Farmland rental rates keeping pace with farmland value appreciation

There is alignment between farmland rental rates and the appreciating value of farmland across Canada according to a new analysis from Farm Credit Canada (FCC).

The farmland rental rate analysis presents the rent-to-price ratio for cultivated farmland in Canada. The ratio uses insights from data sets on cash rental rates and the Farmland Values Report. A ratio trending lower suggests cash rental rates are appreciating at a slower pace than land values. Conversely, an increase in the ratio indicates that rental rates are increasing faster than land values.

The national rent-to-price ratio in 2023 was 2.52 per cent, reflecting a negligible decline from the previous year. The three provinces that recorded the highest farmland value increases in 2023 —Saskatchewan, Manitoba, and Quebec — also saw increases in rental rates, maintaining stability in rent-to-price ratios.

“There are challenges that come with buying land amid increasing land values and elevated interest rates,” said J.P. Gervais, Chief Economist, FCC. “Renting land can serve as a strategic way for new entrants to get established or grow their operations without being burdened with all the upfront costs that come with land purchases.”

The analysis provides a detailed breakdown of rent-to-price ratios by province, highlighting variations in rental rates and farmland appreciation across different regions. Notably, provinces like Ontario and select Atlantic provinces have witnessed divergent trends, with rental price agreements evolving at a slower pace compared to farmland values.

“In regions where farmland values have outpaced rental rates, renting land emerges as a suitable option for producers seeking to optimize their cash flow and operational flexibility,” Gervais adds.

Table 1: 2023 Rent-to-price ratio by province, with minimum and maximum range, including 2022 data

Sources: Statistics Canada, FCC calculations

“Producers must carefully evaluate the trade-offs between renting and purchasing land, considering factors such as cash flow, financing options and growth potential,” advises Gervais. “Ultimately, the decision should align with their long-term strategic objectives, financial capabilities and risk tolerance.”