Land prices outstrip the economics of farming

The story of Aldergrove farmer Ravi Cheema's home property -- 20 acres of blueberries surrounding a tidy two-storey home, a shop and outbuildings -- illustrates the dilemma Fraser Valley farmers are facing.

The Cheema family bought the property as bare land for $250,000 in 1993. But with the new house, buildings and a mature blueberry crop on it, he estimates it would be worth $3 million today.

Cheema comes to a quick conclusion from running the numbers -- fertilizer, fuel and labour costs, mortgage payments, even subtracting the value of the buildings versus the revenue that its blueberries (B.C.'s hottest commodity crop) could earn.

I wouldn't buy it myself," the 30-year-old fourth-generation farmer said in an interview. "It's my property. But being a farmer since Day 1, I wouldn't buy it."

Even the market for the Lower Mainland's farm land, protected as it is by the Agricultural Land Reserve, has not been immune to the region's rocketing increases in property values.

In the Fraser Valley, land that would have sold for $25,000 per acre five years ago is now going for $50,000 to $80,000 an acre, even up to $100,000 an acre or more with high-return blueberry crops already planted.

Land prices have been driven by the boom in blueberry production, a strong B.C. economy, the attractiveness of rural estate homes that are cheaper than million-dollar mansions in urban settings and, debatably, by the speculation of investors hedging that their land will one day be taken out of the ALR for development.

Whether it is Cheema's mixed berry, broccoli and greenhouse operation around Aldergrove, Dick Klein Geltink's dairy north of Langley, or Garnet Etsell's turkey farm near Abbotsford, an uncomfortable reality is setting in: Land prices have far outstripped the economics of farming.

"You are able to do it on yesterday's land prices," Klein Geltink said of farming in the Fraser Valley. But "if we had to buy all [our] land today, we wouldn't do it. You couldn't. Not here."

Only around four per cent of B.C.'s land base is considered suitable for agriculture, and Ramona Scott, the agricultural-programs manager for The Land Conservancy of B.C., notes that farmland is concentrated in the same valley bottoms and benchlands that are most desired for recreational use and urban development.

"So you have a very small portion of the province that has everybody wanting it," Scott said.

The question now, as the average age of B.C. farmers creeps north of 55, is how to make sure the next generation of farmers can get into the business.

CLIMBING VALUES

The rise in land values has been relatively recent, and dramatic. Statistics collected by the provincial Ministry of Agriculture show that as of the 2001 Census, the total value of land and buildings on B.C. farms was just over $13 billion. However, by 2006, the total value had reached $22.4 billion.

Farm Credit Canada, the federal agricultural lending agency, tracks farmland prices. It estimates B.C. farmland has risen 76 per cent in value since 2001, although not all farmland has appreciated equally.

"The biggest jumps have been here in the Fraser Valley and in the Okanagan," Doug Janzen, an Abbotsford-based Farm Credit Canada appraiser, said in an interview. "Those areas, coincidentally, also have the [highest] population densities," which is a part of what has been driving values.

Janzen said that for Fraser Valley residents contemplating a $350,000 or $400,000 pricetag for a house on a standard lot in one of the urban communities, it can be attractive to spend another $100,000 on a bigger house on a rural property inside the Agricultural Land Reserve.

"If you're bent that way, you go and buy a couple of acres," he added. "As urban house prices go up, it cascades into the agricultural market, to some extent."

As a result, Janzen said the price-per-acre on smaller ALR properties, say between five and 10 acres, is much higher than properties that are 20 acres or larger.

Exactly how much inflation of those smaller ALR properties elevates land inside the reserve is a matter of debate.

"It will, absolutely," Janzen said. "The thing is, once you get a 40 acre or 50 acre parcel, not many people are interested in cutting 50 acres of grass."

Drive around Abbotsford and Aldergrove and you will spot new, mansion-style houses with landscaped yards popping up all over the place.

However, Gord Houwelling, a rural realtor with B.C. Farm & Ranch Realty Corp., disputed that so-called country estates drive up overall values.

"You're dealing with a different beast when you've got 40 acres," Houwelling said. "If somebody beside you buys five acres with a house on it, that's not a really good comparable."

The phenomenon, he added, is more prevalent around south Langley, where the land is hillier and less suitable for more intensive farming uses, and less prevalent around Abbotsford or Chilliwack.

Besides, Houwelling noted, property owners lose the property-tax advantage of owning farmland if they take the land out of agricultural production, so most owners do something, either by producing a bit of something or renting the property to farmers.

Cheema added that despite the visibility of luxury homes sprouting up, they are only a small percentage of properties in the Valley. And as long as owners don't plunk houses down in the middle of properties, making the remainder hard to use, and make the balance of their land available for farming, he doesn't have a big issue with it.

However, Etsell, the Abbotsford turkey farmer who is also chairman of the B.C. Agriculture Council, disagrees.

"My gut reaction is that [country-estates] are a big factor," he said, although he didn't have empirical evidence to back up this anecdotal assertion.

With rural acreages an attractive option, Etsell said it puts pressure on landowners to divide larger parcels into smaller, higher-valued properties. Then it becomes more difficult for farmers to affordably assemble enough land to create a profitable farm.

KEEPING IT IN PRODUCTION

However, while Etsell agrees the high price of farmland is probably the No. 1 or No. 2 issue for young people who want to get into farming, from the Agriculture Council's perspective the problems that high land costs create are only a subset of its overall concern over the sustainability of farming.

There are other ways to make sure the land stays available for agricultural production.

"You don't necessarily have to own land to farm it," Etsell said, and suggested there are ways of using the property-tax system to make it more attractive for non-farming owners of property in the Agricultural Land Reserve to make more of their land available for farming.

"If they don't want to make it available for farming, then they should have to pay accordingly," Etsell said.

Land owners can apply to BC Assessment to have their land classified as farmland, which gets assessed at a flat rate, depending on its productivity, that is substantially lower than assessments on residential land, which has a big impact on property taxes that farmers pay.

To earn the classification, however, owners must farm and produce a certain level of income, depending on the size and location of their operations.

The owner of a rural property of less than two acres, for instance, has to show farm income of at least $10,000, according to BC Assessment's guide.

An owner of a property of between two and just under 10 acres, however, only has to show $2,500 in farm income to earn farm status. Over 10 acres, and owners have to earn $2,500 plus a fraction of their land's farm-assessed value.

Stephen Gallagher, operator of the Nathan Creek Organic Farm near Langley, concurred with Etsell, adding that the formula should include a standard lease agreement that would give tenant farmers a minimum tenure.

Gallagher added that he knows of too many organic growers who operate on land under only year-to-year terms.

"Whether that's three, five or 10 years, whatever," Gallagher said.

"But [owners] shouldn't get the tax break if they're not willing to provide the actual conditions to allow farming to be part of a productive enterprise."

Gallagher operates on a 40-acre Crown-owned property that he sublets from The Land Conservancy, growing mixed vegetables for 100 families on a subscription basis: they pay him $500 each up front for 20-weeks worth of fresh vegetables. It is a model called community-supported agriculture.

The Conservancy secured the remaining four years of a long-term lease with the hope that if Gallagher can build on that support, it will convince the province to roll over another long-term lease.

Scott, the Conservancy's manager, said the land trust only put a hard focus on trying to preserve farmland a year ago in recognition of growing public concern over food security.

Whether it is through donations of land, owners agreeing to covenants on their property that require it to be farmed or co-operative purchases of property, the Conservancy's aim, Scott said, is to keep land in production.

The province's Ministry of Small Business and Revenue has launched a review of the farmland classification system, which will be chaired by Blair Lekstrom, the MLA for Peace River South and Saanich Mayor Frank Leonard.

The review's mandate is to look at the farm classification process, hear from the public and make recommendations on ensuring that "the property assessment process is fair and equitable to all property owners."

MOVING ON

In the meantime, younger farmers and those farmers looking to expand operations, are looking elsewhere.

Cheema, with some partners, recently bought 2,000 acres in Saskatchewan, drawn to the prairies by the recent boom in wheat and the promise of biofuels. He said they will lease out that land for a while to see how it goes.

And the Cheemas are looking at land in Washington State's Skagit Valley, about a 25-minute drive from his Aldergrove home.

"It's not too far, depending on the border lineup," Cheema said. "A lot of my friends have farms right across the border. In the past, I never had the heart to go there," but now he doesn't see much choice not to.

(prepared by Derrick Penner/Vancouver Sun)