitutes less than 5 per cent of all of the arable land in Canada. That's the best of the best of the best. The old adage goes, "They are not making any more of it, but we sure are doing a horrible job of protecting it.'' Sadly, most of that class 1 farmland in Canada is within an hour's drive of the GTA, so it is under enormous pressure from development and industrial uses like quarries.
Senator Plett: I certainly agree with you, sir, and thank you for a great presentation and a great business model.
Senator Oh: Mr. Eisenhauer, I found your presentation very informative. One of the points you mentioned is that the biggest threat to Canadian farmland is not who owns it. The biggest threats are urbanization and rezoning and the conversion of farmland for real estate development, et cetera. Are you saying that foreign ownership of farmland is not a problem as long as the foreign owners are actually farming it?
Mr. Eisenhauer: They are either farming it or taking care of it in a responsible, environmentally sustainable way. As I said in my opening comments, we don't have evidence that foreign ownership is a problem in Canada. Again, there is not good data to suggest one way or the other, but what evidence there is suggests that foreign ownership is not a significant problem in Canada.
To the extent of foreign ownership, institutional ownership, individual ownership, farmer ownership, what we need to do is to protect quality farmland in this country from the threats that I identified. It doesn't really matter to me who owns it as long as the owner is caring for it according to that same set of responsible practices that are best practice, I think, for the use of farmland anywhere. That would be my personal view.
Senator Pratte: Mr. Eisenhauer and Mr. Johnston, you mention in your brief that Canada falls well behind many countries in the depth and range of financing vehicles available to farmers. Would you care to elaborate on that?
Mr. Eisenhauer: Certainly.
I think this could be almost a cultural thing with Canada. We tend to have a very concentrated banking system, which has been a very good thing for us at times. We have a very concentrated institutional investor community, again, which can be a sign of strength but is not necessarily a sign of innovation. There are not lot of investors. Certainly, with institutional investment, there is far, far less, not just in farmland but in agriculture generally, in Canada than there is in virtually every other of the major exporting communities or countries around the world.
We are the largest farmland sale leaseback company in Canada, and we are only 400 million in size, which is not big in a market that's perhaps $600 billion. In the United States, there would be many Bonnefields that probably have many billions of dollars under management. There are sub-debt providers, and there are very active private equity investors in agriculture. We only have a few here in Canada. There are several revenue-streaming companies; I only know of one in Canada.
It is partly the size of our capital markets, which are not as deep as elsewhere, and maybe this is something that the committee could reflect on. It may be a cultural thing, where in Canada we have traditionally thought of agricultural policy predominantly as social policy, whereas many of our international competitors treat agricultural policy as economic policy and a growth engine for their economy.
We are seeing that shift in Canada, for sure. You just have to tour some of these progressive farm family facilities that we see every day to see how sophisticated the farm sector in Canada is becoming, but in terms of the breadth and range of capital sources open to Canadian farmers, it is not even close to what their international competitors are able to access.
[Translation]
Senator Dagenais: My question is addressed to Mr. Eisenhauer. In light of your experience, what would be your projections as to the appreciation of agricultural lands over the next 10 years, and in what regions should we expect to see the greatest increase in farmlands?
[English]
Mr. Eisenhauer: In answering that question, I'll look back over 60 years of data we have collected in Canada, and over 60 years, farmland has appreciated, on average, 7 per cent per year. Why would that be? What is behind that? Clearly, as I said in my presentation, it's tied to farm incomes. What has driven those farm incomes? It's been increases in crop yields, which have approximated, over the last 60 years, 2 or 3 per cent a year. It has been increased farm efficiency through better methodologies, equipment and seed genetics. That's another 2 to 3 per cent. Then there has probably been 2 to 3 per cent general inflation to add up to that 7 per cent.
I can look forward with some confidence and say that farmland prices will continue to increase at the rate of farm income growth in Canada, unless something crazy goes on. If you look back at history, that's been the case, and there is no reason to think that is not going to happen going forward.
To answer the second part of your question, where is that likely to be the greatest? It's likely to be the greatest on that farmland that sees the greatest yield increases and greatest efficiency gains. That will be class 1 farmland. It will be the highest-quality farmland. It will be farmland that may be more marginal but through investments in things like tile drainage or irrigation or other efficiency improvements will see productivity gains in the underlying farmland asset.
[Translation]
Senator Dagenais: When agricultural lands are being purchased, I expect there's a certain competition among buyers or vendors. Could you tell us about the reaction of vendors and the competition that exists when agricultural lands are being sold? I get the impression that there is competition among the sellers, and this is my question: how do the vendors react in the context of that competition?
[English]
Mr. Eisenhauer: Well, if you are just selling and getting out of the farm business, the more competition the better because the higher the price will be. Keep in mind that Bonnefield's business model is to work with the local farm family generally to do a sale leaseback, or the type of transaction which doesn't occur. The alternative to doing something with Bonnefield might be to sell the farmland and get out of business, in which case you are looking for the highest price.
In the transactions we do, very rarely do we see competition because there are not many people doing what we are doing. In a typical farmland transaction, where you might see a real estate listing for 500 acres for sale in southern Saskatchewan, there is usually intense competition, and there is no question that for good-quality farmland there is intense competition between farmers looking for good-quality farmland. There is the old adage that the farmers pay for good-quality farmland once and for bad-quality farmland every year through lost efficiencies and all sorts of issues. There is no question that farmers always look for the best land they can find.
Senator Tardif: Thank you for a very informative presentation. What is your commitment to the communities in which you invest, and what is your view of social responsibility in your business plan?
Mr. Eisenhauer: Well, thank you for asking. In developing the business model that I spoke about in our presentation, we happened across a very nice coincidence where the investment objectives we were trying to capture marry perfectly with good ESG principles.
We are a signatory to the United Nations' Principles for Responsible Investment. I believe we were the first agricultural investor in Canada to do so. But it's not about credentials, because we really feel that maximizing the value of the farmland is all about maximizing the productivity of the farmland. To maximize the productivity, you need to be very careful and monitor closely the sustainable practices that are taking place on that land every year.
Every year, the farmers provide us with all the data related to their operations and how it might impact that land, water course management, tillage practices, fertilizer practices, you name it. We monitor that very carefully each year. We sit down with the farmer and say, look, can we improve a little here or change practices here? Maybe if we do it this way, we can head off a problem down the road. It's a win-win situation, because the farmers benefit from that because they get better yields and a more profitable farm. We, as the owners and stewards of that land, benefit because we are trying to protect and enhance the underlying productive capacity of that soil. That's at the soil level.
At the community level, the example that I gave of the transaction in Dufferin is a very good one. This wasn't obvious to us when we started this business, but one of the things we learned is you have to be a good neighbour. Probably one of the biggest barriers we have to overcome when we are dealing with farm families and local farm communities is that these guys are from Ottawa and Toronto and who are they? So we try to go out of our way to help support the local community, and we do that in any number of ways, by making sure we appear in that community and making sure our intentions are known. We never put ourselves first, if we can. It's the farmer and local farm family who we try to support, and if we can find ways to help in that local community, we do.
Senator Beyak: My question was along the same lines as Senator Tardif's about local community. My riding is farmers, fishermen, minerals, natural resources, small-town grassroots Canada, but they are very informed on the world stage on what is going on with food production. Senator Mercer and Senator Plett brought up the food shortages and the 9 billion people, but my grassroots farmers tell me that from 1961 to 2013, although the world population doubled, we are now producing twice as much food, wasting a third of it, and most of the reason people are starving is political. Could you comment on the production side of that?
Mr. Eisenhauer: First of all, your observations are correct. I was born in 1961, so for the vast majority of my life, and I suppose many of the senators as well, there was largely declining crop prices as a result of the green revolution which saw crop yields around the world rise dramatically, with better seed genetics, fertilizers and equipment. That produced more food than the world needed to feed itself. That supply and demand equation changed in the early 2000s, where for the first time, in the early 2000s, the world actually experienced systemic challenges in growing enough food to feed itself.
If you look at crop price charts beginning in the early 2000s, we have had sometimes dramatic but steady increases in crop prices. That's a function of two primary things: the 9 billion people we all hear about, but also the changing appetites in the Third World, particularly in China and Asia and elsewhere, moving their diet from plant-based to more animal proteins. Animal proteins require a far higher input of grains. The figures I heard for pork, for example, is that it takes five calories of grains required to produce one calorie of pork. For beef, it is one to seven. At the same time you've had the big growth in demand from the population, you've also had enormous growth demands from shifting diets around the world.
This is where Canadian farmers have done a fantastic job of supplying that world market, particularly with lentils in Western Canada. There are a number of success stories where Canada has stepped in to supply that world demand, and we see, over the next 20 years, an incredibly bright outlook for Canadian agriculture. There will be difficulties. Farming is a difficult business but, on the whole, we see an incredibly bright future for Canadian farmers if they can get access to the appropriate capital they need to finance their businesses.
Mr. Johnston: I'm going to suggest that in the early 1980s when my father-in-law was a grain farmer here in the Ottawa Valley, if farmers were able to generate two or two and half tonnes of corn per acre, it was a very successful year. In a relatively short period of time, thanks in large part to seed genetics but also thanks to the talent and skill of our Canadian farm operators, that same acre of land which may have generated two tonnes per acre of corn in the early 1980s, now, if our farmers don't realize 4.5 to 5 tonnes per acre, they are not satisfied and it is a poor year. The skills, talents and abilities of our local Canadian farm operators go a long way to supporting what Tom's message was.
Senator Woo: Thank you for your presentation. You make a very compelling case that we should be less interested in the colour of the money that's invested than in farms that are used for the purposes that the land was intended for. And yet, your fund is made up of investors entirely from Canada. Do you have an interest in raising funds overseas? That's the first part of the question. Second, could you say something about the appetite for international institutional investors to invest in farmland in Canada, wealth funds, pension funds and so on?
Mr. Eisenhauer: I am happy to comment on that. This is a subject that it's fair to say we have agonized over and continue to do so since we founded our company almost a decade ago.
One of the challenges we've had in raising enough capital to support the Canadian farm families that we have been able to support is that there is a much better awareness amongst foreign investors of the opportunities in agriculture and the challenges that places like China, the U.S. and elsewhere are going to have.
A big part of what we have done over the last decade is trying to educate not only Canadian individual investors but Canadian institutional investors as well as to the huge challenge the world will continue to have in producing enough food for itself, and the incredible advantages that we here in Canada have in filling that void. It seems to us to be a tremendous opportunity. I spoke earlier about the conservatism of Canadian institutions, and they don't rush into things. It has been a long road to try and get them on side.
In terms of your question about having an interest in raising capital from non-Canadians, we have been approached more times that I can say. It probably goes without saying that if we raised money from non-Canadians, we would be much larger than we are today. There is no question.
Senator Woo: So why not?
Mr. Eisenhauer: Why have we not done so to date? It's twofold. We are sensitive to the Canadian sensitivities that this Senate committee is looking into. We don't want to go into small town Canada and upset anyone. We wrapped ourselves in the Canadian flag to a certain extent, at the cost of our growth. That's probably the main reason, to be frank.
One of the questions that Canadian farm families often ask us is: Where is this money coming from? We think it's a virtue to say it's coming from Canadian pensioners and individuals. We would love it if Canadian institutions stepped up in a major way to support Canadian farm families going forward, but it's an open question that we agonize over every day.
Senator Gold: Thank you for your presentation. It was very interesting. You are clearly well-prepared for your appearance today. You've read the transcripts of previous witnesses before us and you've studied the questions that the Senate committee members have posed to you.
I have a two-part question: What are you most concerned about seeing, or what would you wish not to see in our final report? And what positive recommendations would you like to see in the final report if you were the drafters?
Mr. Eisenhauer: Give me the pen.
As I said earlier, we prefer to work quietly with Canadian farm families than to appear in front of Senate committees through web links. We understand why, but we are concerned about the level of emotion that is often caught up in discussions of agriculture, particularly farmland in Canada. That's why I've used the words many times with you this morning, "evidence based.'' There is lots of room for improvements in agricultural rules and regulations, and ownership rules and regulation in this country, but we are concerned about what we have seen in Saskatchewan, Manitoba and elsewhere. But we get it. We understand the sensitivities that politicians in those provinces were responding to, but you have to be careful that well-intentioned regulation doesn't have perverse effects, which it clearly has had in those provinces. We can show, with firm data, how farmland ownership regulations in Saskatchewan in particular have increased reliance on debt by farmers, capped the net worth of farmers through decreasing the value of land, et cetera.
The type of capital we provide is not for everybody. It's not for every Canadian farmer and it's not meant to be, but why would you restrict a young, Canadian progressive farmer who wants to access institutional capital from accessing it just so we can all feel better that bad institutions don't own farmland in this country? I think we have to be very careful to find a balance between the very real sensitivities in small-town Canada and the economic realities of an enormously capital intensive business.
This is a long-winded way of saying, be careful of any recommendations that have some deleterious economic consequences, well-intentioned and unintentional consequences. I have to confess Mr. Johnston is a fifth generation farmer. I've only come to this business in the last decade. My background is in finance, but I grew up in a small fishing community in Nova Scotia. Believe me, I know the consequences of well-intentioned but misinformed regulation and how it has devastated the fishing communities in Nova Scotia. We need to find a balance between ecological responsibility and protecting our farmland and the imperative of providing capital so that our farm sector remains competitive into the future.
The Chair: Thank you very much.
[Translation]
You know, we could compare our report to this dollar coin: it has two sides. There will certainly be positive elements derived from your statements, and we thank you for them sincerely. Your testimony has been helpful. You will find some of the fundamental things you mentioned in our report. However, you may have to accept that there will be another point of view that will be brought forward in that report.
That said, we wish you better health for your next appearance. I also want to thank you, Mr. Johnston, for having been here with us.
(The committee adjourned.)