Since at least 2007, roughly half of Iowa’s land in agricultural production has been rented or leased rather than farmed by its owner. Farmland values at historically high levels are making it even more difficult for Iowans to pursue a secure career in farming. Almost no one can afford a large parcel of farmland at more than $8,000 per acre (or $10,000 per acre of high-grade land). Banks are rarely willing to lend aspiring farmers the kind of money needed to buy a farm, or to buy out siblings or cousins who inherited parts of the family farm.
Some experts believe Iowa farmland values have peaked, but via Tom Philpott I came across evidence that pressure from large buyers may continue to drive up prices. The Oakland Institute analyzed the trend of Wall Street investors buying farmland in the U.S. As institutional investors pile into this market, Iowa farmland may become increasingly unaffordable.
After the jump I’ve posted a few excerpts from the Oakland Institute‘s report, but I recommend downloading the whole piece to see supporting charts and references.
The trend toward absentee landlords owning Iowa farms is one among many reasons we can’t rely on purely voluntary efforts to protect soil and water quality. Tenant farmers have no incentive to spend money on conservation practices to improve land for the long-term. Landowners (whether they be Wall Street firms or individual investors) are often looking for the highest rent this year, not farming practices that preserve soil fertility and keep excess nutrients out of waterways.
Excerpt from Down on the Farm, Wall Street: America’s New Farmer by Lukas Ross and other Oakland Institute staff.
Driven by the same structural factors and perpetrated by many of the same investors, the corporate consolidation of agriculture is being felt just as strongly in Iowa and California as it is in the Philippines and Mozambique. The goal of the report is to introduce readers to the overlapping global and national factors enabling the new American land rush, while at the same time introducing the motives and practices of some of the most powerful players involved in it: UBS Agrivest, a subsidiary of the biggest bank in Switzerland; The Hancock Agricultural Investment Group (HAIG), a subsidiary of the biggest insurance company in Canada; and the Teacher Annuity Insurance Association College Retirement Equities Fund (TIAA-CREF), one of the largest pension funds in the world. Only by studying the motives and practices of these actors today does it become possible to begin building policies and institutions that help ensure farmers, and not absentee investors, are the future of our food system.
Nothing is more crucial than beginning this discussion today. The issue may seem small for a variety of reasons- because institutional investors only own an apparently tiny one percent of all US farmland,8 or because farmers are still the biggest buyers of farmland across the country.9 But to take either of these views is to become dangerously blind to the long-term trends threatening our agricultural heritage.
Consider the fact that investors believe that there is roughly $1.8 trillion worth of farmland across the country. Of this, between $300 billion and $500 billion is considered to be of “institutional quality,”10 a combination of factors relating to size, water access, soil quality, and location that determine the investment appeal of a property.11 This makes domestic farmland a huge and largely untapped asset class. Some of the biggest actors in the financial sector have already sought to exploit this opportunity by making equity investments in farmland. Frequently, these buyers enter the market with so much capital that their funds are practically limitless compared to the resources of most farmers. Although they have made an impressive foothold, this is the beginning, not the end, of a land rush that could literally change who owns the country and our food and agricultural systems. […]
At the same time, the United States Department of Agriculture (USDA) reports that the obstacles to those entering the farming business have never been higher. Beginning farmers earn less money, depend more on off- farm income, receive fewer subsidies, and face far greater obstacles to accessing credit.41 In fact, a recent survey conducted by the National Young Farmers Coalition found that 78 percent of respondents identified lack of capital as their biggest challenge.42 Tight credit conditions, created in part by the crisis of 2008, are particularly harsh on beginning farmers. The USDA reports that since they are more likely to have a lower income, young farmers are less likely to be able to service their debt using farm profits and more likely to do so through off-farm income and other household assets.43
Just as credit has become harder to find and more difficult to manage, farmland prices have risen across the country. Between 2003 and 2013, average land prices rose by 213 percent.44 No region has been unaffected, but the most dramatic increases are in Midwestern corn belt states like Iowa and Nebraska, where land prices have doubled since 2009 alone.45 Whether or not farmland has entered a “bubble” is another matter, but one thing is painfully clear: rising asset prices are yet another obstacle to land access. Beginning farmers, caught between tight credit conditions and rising land prices, face a harsher path to ownership than ever before.
Page 5 of the report is a sidebar on the experience of one Iowa organic farmer. Excerpt:
When Jude Becker began farming in Dyersville, Iowa 12 years ago, the land his family had held for six generations was practically derelict. For much of Jude’s life it had been leased to neighboring farmers, but when he decided to continue the tradition his family was well on its way to exiting agriculture completely. […]
Jude has 300 acres of organic cropland and raises 4,000 pigs every year. Until recently, he was able to grow enough traditional grains-mainly corn, oats, and soy-to feed all of his animals. But the recent success of his pork business has led him to begin buying from other organic farms in the area. […]
Jude is proud to be the owner of a farm business that can cover its own expenses. But one challenge that has been with him since the beginning-and is unlikely to go away-is land access. Even though the land he works has been in his family for generations, he still leases it from the family members who hold title. A few years ago, one of the parcels had to be sold because a relative was ill and needed the cash for medical care-an understandable development that he could hardly begrudge. Nevertheless, it was a rude awakening that brought home the fact that he would never be in a stable position until he owned the farm. “It’s very easy for a young farmer to get . . . enamored with this false sense of security that they have land access, because they happen to be living on the land and farming it,” he says, “but that doesn’t mean you have access.”25
Today, he is under pressure from family members eager to recoup the cash value of the land, either through a sale at market value or through competitive rental prices. But as much as he would like to buy the farm, he claims that the credit obstacles are too severe. In the Midwest, lenders are more inclined to do business with bigger, better-capitalized corporate operations rather than smaller, alternative ones like his.