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Saskatchewan is likely to tighten what are already some of North America's strictest rules for purchasing farmland as the Western Canadian province looks to fend off big money managers hungry for what they see as a winning investment.
The province, whose fertile plains grow more wheat than Argentina, has become the latest front in a global battle between investors keen to make large-scale land purchases and local farmers worried about being priced out of the market.
The provincial government said last month it would review its law governing farmland purchases in light of farmers' concerns about recent deals. That review will specifically consider closing the door on further purchases by the $234-billion ($188.50 billion US) Canada Pension Plan Investment Board (CPPIB), Saskatchewan Agriculture Minister Lyle Stewart told Reuters.
Farmers "are not high on the idea of institutional investors competing with them for the purchase of farmland," he said.
Stewart said the changes could also include measures to foil the plans of Vancouver-based Skyline Agriculture Financial Corp, a foreign-backed player looking to finance as much as $1 billion in farmland purchases over the next decade.
Saskatchewan law already requires that companies that invest in farmland be 100 percent owned by Canadians, with foreign buyers limited to 10 acres.
Purchases by pension funds are also banned, but the Saskatchewan Farm Land Security Board allowed CPPIB to buy 115,000 acres in 2013 on the basis that its corporate structure was unique.
"We'll need to maybe think about cleaning things like that up," Stewart said. Closing the CPPIB's investment loophole "will be one of the things that will be considered for sure."
SASKATCHEWAN PRICES CLIMB
Institutional investors typically rent land to farmers, gaining both a steady cash stream and exposure to potential land-price gains.
Prices for Saskatchewan farmland have risen steadily since 2001. They hit a record high in 2013, according to Farm Credit Canada, a government-owned lender.
"We would love to invest in Canada if these laws changed," said Paul Pittman, chief executive of Colorado-based Farmland Partners Inc, which owns a growing portfolio of farms in the United States. "The Prairie provinces (are) where the large tracts of land are, and the high production."
Indeed, CPPIB, which has an investment horizon that runs decades, has said that it wants to buy more farmland in Canada, the United States, Australia, New Zealand and Brazil.
CPPIB declined to comment on the possibility that Saskatchewan will stop it making further buys.
Many farmers in Saskatchewan, which produced crops worth $9.6 billion in 2013, want land ownership to stay local, and they are not alone. Australia allows foreign investors to buy farmland, but the government in 2012 started tracking foreign farm investments to ease public concerns.
Skyline is keen to buy in. Chief Executive Mark Reineking hopes to raise $50 million to $100 million per year for roughly the next decade and lend it to farmers to buy about 25,000 to 50,000 cropland acres annually.
The company, owned mostly by Canadians, but also by U.S. institutions, would use derivatives to help investors capture profit if land prices rise.
"Our sense from farmers is there will be a lot of interest," said Reineking, a former executive at precious metals company Silver Wheaton Corp. "We've met the balance between giving the next-generation farmer what they need, which is access to long-term, permanent capital, and also giving exposure to investors" who can't buy farmland themselves.
But the Farm Land Security Board has ruled Skyline's structure "is an attempt to get around the provisions of the (law) and allow non-Canadian-owned entities the opportunity to control the farm operation."
After Skyline financed a 16-acre land sale last year, the land board ordered it to reduce the holding to 10 acres or less. Skyline is appealing that ruling in court.
Lawyer Patricia Warsaba of McKercher LLP said she thinks Skyline's structure complies with the law. Warsaba represented the party that sold farmland to CPPIB, but she has no involvement with Skyline's case.
"These (government) restrictions are treating an industry different than other industries as far as access to capital," she said. "Saskatchewan farmers are somewhat under-capitalized."
The province's Saskatchewan Party government, which normally favors open markets, believes it will win the Skyline case. But Stewart said that if it loses, it would look at tightening the law.
If the government does tighten the rules, demand may decrease and hold back land values, said Rick Van Beselaere of Saskatchewan law firm Miller Thomson. But if it targets only unusually large purchases such as CPPIB's buy, the changes may have minimal effect, he said.