Buy, sell or rent the farm: succession planning and the future of farming on the Great Plains

Chi Su (), Richard A. Schoney and James Nolan
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Chi Su: University of of Saskatchewan
Richard A. Schoney: University of of Saskatchewan

Journal of Economic Interaction and Coordination, 2023, vol. 18, issue 3, No 7, 627-669

Abstract: Abstract With deep agricultural roots, Western Canada is a major farmland market. Historically, farmland was retained within families by succession. But with strong personal and economic linkages, succession can create a difficult situation for retiring farmers trying to make objective decisions about the future of their (land) assets. Some offer that increased farmland ownership by external investors has the potential to negatively affect farm structure. Yet there are sound financial reasons for institutional investors to want farmland as an investment, including diversification benefits for investment portfolios. Due to the complexity and heterogeneity of individual agricultural land market decisions, we build upon prior related models to develop an agent-based simulation framework designed to highlight the interplay between these potentially conflicting factors. To this end, we endogenize both farm succession and the presence of institutional investors who desire to purchase regional farmland as a financial asset. Under conservative assumptions, we find that the presence of institutional investors elevates farmland prices in the study region by approximately 15% to 40%, depending on scenario. With the presence of investors, farmers tend to lease more land over time to support their arable land base. Through the duration of our simulation, the total number of farms in the study region drops over time, while larger individual farms emerge. We conclude that institutional investors will affect future farming structure in the region, but their presence could manifest in very subtle ways. Most critically, farming success with institutional investors operating in this land market is contingent on future farmers being willing to rely on land rental rather than ownership in the process of farm maintenance or expansion.

Date: 2023
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DOI: 10.1007/s11403-023-00381-0

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