BC Farm Land

Photo by www.dreamstime.com Leo Bruce Hempell

BC's Agricultural Land Rush

What's Behind the Blazing Hot Market

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In recent months the news has been full of stories about Canada’s red hot housing market, as homes across the country sell for amounts well over the asking price, but there's been relatively little  coverage of the blazing hot market for agricultural land in British Columbia.

Like housing, farm land is on a record-busting run in BC, particularly in places like the Okanagan Valley and the Creston Valley in the Kootenays, but few people outside those local farming regions have noticed the trend.

Part of the reason for that is the Farm Credit Canada annual report on farm land prices does not include lands used for fruit orchards or wine grapes, and so the report concluded land prices in the Okanagan had remained flat year over year, at 0.0 per cent.

But when you factor in the lands used for orchards and vineyards, the increases are among the highest ever seen, and have resulted in the most expensive acreages in Canada at up to an astounding $300,000 per acre.

“Prices were rising here in the Okanagan before the pandemic hit,” says agricultural realtor Jerry Geen. “We really noticed in 2019 the prices were pushing much higher. That trend started in 2016, and it has ramped up to record high levels right now.”

And it’s not just the Okanagan. The price increases were noted by the FCC for the Kootenays and the Thompson-Nicola regions, and according to the FCC report the Kootenays saw a 28.1 per cent increase in value from 2019 to 2020, while the Thompson region experienced an increase of 16.7 per cent for irrigated lands.

These changes come at a time of moderate increases for the Canadian farm land market as a whole, which rose by just 5.4 per cent in 2020, down from the 22.1 per cent the market experienced nationally in 2013. In fact, annual increases in Canadian farm land prices have generally been in decline in recent years.

Since that high in 2013, land prices increased by 14.3 per cent in 2014, by 10 per cent in 2015, and since then have hovered between five and eight per cent.

BC, however, has been an outlier in the market. The province showed the highest overall increase in prices nationally this year, at 8.2 per cent, but that increase does not include what happened in the Okanagan Valley, due to the FCC not tracking the sales of orchard lands.

Instead, we went to the realtors and the appraisers who deal with the market every day, and found a very different story.

To put it simply, certain parcels of farm land in the Okanagan, the Kootenays and the Thompson-Nicola regions are seeing explosive growth, and the trends are critically important for farmers to understand.

So, what’s happening, and why?

Most of the story has to do with the extraordinary demand for high quality grapes and cherries; two crops that can only grow in a very limited number of parcels in certain parts of British Columbia. With farmers earning record high prices from cherry buyers in China, and wineries racking up impressive profits, growers have realized there’s a race on to acquire the best lands for these crops.

“The market is extremely active, and as far as price increases, it’s hard to keep up,” says appraiser Brian Pauluzzi, owner of NCA Commercial. “To appraise in this market is difficult because every new deal is kind of a new limit. The changes in market conditions have been so swift, and you don’t typically find that in agricultural land. On the residential side you get massive fluctuations, but the Ag sector typically has not been as volatile as what you’re seeing today.”

In this month’s Orchard & Vine, we’re taking a deep dive in this Special Feature on the BC Land Rush, identifying the five primary reasons these local markets have exploded while other regions remain relatively flat.

Part One: Fruit Prices

“From a sheer business point of view, all the money in the market right now is in cherries and grapes,” says Jerry Geen, a veteran realtor who grew up in an Okanagan farm family, and founder of the Geen + Byrne Real Estate Team with RE/MAX Kelowna. “Those are the two areas where the most revenue per acre are seen.”

For example, Geen has friends who gross $20,000 to $30,000 per acre for table grapes, and the revenue for wine grapes can be significantly higher, as are prices for cherries, where some top farmers have clocked in with revenues up to $60,000 per acre.

For that reason, Geen says the market is seeing unprecedented values for suitable land.

“Any of the premium sites that are suitable for orchard right now, if they’re unplanted or planted with old varieties that need to be removed, from Coldstream to the border, 100K to 120K is your start point per acre, and some people paying values above 200K per acre for cherry orchards.

"We have also seen a few anomaly sales where high-profile winery operators are paying upwards of 250 thousand to 350 thousand for mature vineyards.”

Realtor Scott Marshall of RE/MAX Kelowna, a fifth-generation Okanagan resident from a long-time farming family, says he recently brokered a deal for roughly 10 acres of land that sold for $3.2 million.

“There is definitely a large increase in prices for any land that is viable for cherries or vineyards,” Marshall said. “We’ve lost a significant amount of our apple stock over the last year, because it is not making enough revenue in comparison to cherries. You can drive around and literally see people ripping out their apples so they can plant cherries.”

That demand for cherries came from the initiative taken by the Canadian and BC governments to sign a deal with China, establishing clear rules and procedures for cherry exports. Since then, demand for BC’s high-quality cherries has exploded, and with them, the prices for orchard land as well.

Pauluzzi says the same applies to vineyards, particularly because grape growers and cherry orchardists are often competing for the same land.

“I think with the prices of wine, the prices of grapes, this is a long-term trend rather than a price bubble,” Pauluzzi said. “Several years ago when prices of grapes fell you saw some of the bigger players selling off their land holdings or divesting their grape contracts, so even in the last decade it’s a complete 180. Now I know they’re kicking themselves and they’re looking for land anywhere, even as far north as Oyama.”

Part Two: Cornering the Market

According to Wine Growers BC, there are now 185 licensed wineries in the Okanagan Valley, and 8,830 acres planted with wine grapes. For many years, according to appraiser Brian Pauluzzi, the market for vineyards was driven by new players entering the market, and typically they would buy smaller parcels of 10 to 20 acres.

This number is no accident. Under BC law, one can only open an estate winery if the winery has 10 or more acres of vineyard. As a result, new wine companies would often buy a small parcel in order to establish the winery, and then buy grapes from established growers.

But while demand may once have been driven by new winemakers looking for smaller parcels, that has now changed due to the success of the region’s wineries and grape growers.

“Wineries in the Okanagan and Similkameen have done very well, and over the years you’ve started to see market consolidation,” Pauluzzi says. “Larger companies are buying successful wineries, but they’re also expanding their production, and that requires larger parcels of land.

“The issue is, large acreages in the Okanagan are almost impossible to find, and now you have the big players in the market - the Arterras, Peller, the Mission Hill group, Sandhill and so on - who are going after those bigger properties. They are consolidating the market where they can, and all they want are those bigger parcels, because they need those economies of scale to make their model work.”

Realtor Scott Marshall agrees, pointing to recent transactions of between $250,000 and $350,000 per acre.

“There’s an influx of buyers from the Osoyoos area coming into the Central Okanagan right now,” Marshall says. “They are cashing out of their orchards and vineyards down there at obscene prices. I mean, some of them are getting $350K an acre down there, and if you look at what they can get here (the Central Okanagan), all of a sudden that $250K an acre is relatively affordable.”

Geen says he’s seeing those same high prices for land suitable for cherries, wine grapes and table grapes, linked directly to high fruit prices.

“A lot of it is simply supply and demand,” Geen says. “There are a lot of larger scale vineyards, cherry orchardists and winery operators who are trying to get bigger, and it’s a simple fact that there’s only so much land suitable for cherry orchards and vineyards in the Valley.

“If you have a lot of small parcels, you don’t achieve that economy of scale, so we are now seeing the bigger operators looking for the larger parcels of land, where they can be more efficient and drive down the cost of grape production.”

And in a country where the amount of suitable land is severely limited, that can be a concern for all winery and orchard operators.

“There’s only so much land, and they’re not making any more of it,” Geen pointed out. “What is there, maybe 20,000 acres of land in the Okanagan that’s ideal for grapes? Once that’s gone, it is gone, and so the supply and demand question is very, very real.”

All of that said, no one really knows how high prices have risen for orchard land in the Okanagan, as the FCC typically tracks land used for hay and field crops, but did not track sales of fruit orchards or vineyards.

“I couldn’t say exactly what the increase has been,” admits Marshall. “But I am comfortable saying prices have risen by about 15 to 20 per cent for that type of agricultural land.”

Part Three: The China Effect Hits The Kootenays

The Okanagan Valley is Canada’s best known growing region for cherries, but it’s not the only one. In fact, experts say cherries grown in the Creston Valley, a micro-climate in the Kootenays, are equally good, and among the best in the world.

When cherry prices soared after the Canada-China trade deal, land in the Creston Valley suddenly became immensely profitable, and profitability has bred high demand. The FCC report for 2020 says prices for farm land rose a shocking 28.1 per cent in a single year, but real estate experts say the vast majority of that is related to cherry orchards.

“It’s all Creston,” says Pauluzzi. “The prices they paid even three years ago, compared to now, it’s almost doubled. We have the best cherries in the world, and the cherry orchards in Creston are huge now. The distributors there say they get some of the highest prices for cherries in the world, for some of the best product in the world, and that’s why (buyers) are paying six bucks a pound.”

Geen says he’s hearing the same thing from cherry growers in Creston and the Okanagan alike. “One of the factors driving (land) prices is that some of the larger, better growers are making record revenues, up to $30,000 to $60,000 an acre,” Geen said. “Sure, it may seem crazy to pay 200 grand an acre, but it makes sense if you can make that kind of money.”

Marshall adds that farmers are naturally entrepreneurial, and make hard business calculations based on business risk, cost of production, and price per kilogram. The math, he says, is pushing farmers to invest in the Creston Valley, Kootenays, and further north into Kamloops, Pritchard and Ashcroft.

“You can get some pretty good-sized land parcels up there, with proper air and water drainage, so I’m not surprised people are willing to take a shot,” he said. “Compared to here, where 30 acres of high producing cherries could be priced at $5 million or so, then you look at what $5 million can do in these other regions, then it comes down to a risk calculation of how likely it is that you’ll get a catastrophic frost event. For the same price as 30 acres in the Okanagan you could have hundreds of acres fully planted out and ready to go.”

Part Four: Fruit Production Expands Into New Areas

All three of the experts we spoke to agreed that increasing land and fruit prices, combined with the impact of climate change and hardier varieties, are changing the geography of fruit production in the BC Interior, which is spreading outward from the Okanagan and Creston Valleys.

“We are seeing levels now that you would normally not even think of in the past when it comes to price per acre,” said Pauluzzi. “What we’re also seeing is more marginal lands, lands that you would previously not see as appropriate for a vineyard, being sold for vineyard.

“In Osoyoos along the highway 97 corridor the flat lands that used to be cattle and field crops, land that is low and subject to frost, we’re now seeing that being planted. We’re also seeing that in Kelowna with cherries, flat land around the airport that never had an orchard on it.

"Basically hay lands, flat as a pancake and therefore susceptible to frost, and now there’s hundreds of acres planted in cherries, so it’s really quite something to watch.”

Geen says his family is a good example of that. His brother, David Geen, President of the Coral Beach cherry business, is one of Canada’s largest cherry farmers, and in recent years he has undertaken a massive expansion in more northerly areas.

In a previous interview with Orchard & Vine, David Geen said farmers are growing their business by planting hardier fruits developed at the Summerland Research Station, and thus harvesting their cherries when the rest of the market is out of fruit.

“Things have changed a lot since my great grandfather began fruit farming at Carr’s Landing/Lake Country in 1903,” he said. “For one, the center of gravity has moved north.”

No one planted cherries in Lake Country back in the day, says Geen, let alone in Vernon. Yet today, Coral Beach only farms from Kelowna north and in 2018 the company broke ground on a new orchard site at Pritchard, 40 kilometres east of Kamloops along the South Thompson River. When the Pritchard property is in production by 2023, that will increase Coral Beach Farms total cherry plantings to 1080 acres, with the most northerly site in North America.

The resurgence of the BC cherry industry stems from new varieties, starting with the Lapin, that was hardier and less prone to cracking. First planted by pioneering farmer Hugh Dendy, these new varieties have allowed growers to plant further north and higher up.

They also did something even more important. The new ‘Northern’ varieties are harvested later in the year, after fruit from competing producers in the US are long gone. As a result, those cherries are the last quality fruit left on the market, and are snapped up at high prices by Chinese buyers.

As a result, Marshall says farmers are looking for land in what were once very remote areas, allowing them to get into the market at lower cost.

“I’m seeing a general shift further north in an attempt to find lower land prices,” Marshall said. “Looking into the Kootenays, looking at Kamloops, Pritchard and Ashcroft areas, if you can get land up there for 5,000 an acre and water right out of the Thomson River, there’s some really interesting opportunities. You can get cheap land and accessible water, so then it comes down to whether someone is willing to take on the perceived risk of planting further north, and the logistics of the operation.”

On that note, both Marshall and Geen say climate change is playing a role, reducing the risk of devastating frost damage.

“I would say they are being successful because we haven’t had that catastrophic frost event in recent memory,” Marshall says. "I know people planting hundreds of acres of tree fruits up around Ashcroft that 10 years ago, people would think they are absolutely crazy. Similarly I’ve sold some properties for cherries so high up from an elevation perspective that some farmers still cannot believe it.”

Geen says his brother David is a great example of that trend, as Coral Beach invests millions in land, infrastructure and new plantings.

“Look at how my brother has planted cherries way up in Pritchard,” he says. “Yes, there was a huge winter kill situation there around 1969, but with new varieties and the changes from global warming, that area is coming back.

“Now I have clients buying land that others thought didn’t make any sense. ‘Winter kill, frost damage, what are you buying that for?’ But the reality of it is, global warming has changed things.”

Pauluzzi says he’s had to change his thinking due to global warming as well.

“When I started in this business, I learned from this great agrologist and appraiser named Les Holmes, and he always told me if you see these (types of) lands being planted, you know the market’s gone insane,” said Pauluzzi. “But now, you’re seeing it happen in higher elevations to get a later crop, so you’re not competing with everyone in the valley bottoms or the lower benches.

“If you’re higher up, you’re able to sell later when there’s no cherries, so that’s why they do it,” he adds. “All the cherries from the summer are gone, and they now have cherries to bring into the market when no one else does.”

Part Five: Rise of the Hobby Farmer

While the vast majority of the price increases had to do with the cherry and grape sectors, experts say the COVID-19 pandemic combined with the red-hot real estate market in the Lower Mainland are also factors.

For many years the Okanagan Valley has experienced the phenomenon of urban dwellers selling off their high-priced city homes, and buying a 10-acre parcel for a combined home and hobby farm. The experts we spoke to said the pandemic has accelerated that process.

“Covid has had a fascinating effect on agricultural land because people have realized they can now work wherever they want to,” Marshall says. “I’m seeing a ton of people from the Lower Mainland coming here, they’ve sold their urban home for two and a half million, and then they look at what they can get in the Okanagan for that kind of money.

“If they like the idea of having a hobby farm with revenue coming off the land, and a beautiful farm or orchard to look at, they can roll the money they’ve made from their Lower Mainland home into quite an impressive property up here,” he adds. “That’s had a strong effect on pricing.”

Geen says he’s seeing the same thing. “I think COVID was an eye-opening experience for a lot of people who have lived in larger cities their whole lives, and then they realize, ‘Maybe I don’t want to be living in a 40-story condo, or jammed in with a lot of other people’, but they don’t want to move to the boondocks because they want the amenities, the international airport, the university, and so on.

“In the Central Okanagan there’s a draw there because you can have a lot more space and not be off in the total boondocks.”

As well, Geen points out that owners of hobby farms get a concrete benefit in the form of tax breaks for farm land, as long as they keep the land in production.

“My brother Kevin lives on a 10-acre orchard property out in Okanagan Center,” he said. “Big Craftsman style home with stunning views of Okanagan Lake and all that stuff, but the land is all planted as orchard, so the land taxes on the orchard part are very low. Farm status is a good thing!”

Pauluzzi says the pandemic trend can be seen in recent farm appraisals, and in the people who are buying up smaller parcels after moving from the Lower Mainland or other urban areas.

“We are getting people moving into the Okanagan from the Lower Mainland,” he says. “COVID has really changed people’s perspective on commuting to work, so now you have people taking early retirement, they have money from their property, they come here and realize, wow, I could run a smaller five or 10 acre vineyard, have some fun and change my lifestyle.”

The Land Rush Is Here to Stay

All the experts we spoke to said they don’t believe the current market is a bubble, and all believe demand and prices will remain high. Demand for BC’s high quality wines continues to grow, and that industry will likely improve even further as climate change allows for more plantings in what were once marginal lands.

The same is even more true for the cherry market. Demand for cherries from China is almost insatiable, and while that country is noted for imposing punishing trade tariffs on its critics, including Canada, most observers believe the cherry sector is too small to present an attractive target for that type of trade dispute, unlike Canada’s canola or pork industries.

As a result, Pauluzzi predicts there will be a strong market for decades to come. “I don’t see this changing, I really don’t,” he said. “If COVID doesn’t hurt the market, I don’t know what could. Other than a complete economic failure, what can derail this market?”

A bigger question for farmers in this sector will be how to locate land that is both affordable and practical for inclusion in the lucrative grape and cherry sectors.

Geen and Marshall say growers will almost certainly continue looking northward and upward for land needed for expansion. Those lands benefit from lower prices, and while they may be more subject to the risk of frost damage, they also present the opportunity for a later cherry crop that commands higher prices.

Areas like Ashcroft and Pritchard are now coming into their own for fruit production, and at prices that are a fraction of land in the Okanagan Valley.

That said, Pauluzzi also says the changes in the market are so rapid and so vast that it’s almost a requirement to get an appraisal on the land, and to have a specialty agrologist check out more northerly properties to assess the risk of frost damage.

“We have our ears to the rail and we know what’s happening in the market, so it’s definitely a good idea to get an appraisal in general,” he said. “But, now that we are seeing such significant price increases over a short period of time, it’s hard to keep up, and therefore it’s more important so you can be sure you’re getting the value for your land in this market. Properties are literally selling over list, and unless you’re in the industry, you wouldn’t necessarily know that.” 

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