As farmers retire, soaring land values prompt rethink of succession planning

boomer-farmerxxrb3+copyThis is part of The Globe and Mail’s week-long series on baby boomers and how their spending, investing, health and lifestyle decisions could affect Canada’s economy in the next fifteen years. Is Canada ready for the boom?

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Gary Stanford figures he’ll always be a farmer, but the 59-year-old grain grower knows he can’t work 5,000 acres forever. In about 10 years, two of his sons, ages 33 and 35, will take over his farm in southern Alberta.

But Mr. Stanford, president of the Grain Growers of Canada, knows he’s unusual among many farmers of his generation. Many don’t have sons or daughters who want to take over. And with farmland values at a record high, many others can’t afford to buy out their parents.

According to the Census of Agriculture, almost half of all farmers were 55 or older in 2011, a greater percentage than the 33 per cent average for the self-employed. The growing number of older farmers packing it in is accelerating the pace of change in agriculture, spurring the shift to massive farms that rely on technology and scale to make money in a low-margin game.

Tom Eisenhauer of farmland investor Bonnefield Inc. pegs the value of land due to change hands at $53-billion, as aging farmers sell their land, or pass it down to their children.

Mr. Stanford has seen this play out along the 16-kilometre dirt road next to his farm – of the 11 farmers who once lived and worked there, he is the only one left. The others have retired and moved to town or died. The land is rented to other farmers, including Mr. Stanford. The homes are lived in by non-farmers.

Bonnefield is a Toronto-based farmland firm that specializes in buying and leasing farmland to growers who can’t or don’t want to go deep into debt buying out their family farm.

About half of the farmers Mr. Eisenhauer works with are grappling with succession and retirement. They have a son or daughter who wants to take over the business but can’t afford to buy out their parent due to soaring land values and the higher amounts of capital it takes to operate a large farm. A typical Bonnefield transaction would see the firm buy parts of the farm from the retiring parents and lease it to the children, while providing financing to help them lease more land to achieve greater economies of scale and profits.

“There’s lots of young farmers in this country but not many that want to farm like their parents did,” said Mr. Eisenhauer. “They want to run a business, they want to run it at a larger scale. They want to use the latest and great technology, and they want a lifestyle like the rest of us do. But that requires a lot of capital.”

Between 1991 and 2011, the average farm grew in size by 30 per cent to 778 acres while the number of farms fell by by 26 per cent, Statistics Canada data show. Farming families are still the dominant operators of these larger farms, but there are more family members running what has become a sophisticated business that runs on deep knowledge of marketing and agronomy, and millions of dollars worth of tractors, combine harvesters and other machinery.

There has also been a rise in the number of smaller farms, said David Sparling, chair of Agri-Food Innovation at the University of Western Ontario’s Ivey Business School. These are the farmers that serve the growing taste for high-value organic vegetables and fresh, local food harvested on farms that are tiny compared with the sprawling grain operations that export wheat and canola to world markets.

So while the farming community is older than average, it’s a sector that is unique in the Canadian economy. Farmers, by their nature, are always planning for the next season, and work later in life than most, due to lifestyle reasons and aided by such advances as self-driving tractors.

“A lot of them are going to work way into their late 60s and 70s. That’s very different from the rest of the working population,” said Jean-Philippe Gervais, an economist with agricultural lender Farm Credit Canada.

Mr. Gervais disagrees there is a shortage of younger farmers joining the business. Between 2006 and 2011, 23,500 farm operators quit, but 33,000 entered the business, drawn by the rising incomes that have followed the global boom in prices for wheat, canola and other commodities.

“The outlook remains extremely positive, and we’re able to attract young farm operators,” Mr. Gervais said.

The amount of leased farmland has remained stable in recent years – about 35 to 40 per cent of the total acreage. This number is expected to rise as farmers retire, and new farmers join the business.

Two-thirds of the 4,000 acres Kevin Bender farms with his father and brother near Red Deer, Alta., is rented from about 12 different people, most of them retired farmers or their families.

Mr. Bender, 45, said his 70-year-old father still works the land, but has let his sons take over the leased fields, on which they grow barley, peas and other grains. “He enjoys helping us but he doesn’t like making the decisions,” Mr. Bender said by phone.

Like Mr. Stanford, Mr. Bender has watched city folk and non-farmers gradually move into the region’s farmhouses as the farmers retire, while the surrounding land gets leased to growers with ever bigger businesses. It’s an evolution on the prairies that can complicate the business of farming.

“It’s something that can make things more difficult – moving machinery, dust, even manure spreading,” Mr. Bender said. “People move out from the city and they don’t like the smell. I understand that, but that smell was here long before you and it’s only a couple days of the year.”

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