Rural America:
A Study Of Absentee Land Ownership
Edward J. Dodson
[Reprinted from
GroundSwell, March-April 2005]
The fact that the family farm is disappearing from Rural America is
not news. With every trough in the economic cycle more farms change
hands. Thinly capitalized farmers, maintaining their farms under a
tenuous balance between revenue from commodity sales and rising costs
of production, repeatedly find themselves close to bankruptcy when
commodity prices fall and they default on bank loans. After decades of
such cycles, roughly 40 percent of U.S. farmland is now owned by
individuals or entities who do not engage in agricultural production
themselves.
Individuals who have surplus income to invest are increasingly
looking to farmland as a way to diversity their portfolios. Such
investors do not consistently lease their land to farmers; many are
engaging firms such as Farmers National Co., based in Omaha, Nebraska,
to manage the planning and harvesting. A recent story in the
Philadelphia Inquirer indicates this firm is "one of the
largest farm management companies in the country" and manages
some 3,600 farms in 22 states. Farmers National charges 10 percent of
gross profits as its management fee.
Investors are hoping for two things: first, a profit from working the
land; and, second, a continuous increase in the value of the land.
Between 1987 and 2004, the average price of U.S. farmland has
increased from $600 to nearly $1,400 and acre.
Interestingly, as reported in the Inquirer story, "the
highest percentage of absentee farm ownership occurs in the most
fertile area of the country - the Midwest and into the Mississippi
Delta - because it provides the best returns," presumably because
the land requires only modest application of fertilizers and receives
ample rainfall. In other cases, water to irrigate dry land is sold to
farmers at far below the actual cost; or, if drawn from underground
aquifers, the water extracted may someday make the entire region
marginal as habitat for people and animals, let alone monoculture crop
production.
Thinking rationally about the decision by investors to acquire
farmland, the one great advantage is that this new type of
agricultural landowner is far less likely to lose the land due to
default on bank loans. To the extent government subsidies and price
guarantees support U.S. agriculture, land prices are supported.
The dialogue over the demise of the family farm and the disruption of
rural communities continues. Absentee investors are simply taking
advantage of the complex web of government programs and the absence of
an effective tax mechanism to capture agricultural ground rents for
public use. I wish I could say with a straight face there was some
hope for a rational discussion on the issues, but …
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