Investor says land-grab fears not justified

Bonnefield Financial has raised more than $300 million to buy and lease back Canadian farmland

We’ve all heard it: rumblings in coffee shops and at conferences about land grabbers buying up good farmland.

And those rumblings have only grown louder over the past few years, as investors such as the Canadian Pension Plan buy large parcels of cropland in the Prairies.

But by and large, those fears can be put to rest — at least for now, says the head of one of those companies buying farmland.

Tom Eisenhauer

Tom Eisenhauer
photo: Supplied

“I think there’s this impression that somehow there’s some fundamental, dramatic change taking place in the ownership of land in Canada. I just don’t see it,” said Tom Eisenhauer, president of Bonnefield Financial, a Toronto-based property management firm.

“If you look at Statistics Canada data, somewhere between 35 and 40 per cent of land that farmers farm right across the country has always been rented. You might see one or two per cent on the edges being leased from institutions or pension funds, like we are, but I don’t see a wholesale change in that number.

“Farmers renting farmland is not new.”

What is new, though, is “who they’re renting the land from,” said Eisenhauer.

“Yes, there are some new players like Bonnefield who are entering the fray and getting involved in leasing land, but in the overall picture, farmers already lease a huge amount of their land,” he said.

“The amount of institutional money that’s flowing into this sector is minuscule in comparison to the amount of land that’s already being leased farmer to farmer.”

Since forming in 2008, Bonnefield has spread across seven provinces and provided about $325 million to around 50 farmers in leaseback financing — a type of financing that’s been “used for decades” in the trucking, hotel, and airline industries, but is relatively new to the agriculture industry in Canada.

Using this model of financing, Bonnefield first purchased land in Alberta in 2011, spending $2.5 million to buy a 498-acre parcel near Taber (that land is now worth $4.2 million). Since then, Bonnefield has completed another 3,346-acre purchase in the Special Area No. 3 (valued at $2.2 million at the time of purchase; today, at $4.2 million) and “dipped a toe in the water” north of Edmonton.

According to company documents, it spent nearly $40 million to buy 25,717 acres of land (mostly on the Prairies with smaller holdings in Ontario and New Brunswick) and the value of that land had risen to $57 million as of June 30. A third offering, which closed two years ago, raised an additional $261 million.

“We’re seeing huge demand from the agriculture community for the kind of leaseback financing we offer,” he said. “There’s far more demand from the farm community out there than we’ve been able to satisfy. Our restriction has really been in the amount of money we can raise.”

Bonnefield is primarily funded through pension funds and private investors, and both are cautious about investing in farmland, said Eisenhauer

“Those kinds of individuals and institutions are much more used to investing in stock markets and bonds and things like that — this idea of investing in farmland is kind of a new idea for them, and they’re tiptoeing into it,” he said.

“It’s growing, but it’s going to take a long time to get up to a significant number. It’s still a pretty minor drop in the bucket compared to what farmers are telling us about the amount of capital they need to try and finance their businesses.”

Funding retirement

The greatest demand Eisenhauer has seen so far has come from farmers getting set to retire. As the older generation moves off the farm, young farmers are looking for a way to grow their operations — without buckling under their debt load.

“There’s this old hackneyed thing that you hear all the time, that there’s not enough young farmers in this country. I would beg to differ,” said Eisenhauer. “I would say there’s not enough young farmers who want to farm like their parents and grandparents did.”

That’s simply because they can’t afford the cost of landownership.

“If you’re a landowner — if you’re the dad — that increase in land prices has been pretty good for you. It’s going to help finance your retirement,” said Eisenhauer.

“If you’re a young farmer who wants to farm at scale, and you want to buy out your dad’s farm, you need some alternatives.”

That’s where Bonnefield’s leaseback financing model comes in. The company buys the land and then leases it back on a long-term basis.

“They still farm the same land they’ve always been farming, but it’s just on a lease basis now,” he said, adding rents are based on “market demands” and vary depending on the value of land and the value of the crop that can be grown on it.

Leaseback financing

But why would a farmer sell his land, only to lease it back? There are a couple of good reasons for that, said Eisenhauer.

The first is debt reduction.

“A farmer who has got a heavily indebted balance sheet and needs to reduce debt would sell us a piece of their farmland, and we would lease it back to them on a long-term basis. They would then use the proceeds of that to reduce debt. That’s one example.”

But more typically, Bonnefield works with farmers who are in the middle of a farm transition.

“The older generation owns the land, and there’s a younger generation that’s coming along that is trying to figure out how to raise sufficient capital to buy out the previous generation,” he said.

“With farmland prices being what they are today, that’s not often possible.”

Ten years ago, he said, financial advisers could make succession plans work for “80 or 90 per cent” of farm families.

“Given the value of the land and the interest rates at the time, they could figure out a way where the younger generation would be able to buy out the senior generation, and there would be enough money left over that they could still make their farm work,” said Eisenhauer.

“Now they tell us that they can only make about 10 or 20 per cent of those work because of the value of the land and interest rates.

“They need an alternative, and that’s where we come in.”

Bonnefield buys the land so the older generation “can finance their retirement and do their estate planning,” he said.

“We then lease it to the younger generation on a long-term basis so they know they’ve got continued access to it for as long as they want, but they don’t have to go to the bank and lever up on debt in order to make that succession plan work.”

Even so, leaseback financing is meant to be “complementary” to bank debt, not a replacement.

“For most farmers, the only capital they have is their sweat equity and their bank debt,” said Eisenhauer.

“This introduces a third alternative to finance some of their land and ensure they can farm more land without the risk of the debt or without having to dip into their own equity to try and finance it.

“It’s a much more flexible, lower-risk approach, especially when it’s blended with a judicious use of debt and equity.”

About the author


Jennifer Blair is a Red Deer-based reporter with a post-secondary education in professional writing and nearly 10 years of experience in corporate communications, policy development, and journalism. She's spent half of her career telling stories about an industry she loves for an audience she admires--the farmers who work every day to build a better agriculture industry in Alberta.


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