Choosing who gets to rent your farmland

by Delaney Sieferling

For Robert Andjelic, the largest farmland owner in Canada, this has become the top priority when he’s looking to decide who he will rent that ground to.

It’s how he thinks those farmers treat the land they are renting.

It isn’t just a nice-to-have, it’s the core of his business model, Andjelic says.

“Soil is both of our bread and butter — the producer and us. We’re only as good as the soil and the way we treat that soil. If somebody is mining the land, I don’t care if he pays me two times more than what the market is, he’s not going to get it.”

But are all today’s big power landlords the same? It’s a huge question because, as the value of Saskatchewan farmland around Andjelic continues to increase, the competition to rent that land intensifies right along with it.

Farmers are learning that to gain a competitive edge as a renter of choice, money is just part of what it takes to succeed.

According to Statistics Canada, approximately 40 percent of Canadian farmland is rented, and farmland pricing across the country has been on a steady upward trajectory.

Andjelic says the increases have translated into more demand from farmers to rent land so they can expand their own operations.

“As far as leasing is concerned, it is a very tight market,” Andjelic says, adding he gets up to 15 bids for certain land packages.

Because of the high demand, he has a team on staff at Andjelic Lands to thoroughly vet all applicants, assessing their on-farm practices related to soil health, crop rotations and more.

Tenants are primarily chosen based on these practices and on their approach to land management, Andjelic says. Other factors come second.

“Investors normally have a mindset of profits and returns, which of course everybody has to look at — you still have to pay the bills. But within that framework, you can work with people that have similar ideas, similar goals and similar love for the land.”

Farmland investors tend to have similar approaches to Andjelic, says Ted Cawkwell, agriculture specialist with Cawkwell Group, which specializes in farmland real estate.

Cawkwell says that longer-term farmland owners care deeply about the health of the land and soil, often more than profits.

“Farmers have an emotional tie to the land. They’ll hold on to it even in times when they shouldn’t,” he says.

Now, says Cawkwell, it’s driving a boom in how important it is for farmers to go above and beyond when showcasing their efforts to potential landlords.

Whether it’s something such as digging rocks or doing backhoe work, or a more in-depth commitment to collecting soil samples year over year to replenish nutrients, farmers can always be making incremental improvements to rented land, Cawkwell says. And those efforts can go a long way.

“One thing that I learned from being a farmer myself, we treated our rented land like land that we owned… we would do that at our expense on our rented land,” says Cawkwell, who grew up on a family grain farm at Nut Mountain, Sask and is currently a partner in a nearby farm business.

“We improved that land. And word got out pretty fast.”

Other factors at work

Beyond responsible land stewardship, though, there can be other factors that are important to landowners beyond just rental rates, says Val Panko, a business advisor at Farm Credit Canada. Farmers who rent land — or are looking to rent — would be prudent to learn what those factors are before getting into rental agreements, she says.

For example, crop sharing options might be more attractive to recently retired farmers who are renting out their land.

“They’ve still got their hands in the pot, so to speak. They’re familiar with what’s going on, they understand the industry.”

But landlords in other life circumstances may be more comfortable with straight cash rent agreements that are simpler and more predictable. They may also see more value in receiving rent payments on time than in getting the highest rate possible out of the land — which can also be difficult as there aren’t many sources for accurate, public and frequently updated data on farmland values in Canada.

For such reasons, Panko says, it’s very important for farmers to understand their landlord’s priorities for renting the land when they enter a negotiation.

“If you can find out what somebody wants… and try to tailor what you can offer to that, that’s where your leverage is in the negotiation,” she says. “The sky’s the limit in terms of flexibility.”

Panko says hybrid agreements having components of crop sharing and cash rent are becoming more common. These may involve renters paying landlords a bonus when crops go above a certain yield or profitability level.

Cawkwell says he has also seen instances when farmers voluntarily pay a bonus to landlords, outside any existing agreements.

“Let’s say you have a really profitable year. When it comes time to make your next payment, you just say, ‘I’m adding X amount of dollars to this. We had a really good year and I would just like you to participate in that.’”

Efforts like these go a long way in building a longer-term relationship, he says. “If you show them that, when there are good years, you’re willing to step up, when things do get bad, they’re probably going to be more understanding.”

Another factor farmers should consider, Cawkwell says, is paying their rent ahead of schedule.

He says although all rental agreements are different, the majority require the tenant to pay 50 percent before seeding and the other 50 percent after harvest.

“You can eliminate the risk for the landlord if you pay them 100 percent up front,” he says.

Building those relationships

Regardless of your approach, the overall goal should be building a longer-term relationship. A strong renter/landlord relationship is often based on much more than just a business transaction.

In Andjelic’s case, the basis for the relationship is shared values.

“I think it’s a partnership, that’s really the key. I find I love working with these people, that we’re on the same page as far as land use and every other aspect of food production.”

Cawkwell agrees, saying it’s worth it for farmers to put in the extra effort to build relationships once they have secured a rental agreement. When he was growing up, his dad, a farmer, would take him along to make their fall payment to the landlord in person.

“Get in the truck, go drive to their house, sit down with them, have coffee, have a meal, have a drink, block the afternoon off, do whatever they want to do,” Cawkwell says. “Even if it’s one person, go sit with them for a few hours.”

As with all industries, he says he has often seen emotional ties trump other factors when it comes to business relationships.

“It’s going to be pretty hard for them to leave if they feel like you’re their friend. Even if the neighbour offers them more money, my guess is if you’ve built that relationship, it’s not going to matter.”

One final consideration is that, with any type of agreement, farmers should proactively discuss rental arrangements with landlords and have written agreements in place.

In some instances, Panko says, handshake agreements were formed decades prior by different generations of farmer, and now the newer generations don’t know how to navigate tricky conversations.

“They’ve always done it that way and it’s been working well,” she says. “So why mess with the good thing?”

But these verbal agreements leave renters very vulnerable — larger farms can come in and poach the rented land or there could be sudden changes in estate ownership due to death, amongst other scenarios.

“It’s a huge risk management element,” Panko says, yet there’s a realistic solution, one that is critical in today’s competitive farmland landscape.

Get a written agreement in place, she says. “It creates security for both sides. It’s not infallible, but it is a solid best practice in any kind of business.”

Original Article