Mon. Nov 28th, 2022

1870 was the first US Census in which farmers were in the minority (47.7%).Today, only 1.3% of Americans are still farming and increasingly do so on operations of over 2,000 acres. Even so, family farms still make up 98% of our agricultural sector. Farm ownership still reflects the legacy of the Homestead Act of 1862 as a great deal of current farmland still belongs to descendants of the 19th century homesteaders. According to the most recent USDA Census of Agriculture in 2017, the largest share of the US agricultural land is owned by families and individuals (201.5 million acres of cropland and 223.8 million acres of pastureland). Partnerships and family corporations own most of the remaining private land with non-family corporations holding only 3.1 million acres of cropland and 6.4 million acres of pastureland (see graph below).

The remaining farmers have typically expanded their operations by renting additional acres rather than by purchasing land. That approach makes perfect sense in the high risk, moderate reward business of farming where the likelihood of a year with bad weather or low commodity prices makes it too risky to take on a big mortgage. In the USDA’s TOTAL Survey from 2014, rented land accounted for around 28% of US pastureland (~144 MM Acres) and 54% of US cropland (~214 MM Acres). That survey also found that 31% of farmland (pasture and crop) was rented from “non-operator landlords” and 8% from farmers (see graph below)

Farm operations that rent some or all of their acreage dominate in all but the smallest farm size categories (See chart below with partial rental operations in light blue and full rental operations in orange).

The landlords who lease this property are a mix of still-active farmers, retired farmers, farm widows, city-dwelling descendants of farm families, and some unrelated investors. Many of these landlords have a hands-off relationship with their farmer tenant and simply collect their annual rent payment directly or through a farm management company. In an age of climate change there are good reasons to consider a more active role for these owners.

Agricultural Land Value In An Age Of Climate Change

Agricultural land is an asset with both short and long-term value. It generates annual income for the farmer and a significant portion of that is applied to rent if the property is owned by someone else. Ag land rental rates are closely tied to historic and regional production history – better land commands higher rent. Around 1/2 of the cropland in the highly productive Midwest is rented and the percent of land rented from non-farmer owners is highest in the states with the highest per acre rental rates based on their productive potential (see graph below).

The property value of agricultural land has been increasing at a brisk pace in recent years making it interesting for a range of investors. A projection from the 2014 USDA survey of land ownership and tenure was that around 9.3 million acres of farm land would change ownership between 2015 and 2019 and that 60% of that would be through gifts, trusts, or wills. Even so, some of that land was projected to be sold by the new owners, increasing the supply of land available for purchase. Land values and land rents are highly correlated (see graph below).

Risk and Opportunity

Climate change is creating both new risks and new opportunities related to the annual and long-term value of agricultural land. On the risk side, agricultural productivity in any given growing season is intimately linked to weather. The shifting climate exposes crops to more frequent extreme weather events (drought, flooding, wind…), yield-robbing warmer nights, and increases in the range and severity of pest challenges. Farmers can get some relief through government subsidized crop insurance, but there could eventually be the need for some risk sharing by landlords.

On the opportunity side, plants can capture carbon dioxide from the atmosphere and store it underground in relatively stable forms of organic matter – this is one means of climate change mitigation through carbon sequestration . There are certain farming systems focused on the improvement of soil-health, and they do a particularly good job of carbon sequestration. If this kind of “climate-action farming” could be implemented at large scale (e.g. 100+ million acres), it would be of great benefit for society as a whole. There is a further upside associated soils that have captured and stored a lot of carbon – they become more resilient in the face of climate change because they are better able to capture and store rainfall in ways that buffer crop yields in both excessively wet and dry years. The land becomes more “climate-resilient.” While there is no one ideal farming system suited to all situations, the basic elements are: keeping plants growing in a field to feed the soil ecosystem for as much of the year as possible (double cropping, cover crops), growing different species in a given field over time including some which are particularly deep rooted (diverse rotations), and most importantly doing all of this with little to no mechanical soil disturbance in the form of plowing or tillage since that sort of operation leads to the release. There are also benefits from certain livestock integration practices.

The Transition Challenge

While dual climate-resilient/climate-action farming systems are very attractive as concepts, it is not at all trivial for a farmer to implement them in the real world. They must also be customized to fit different soils types, regional climates and primary cropping options. These changes require upfront investment in things like seeds or equipment. There may be reduced income from some of the rotational crops chosen for their soil enhancement characteristics rather than profitability. It also typically takes 3-5 years years for the yield and yield stability benefits to kick in, and so the key hurdle is financing the transition. This investment can be difficult enough to justify with land the farmer owns, but far more difficult to justify for rented land where there is no guarantee that the farmer will have the lease long enough to realize the resilience benefits. It will be increasingly important to educate landowners that there will be a growing perverse incentive for a future tenant to “mine” the soil of nutrients for a few years by tilling —- essentially what the original sodbusters did. That future conventional tiller may be willing to pay more to lease improved ground, knowing that his/her non-land operating costs will be lower than on his/her other fields. An unwitting landowner might think this is a good deal and switch tenants for a slightly better rent offer —- not appreciating the asset degradation the land is about the suffer in the background. It is a poor trade, but not very visible. This has been a source of friction in some farm communities.

Carbon Offset Markets

There are initiatives underway to pay farmers to sequester carbon, but there is considerable skepticism as to whether such programs offer enough money to justify the costs and complications involved. There are also questions about whether these programs can be administered in a way that is fair and verifiable. Hopefully carbon markets will contribute towards more climate-ready farming, but other mechanisms are needed to enable the extensive and timely adoption of climate-resilient farming needed to protect the food supply.

Regenerative Farming

The farming methods described here are related to what is variously defined as “Regenerative Farming.” Unfortunately there is an effort to link the regenerative designation to organic through a certification process that would continue the ideologically-driven technology limitations of organic. The organic business model is to compensate the farmer for lower crop yields through consumer-paid price premiums, and that is not a workable approach to drive a system change on a large scale in row crops. The shift to climate-resilient farming needs to be enabled by all the best available technologies including biotechnology and well regulated crop protection chemicals.

Is This Kind Of Change Even Possible?

Yes, there is reason to believe that this is possible based on a historical precedent for a huge farming system paradigm shift that happened in mainstream agriculture: “no-till farming”. That change was also a response to a climate crisis of human origin – the Dust Bowl phenomenon of the 1930s, and it demonstrates the fact that farmers can make changes when they need to. This year marks the 60th anniversary of the first “no-till” field grown in Kentucky in 1962. Growing crops without plowing or tillage was such a radical idea that early adopters had to avoid social gathering spots like coffee shops to avoid getting harassed about their “trashy fields.” Fast forward to 2017 and 104.5 million US acres were farmed using a no-till approach. No-till or the related Strip-till farming methods are the ideal foundation for the full suite of climate ready systems, and so it is important to consider what enabled that kind of large-scale change. The key elements were applied public research, the development of specialized machinery, and the availability of key technologies such as herbicides and biotech crops. But perhaps most importantly, the change was pioneered by a distinct and innovative subset of the farming population that banded together as a community. Today there are still self-identified “no-tillers” and “strip-tillers,” and they are at the adoption forefront for other climate-resilience enhancing farming methods. Grower oriented publications like No-till Farmer or Progressive Farmer are filled with narratives about farmers that are working out the practical details of adding things like cover crops or unusual rotations or livestock integration. The key is not to tell growers how to farm, but rather to ask these leaders what works and what would help them and others to move in the right direction in terms of a climate change response.

How Could Farm Leases Be Modified To Help Drive Change?

As mentioned earlier, it can take several years for the crop yield benefits of modified farming practices to kick in and typical leases are on an annual cash basis. Longer leases would be a step in the right direction, but probably not all that is needed.

As the growing climate becomes more challenging, land with enhanced climate resilience will become more valuable, both in terms of potential rent and as a premium property. It would make sense to structure a lease to include some cost sharing between the farmer and the owner during the transition process, and then have some mechanism for the farmer to share in the increased rent potential and land value. There would also need to be a cooperative lease model for any leased land that is going to be enrolled in a carbon market program. Getting carbon credits requires a commitment to the “permanence” of the carbon sequestration which is not something that a renter can promise since a subsequent tenant could return the land to full tillage and release the stored carbon back into the atmosphere. A land owner who wants to have their land in a carbon program will need to find a capable and willing farmer and it would be appropriate to do that with some sort of cost and value sharing arrangement.

Another possibility would be to identify farmers with the most experience at transitioning fields through climate-resilience farming methods, and engage them to upgrade land that hasn’t been optimally farmed in the past. Once again a cost sharing arrangement would be appropriate up front followed by some mechanism for the grower to share in upside value. It would also make sense to set up an apprentice-like arrangement for young farmers to learn from those same experts.

Connecting the Key Players

In order for there to be widespread adoption of new lease models that support climate-resilient/climate-action farming, to be there needs to be a way to connect progressive farmers with enlightened landowners and other entities. The goal is not to tell farmers how they should farm, but rather to enable them to optimize the climate resilience of land in ways that make sense for specific settings. There could be a role for environmental or climate-action NGOs to generate interest among non-farming land owners and provide them with background information and lease models. Federal and state agencies involved with agriculture as well as farm industry organizations could help in the development of new lease models. The operators of carbon offset programs should clearly “be at the table” as should individuals or organizations who want to invest in farmland. There could be a role for entities pursuing corporate sustainability or climate goals. There could be a role for climate-oriented charitable foundations. On the surface these diverse groups might seem like “strange bread-fellows,” but with a commitment to mutual listening and respect, they could join forces to make a meaningful difference for the future of the food supply and the trajectory of climate change.

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