Table of contents

Overview

The Public Lands Modernization (Grazing Leases and Obsolete Provisions) Amendment Act updated Alberta’s grazing disposition rental rates and fee framework. This framework determines the amount of rents and fees grazing disposition holders pay to the government for the use of public rangeland.

The framework was developed with stakeholders in acknowledgement of the stewardship efforts of disposition holders, and to ensure that the new framework was transparent and fair. The grazing rental framework is based on cattle markets and reflects the economic reality of managing a disposition, while ensuring Albertans get fair value for the use of the province’s resources.

The government supports rangeland sustainability and proactively invests 30% of grazing disposition rental revenue above $2.9 million into rangeland sustainability initiatives through the Rangeland Sustainability Program.

New rates and phase-in

Rental rate changes impact:

  • grazing leases (GRL)
  • grazing licences (FGL)
  • grazing permits (GRP)

Rental rate changes do not impact:

  • forest reserve grazing permits
  • head tax permits (HTP)
  • provincial grazing reserves (PGR)

These three types of grazing dispositions have a different fee structure due to differences in disposition holder rights and requirements.

Map showing the Grazing Rental Zones of Alberta

Under the framework, there are two grazing rental rate zones based on the transition of the boreal region of the province, an area that incurs higher costs on grazing dispositions. Zone 1 (South) and Zone 2 (North) are divided by the North Saskatchewan River.

The implementation of the new rental rate structure aligns with the cost of holding a grazing disposition and market fluctuations – so when cattle markets are down, so are rental rates.

Although rent is calculated on an annual basis, there is a minimum grazing rent charge:

  • $2.30 in Zone 1
  • $1.30 in Zone 2

Rental rates are tied directly to annual cattle markets. When cattle prices rise, rent increases and the formula captures a greater share of potential profits from grazing on Crown land. To address any changes during implementation, the new rental will be phased in over a 5-year period. The phased in rate will be based on an increasing percentage of the calculated yearly rate. The phase in percentages are found at:

Phased-in rate changes for 2023

Previous zone New zone New minimum rate (per Animal Unit Month) Old minimum rate (per Animal Unit Month) 2022 rates (per Animal Unit Month) 2023 rates (per Animal Unit Month)
Zone A
(Southern Alberta)		 Zone 1 $2.30/AUM $2.79/AUM $3.25/AUM $4.58/AUM
Zone B
(Central Alberta)		 Zone 1 $2.30/AUM $2.32/AUM $3.25/AUM $4.58/AUM
Zone C
(Northern Alberta)		 Zone 2 $1.30/AUM $1.39/AUM $1.94/AUM $3.08/AUM

Assignment fee

As of 2020, the application fee to transfer a grazing disposition to someone else (family and non-family assignment) is a flat rate of $3,150, in alignment with the assignment fee for all other public land dispositions assignable under the Public Lands Act.

Grazing rental formula

The rental rate framework calculates lease rents based on the profitability of operating a grazing lease, considering market prices, transportation, and operating and labour costs.

To calculate rent we use a model based on:

  • the purchase of yearlings in the spring
  • weight gain on the lease during the grazing season
  • sale price in the fall

Although there is considerable variability in how cattle operations and grazing leases are managed across the province, this standard was chosen to provide consistency.

Inputs to the model come from actual market reports (example: Canfax) and take into account long-standing cycles between spring and fall markets, as well as yearling and calf markets. Grazing lease cost surveys provide inputs to the model such as:

  • weight gain on the lease
  • direct and indirect operating costs

The most recent survey in 2016 was funded by the province and delivered through contracted services. The grazing lease rental rate varies as net revenue from cattle (steers) minus additional input costs and grazing lease operating costs (example: profitability) either increases or decreases.

There are 3 key calculations used to determine rental rate under the grazing disposition rental rate framework:

  • 1. Net revenue resulting from activities on the lease

    Net revenue considers the purchase weight and cost for Alberta steers at the end of April, the weight gain, and sales price in September after cattle have been on the lease for an average four-month period. The net revenue is the difference between the cost of purchasing 600-700lb yearling steers in the spring and selling them at 800-900lb in the fall, before operating costs are incorporated.

    • Net income refers to the income the leaseholder retains once all costs have been taken into consideration.
    • Weight gain data was collected by a grazing lease cost survey and will be periodically updated using information collected in stock return forms to ensure that gain data is as accurate as possible.
    • The sale price used in the model is calculated based on the 2-year rolling average of the 800 to 900 lb. steers at the end of September. This provides for more stable rental rates than might be experienced with year on year actual spring and fall market prices but over time should result in very similar rents paid. 

  • 2. Operating costs while on the lease

    These are costs incurred by the leaseholder to own and operate the lease, including transportation costs, sales costs, rent and taxes, fence maintenance. These lease related costs are then subtracted from net revenue to provide the residual income the leaseholder retains once all costs have been taken into consideration.

    • Cost inputs and investment costs such as water development and range improvements for the model are gathered by the grazing lease cost survey.
    • A Return on Investment (ROI) calculation is done for the model lease by comparing residual income to these investment costs.

  • 3. Rental calculation

    A minimum grazing lease rental rate applies when revenues are equal to or less than the operating costs ($2.30/AUM in Southern Alberta, $1.30/AUM in Northern Alberta). As revenues exceed operating costs a variable rent is added to the minimum rent (a base percentage of the amount by which revenues exceed costs).

    As profitability increases, and residual income exceeds the ROI and a return on capital employed, the rate of the variable component of rent increases as well. Rental payment increases the variable rental rate component added on top of the base rate as profitability increases.

    • Return on capital employed (ROCE) is a financial ratio that measures profitability how efficiently an operation can generate profits from its capital employed by comparing net operating profit to capital employed.
1Note that 'Rental rate tiers' are found at: Ministerial Order 01/2020: Public Lands Fees, Rents and Other Amounts Payable Order.
Key calculation Inputs Output
Net revenue calculation Canfax steer prices
(Market prices: 850 lb sale weight minus 650 lb purchase weight)
=
Weight gain from purchase to sale		 Net revenue earned by rancher from cattle grazing on lease
Operating cost calculation Direct costs
+
Indirect costs		 Operating costs incurred by rancher whose cattle graze on the lease

Return on investment (ROI) is calculated for the lease
Rental rate calculation Return on investment (ROI)
+
Rental rate tiers1, including minimum rent		 Public lands grazing lease rental payment

Legislation

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