2024 Canada, Ontario, and Greater Toronto Farmland Annual Market Report
In recent years, with the noticeable rise in Canadian farmland prices, coupled with no foreign buyer ban and no foreign buyer taxes, farmland has become highly favored by overseas buyers. It’s time for another update to keep up with the market and share some insights.
Let’s first take a look at the ’30-Year Price Trends of Farmland Across Canadian Provinces.’ Over the past 30 years, farmland prices in Canada have steadily risen. Breaking it down by province, Ontario leads the pack, with farmland prices reaching an average of CAD 19,685 per acre in 2023, almost twice the price of farmland in British Columbia, which has the second highest prices. This undoubtedly reflects Ontario’s status as the agricultural powerhouse of Canada.
We can further present the average farmland prices in a heatmap, making Ontario's geographical and climatic advantages even more evident at a glance. Ontario boasts fertile land, distinct seasons, balanced rainfall and sunlight, and experiences minimal geological and natural disasters. Moreover, it uniquely enjoys access to the world’s largest freshwater lake system. Four of the five Great Lakes have half their surface area within Ontario. All of this explains why farmland in Ontario has both higher productivity and value compared to other provinces in Canada.
Notably, since 2021, there has been a turning point where Canadian farmland prices began to accelerate. The nationwide average farmland price increased by 12% in 2023, significantly outpacing the already sky-high inflation rate. In Ontario, the growth was even more remarkable, with price increases of 22% in 2021 and 19% in 2022. While the growth rate slowed in 2023, it still reached 12%. This means that over three years, prices have surged by 63%!
If we create a separate chart showing the annual growth rate of Canadian farmland prices, the ability of farmland to preserve and appreciate in value over the past 30 years becomes undeniably clear. The compound annual growth rate of farmland prices across Canada over the last 30 years is 8.1%, while Ontario and Quebec have seen even higher annualized growth rates of 8.8% and 9.6%, respectively. In comparison, the global annual inflation rate over this period has been 4.2%. Therefore, investing in farmland in Ontario, Canada, is a sure way to outpace inflation and outperform most fixed-income investment products.
Focusing on farmland in Ontario, the vast northern regions of the province have the lowest prices, with a median price of CAD 4,400 per acre. Meanwhile, the southern, western, and Horseshoe regions of Ontario, which are rich in water resources, well-connected by transportation, and close to end markets, have the highest prices, with a median of CAD 28,900 per acre. We also note that there is a significant variation between the lowest and highest farmland prices in each region, indicating that individual farmland properties vary greatly and cannot be generalized.
Unfortunately, investing in farmland is not as straightforward as stock market index funds, which offer simple investment options. Each case requires individual analysis, valuation, and transactions. Generally speaking, the most common method for farmland valuation is discounting the future net cash flows of its output. Farmland in agricultural areas far from major cities, where the impact of urban development and recreational investments is minimal, tends to reflect its true agricultural value in its market price. The chart below uses farmland prices and yields in various counties around the London area in Southwestern Ontario as an example, listing local farmland prices.
So, the question arises: can such average price trends be applied broadly to other regions of Ontario, especially farmland within the Greater Toronto Horseshoe region? The answer is no. While all investment assets are ultimately discounted future cash flows, farmland near large cities involves more complex valuation. The market participants and investment motives are much more diverse, so it cannot be easily generalized.
The valuation of farmland in Canada is also influenced by various macro factors that we should be aware of. The farmland area in each province is slowly decreasing due to the impact of urbanization.
Taking the Greater Toronto Horseshoe region as an example, nearly 800,000 acres of farmland were converted into residential land over a period of 40 years, from 1971 to 2011.
At the same time, Canadian farms are trending towards greater concentration and scale. As a result, although the total number of farms is declining, the average farm size is increasing. This indicates that farms are increasingly benefiting from economies of scale, with higher productivity per unit area of farmland.
The price of farmland is the result of gaming between buyers and sellers, based on the discounted future cash flows. The participants in this market include small and large farm owners as well as investors. Understanding these market participants is a crucial aspect of farmland valuation. Large farmers, through continuous mergers and the sharing of fixed costs, make agriculture more intensive, scaled, and efficient. Small family farms increasingly struggle to compete with large farms and are often left without successors, leading many small farms to be acquired by nearby large farms or investors.
Speaking of investors, one notable example is Bill Gates, one of the largest farmland owners in the United States. His investment in farmland indicates that wealth created in the virtual world is most securely stored in physical land and become “old money”, which retains value over time. Major farmland investors also include investment funds and even retirement funds.
Meanwhile, near large cities, there is another active participant: small to medium investors from urban areas. These investors build or upgrade residential properties on their farmland and diversify operations based on the characteristics and advantages of each piece of land. Although achieving positive cash flow requires sophisticated investment and management, the appreciation of land and the substantial financial resources of affluent city investors still make farmland investment a safe and reasonable choice.
Of course, no two pieces of farmland are exactly the same. Valuing farmland relies heavily on experience and insight. This is especially true for farmland near cities. If pure farmland is like gold, farmland near cities is akin to precious jade. The value of gold fluctuates with the market, but jade's value is more subjective. If correctly valued, jade's potential is much higher than gold’s. This is perhaps the allure of farmland investment.
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