Buy, Sell or Rent the Farm: An Agent Based Simulation of Farm Succession and Land Valuation
Date
2017-06-16
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ORCID
Type
Thesis
Degree Level
Masters
Abstract
The impact of widespread farm ownership by large investors in Canada could be influential and remains uncertain. In fact, there are sound financial reasons for buying farmland as an investment, including diversification benefits available to investment portfolios. Studies have found that the correlation between farmland price yield and the yields of major financial assets, such as stocks, bonds and real estate, are consistently negative.
On the other hand, the prime objectives of many farm family businesses are “to maintain control and pass on a secure and sound business to the next generation” (Hay and Morris 1984, Errington 2002). In Western Canada, farmland is generally retained within the family by succession because of strong emotional and economic linkages. However, very little prior research has examined the long-term effect of interactions between these two options for Prairie farmland transition.
Due to the complexity of the problem, the agent based simulation model (ABSM) is one of the few feasible ways for this issue. The simulation model developed in this study builds upon Anderson’s (2012) work simulating farming activity in Canadian Agricultural Region 1A in Saskatchewan, using the Repast© software. Two extensions or modules for the farm simulation are developed in this thesis, comprising farm succession as well as the presence of institutional investors who purchase farmland as a financial asset in order to diversify aggregate risk in their portfolio. Thirty years of farming and investing performance are simulated in four different scenarios to examine the effects of various levels of institutional investor participation. Institutional investors are found to elevate farmland prices from between 15% to 40% across different scenarios, while farmers ultimately tend to lease slightly more land to compensate and expand their farms. Meanwhile, the total number of farms in the region fall over time, while larger individual farms emerge over the simulated period, both with or without investors. Based on this simulated evidence, we conclude that the overall impact of institutional investors on future farming will be subtle, and continued farm success here is contingent on farmers being willing to rely more on rental land for farm expansion.
Description
Keywords
Farmland Ownership, Institutional Investment, Farm Succession, Agent-based Model
Citation
Degree
Master of Science (M.Sc.)
Department
Bioresource Policy, Business and Economics
Program
Agricultural Economics