Foreign group testing ownership rules
Western Producer | 4 December 2014
Foreign group testing ownership rules
by Sean Pratt
A landmark case is in front of the courts that could forever change the way Saskatchewan farmland is bought and sold.
Skyline Agriculture Financial Corp. and three of its subsidiaries are challenging a Saskatchewan Farm Land Security Board (FLSB) ruling preventing the company from owning 15 acres of land in the province.
The non-Canadian owned company has developed a complicated structure of loans, interest rate swaps, derivatives and hedging that it believes makes it eligible to own Sask-atchewan farmland.
Dan Patterson, former general manager of the FLSB, said it is another creative attempt by a foreign corporation to circumvent the province’s land ownership laws.
It is the most complicated scheme he has seen.
“(The structure) would allow them to put (land) on the stock markets around the world, I guess, so it would just open our land market up to foreign investment,” he said.
“It’s a really important case, and it will be interesting to see how it unfolds.”
Skyline lawyer Erin Kleisinger declined to comment on the case, as did FLSB general manager Mark Folk because the matter is before the court.
Non-Canadians are allowed to own 10 acres of Saskatchewan farmland. Patterson said Skyline bought 15 acres to provoke a ruling by the FLSB that it could challenge in court.
“If they are successful, there’s rumours that they would want to spend $100 million or so to begin with,” Patterson said.
The FLSB issued an order Aug. 29 that Skyline had to reduce its land holdings to the allowable 10 acre limit.
Patterson is surprised and concerned that the decision was never published on the FLSB’s website.
“That’s part of the public record and should be released to the public, should be available to the public,” he said.
According to court documents, the FLSB ruled that Skyline Capital would be receiving a derivative intended to capture the capital appreciation of the farmland, which is a right ordinarily accruing to the owner of farmland.
The FLSB ruled that because Skyline Capital is a non-Canadian owned entity, its complicated structure is not an eligible vehicle for owning Saskatchewan farmland.
Skyline countered by arguing the capital appreciation from the farmland will be retained by a Canadian owned agricultural corporation, which is not required to pay Skyline any portion of that appreciation.
“The proposed structure ensures sufficient separation between the owner of the farmland (134 OpCo) and the counterparty to the derivative (Skyline Capital) if and to the extent such separation is required,” said Skyline in the court documents.
Judge Donald Layh ruled that the FLSB did not provide “transparent and justifiable” reasons to support its decision to order Skyline to divest.
“The submissions by the Farm Land Security Board in this appeal overreach the role that should be accorded to a tribunal,” he wrote.
Layh has referred the case back to the board for further consideration and has asked the board to come up with a new order as soon as possible.
Patterson said the same argument that the FLSB has made in the Skyline case should have been applied in the board’s recent ruling regarding the Canada Pension Plan Investment Board (CPPIB).
The FLSB allowed the CPPIB to acquire 115,000 acres of Saskatchewan farmland from Assiniboia Farmland Ltd. Partnership for $128 million.
Pension plans are not allowed to own Saskatchewan farmland, but the CPP’s unique structure made it eligible because the plan’s assets are considered to be owned by the investment board, which comprises Canadian citizens.
Patterson contends that the rent earned on the CCPIB land is paid to plan members, and some of those members are not Canadian, so the sale should not have been allowed.
It is the same argument the board is using in the Skyline case, purporting that the capital appreciation is making its way back to Skyline, which is not a Canadian entity.
Patterson said companies have long tried to use some type of “corporate veil” to distance themselves from ownership, but The Saskatchewan Farm Security Act contains a provision that essentially says someone who is financially benefiting from the farmland is considered the owner.
“Over the decades, it is that provision that has kept a lot of these real sophisticated, crafty challenges at bay,” said Patterson.
“The act has anticipated that and to this point has been successful.”
He worries that the Skyline case could be the breaking point.
“We’re at a juncture now where the challenges are increasing, not just in the number but in their sophistication.”
Western Producer | 4 Decvember 2014
Saskatchewan farmland attracts outside interest
by Dan Yates
Robert Andjelic is emblematic of a new breed of landowner in Saskatchewan: out-of-province investors, companies and pension funds who have made major investments in the province. | photo illustration
New players | Researchers say nearly 800,000 acres are owned by out-of-province investors
A former Manitoba businessperson who now resides in Alberta has taken a major interest in Saskatchewan.
Robert Andjelic said his portfolio of Saskatchewan farmland has grown to 180,000 acres over the past four years.
“I’ve been studying the market for a lot longer,” said Andjelic, who previously owned industrial warehousing.
“I got bored with retirement and looked at other opportunities, and farmland presented itself as one of the best.”
Andjelic is emblematic of a new breed of landowner in the province: out-of-province investors, companies and pension funds who have made major investments in the province. The province has recently seen significant year-over-year gains in farmland values, but prices remain among the lowest in the country.
“I find Saskatchewan farmland to be very diverse in production and really about the best buy in the country,” said Andjelic.
Researchers surveying Saskatchewan land titles believe close to 800,000 acres are owned by out-of-province investors. Their tally puts Andjelic’s holdings at more than 160,000 acres, although Andjelic said it’s actually more.
They also count large portfolios of more than 100,000 acres owned by the Canada Pension Plan and HCI Ventures, as well as smaller holdings owned by host of other firms and familiar names, including Nilsson Bros. and Brett Wilson’s Prairie Merchant Corp.
Andre Magnan, a researcher from the University of Regina and one of the authors of the upcoming study, said their total doesn’t count larger family owned operations and Hutterite colonies.
“Family ownership is by far the dominant model of ownership that we’ve still got in Saskatchewan, as it is all across Canada, but things are changing” said Magnan.
“These new entities, they’re changing the fabric of how we think about farmland and how it’s owned and controlled.”
Magnan expects their research to be published in the new year, but details of the project were presented last week at the National Farmers Union convention in Saskatoon.
“We can’t say for sure when most of the activity happened. From some of the research I’ve done, I think it’d be fair to say a lot of this has happened since 2007,” said Magnan.
They are surveying 20 years of data but point to changes in landowner restrictions in 2002 as the launching point of the new landscape.
The researchers count almost 60,000 acres of investor-owned land in 2014 across the rural municipalities of Excel, Lajord and Harris. There were less than 3,200 acres 20 years ago.
Presenters at the NFU meeting raised concerns about this kind of ownership concentration, its role in escalating land prices and its effect on rural communities and farming practices.
“Saskatchewan people owned the land of Saskatchewan and when they changed the law, they set the stage for divestment and that’s what we’re seeing,” said Darrin Qualman, former NFU director of research who is also working on the project.
“We’re seeing Saskatchewan farm families divesting ownership of the province to very large, very powerful $100 million, billion dollar entities.”
Andjelic said most of his acres are farmed under cash rent deals. It’s all cropland, spanning from the U.S. border to Prince Albert. About 35,000 acres are farmed under crop sharing arrangements.
“We do joint ventures with young, progressive farmers that have the equipment,” he said.
“They put in their own land and we add our land and then I pay for most of the inputs and they pay for most of the equipment and they do the actual farming operation.”
The researchers listed Andjelic’s portfolio as the largest in the province. The second belongs to the Canada Pension Plan, which acquired the land from the investment group Assiniboia Farmland in 2013 in a $128 million deal.
Agricultural economist Ken Rosaasen said farmers and pension plans aren’t on an even playing field: farmers buy land with after tax income and pension funds make acquisitions with capital from pre-tax income.
“Any time you have a playing field that’s on tilt to that degree, it means we’re going to be shifting to investment, RRSP-owned land not owned by the farmer or people close to the community,” he said.
Rosaasen also raised concerns about larger operations owned by investors that aren’t able to balance a downturn in commodity prices or production with off-farm income.
It has been a hot button topic in the province since large, corporate farming operations such as One Earth Farms began leaving the sector and Broadacre Agriculture recently entered creditor protection.
“Family farms have certainly gotten a lot bigger, but they’re invested in the success of that operation in a different way,” said Magnan.
“They do things differently and they have less overhead and they can be a lot more efficient and leaner … than some of the big corporate outfits.”
Andjelic is listed among the Broadacre creditors.
“They had a different business model. Everybody has a different business model,” he said.
“It’s not the one I believe in. I believe in drawing in young farmers that are very good producers and very good businesspeople — honest, hardworking.… That works out very well for us.”
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