The housing market may be "cooling off" but that's not the case with the prices of farmland in the Fraser Valley. The traditional vegetable farm is disappearing thanks to the North American Free Trade Agreement ("NAFTA"), and in place of those farms, blueberry farms are springing up everywhere. This is somewhat similar to what we saw in the Abbotsford area with raspberry farms in the mid 1970's to the early 1980's. Unfortunately, so many raspberry farms came into existence that raspberry prices crashed and farmers were in the position of paying more for producing the raspberries. It wasn't long after that that many of the farmers began to plow under the raspberries, looking for alternative crops to grow.
Some farms eyed the lucrative cranberry market. However, the high cost of market entry prohibited most from getting into such a lucrative business. It may be just as well. A surprise to most, the cranberry market took a dive like the dot.com bubble of the late 1990's and the return on the farmer's investment was like fool's gold. Fortunately, the cranberry market has levelled out, the huge profits are gone but farmers are making a reasonable return on their investment.
The latest game in town is the purchase of bare farmland in the Fraser Valley. Some land is going for one hundred thousand dollars ($100,000) or more. What is driving these insane prices? It is the recent lucrative blueberry prices and its return to the farmer as an investment. The last time that blueberry industry did not have an excellent return for the farmer was around 1997. Since then the prices for fresh market have had a decent return and there has been a rush to buy farmland and plant as much blueberry as you can. It's great, right? The reality is probably not, because every gold rush comes to an end eventually.
First, if you purchase bare farmland at $100,000 per acre or more that is just the first step.
There is the next step, that is, preparing the farmland, which often requires clearing the land, ploughing it and then the most challenging step, the planting. The sudden demand spurred on by the high return on the fresh blueberry market has resulted in a shortage of quality, disease free blueberry plants. The average wait time is three years if you're lucky, otherwise it is more like five years. This is because not only has the demand skyrocketed in B.C., it has also gone up in the U.S., especially in states such as California and Texas.
Once the farmer has purchased his blueberry plant at a cost of approximately $3 a plant, most likely from Oregon, he is going to have to hire a crew to plant the blueberry plants. Of course, the blueberry plants are going to need water, especially in the early years, which means drilling for water and installing drip irrigation since overhead irrigation is prohibited due to possible contamination from ditch water. In the good old days no one cared, but with new tough government regulations, any overhead irrigation will result in your blueberries being condemned.
Of course, don't forget that the blueberry plant you bought at $3 a plant is normally a three-year old plant. You won't see any serious production from that plant until the eighth year or so. Its best production year will be around the tenth year. An anonymous farmer who now has his farm up for sale said, "I simply didn't know anything about investing so I thought about what others were doing, and I paid a hundred thousand dollars ($100,000) an acre and planted blueberries, and all the time I've been spending money." He said, "No money in - just out on fertilizers, pesticides, herbicides and labour costs." He is selling his farm and hopes he will break even. He said: "If I can get just the money I put in, I will be happy. I don't care about my labour costs."
The farmland across the border is more reasonably priced, according to a recent purchaser who added: "I paid $25, 000 per acre just across Sumas. I don't want to be crazy." If I bought 14 acres in Abbotsford and paid 1.4 million dollars, just the interest and not the principal, I would have to pay approximately $80,000 a year." He went on to say that is crazy business, "because a smart businessman makes at least 11% per year on his investment, not lose money."
My research indicates there is even cheaper farmland in the U.S. with ample labour supply. A realtor in Kansas was surprised at the extremely high price of Fraser Valley farmland. Bill Gorveau said, "That is unheard of here, I've got a listing of 150 acres of prime farmland with one irrigation unit putting out 550 gallons per minute and a canal also that comes into the property." How much an acre you ask? $1,050, he replies. The owner of this property is willing to finance the deal with 30 % down. The total asking price, according to Gorveau, is $172,000 and "it will sell quickly."
As more and more blueberry fields are planted, in Canada, the U.S. and other countries such as Peru, the market is going to be flooded with an abundance of blueberries. The upshot will be processing plants refusing to purchase blueberries due to the fact they have to pay upfront and keep them in storage. Meanwhile, the fresh market blueberries will dwindle due to the lack of shortage of blueberry pickers. As the immigration department is cutting back on the number of Indo-Canadian immigrants in the family class, the traditional picker who is an immigrant will drop off along with the supply of fresh blueberries.
The question then faces the average investor: Are blueberry farms a good investment or is it just a follow-the-crowd mentality? The smart investor spreads out their investment. At a time of instability purchasing gold, the traditional commodity in turbulent times, may not be a bad investment.
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