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Thursday, July 16, 2015

The Missing Party In The Discussion About Sustainable Farming

Lots of our prime farmland is rented

(This post originally appeared on Forbes, 7/15/15)

The good news is that state-of-the art sustainable farming practices can pay for themselves.  When fields are tended in a way that improves soil quality over time, there are multiple environmental benefits in terms of water quality, greenhouse gas emissions, and energy demand.  At the same time, this kind of farming increases the value of land through increased productivity and greater drought resilience.  The not so good news is that farmers rent much of the land they farm, so they don’t fully benefit from the financial up-side of this sort of sustainable farming.  And typically, those that own the land are far removed from the details of farming.  I believe that this disconnect and misalignment of financial incentives is a key barrier to the fuller implementation of the kind of farming that could meet both our environmental and food supply goals.

Maybe You Can’t Buy The Farm, But You Can Rent It

There are historical and logical reasons why so much farmland is rented.  As mechanization steadily reduced the number of people needed to produce food, the descendants of previous farming families tended to retain ownership of the land even after they had migrated to cities.  Those who continued to farm found that it is better to expand their operations by renting land rather than through buying.  With the unpredictable ups and downs of commodity prices, a big mortgage puts a farmer at too much risk of bankruptcy.  Also, the price of land can vary for many reasons unrelated to its potential crop production (development potential, mineral rights…), while land rents are very tightly connected with the likely crop value (see graphs below).  Renting land also makes sense for the owners because it represents a steady stream of income.

How land rents are related to potential productivity for 4 Midwestern states

However, even though the leasing of farmland is a practical system, the way it is typically done today misses the opportunity for a win-win-win scenario for the farmer, the land owner, and the environment.  There are different kinds of leases, but a widespread arrangement is a simple annual cash rent.  The farmer pays a set price for each given year with no guarantee that they won’t be outbid for that particular property the next year.  This focuses farming decisions on short term economics.  For instance the prevailing rents in any locale are usually based on the income potential of and risk profile of a few crops.  Thus in much of the heart of the American Midwest, a corn/soy rotation or even continuous corn is what is needed to be able to pay the rent and still make a little money.  There might be good agronomic reasons to include something like wheat or a forage crop in the rotation, it isn’t feasible because those crops are not worth as much, and in the case of wheat, have a disease risk issue.

Land Rent is a major part of the farmer's annual cash outlay
The optimal, soil-building farming methods I mentioned above often take a few years to produce their beneficial effects, and entail some risk along the way.  There is a several year transition from a plow-based system to no-till or other reduced tillage system.  There is a need for new equipment and for the first few years there can be higher risk if the planting season is wet or cold.  After a few years the risks become lower than with tillage, but without a longer-term lease arrangement, the initial investment does not make sense.  There are similar pay-off delays for other best practices like cover cropping and controlled wheel traffic.   The prevailing, annual cash rent arrangement as well as annually focused lending don’t support these sustainable practices.

Land rental is big business
Over the past several years there have been a number of very well intentioned, multi-stakeholder initiatives which have sought to establish objective, quantifiable metrics for agricultural sustainability with the idea of encouraging positive options.  The parties at the table have included environmental NGOs, food manufacturers, food retailers, technology companies and farmer organizations, but to my knowledge there has been no one at the table representing the interests of absentee land owners.  This is unfortunate because it is their land asset, which has the potential to increase in value.  What is needed is a way for farmers and land owners to share the risk and investment of the shift in practices and then to share the increase in potential production value.

This issue of misaligned incentives on rented farmland is one of my "concerns about the future of the food supply,” but I believe it is something eminently solvable.  I know there are plenty of progressive farmers who would be able to make the right decisions about how to improve each given field.  I believe that if the distant land owners could be informed about the potential, many of them would gladly engage.  There is probably a role for an environmental NGO to help bridge that divide in our society.  The progress could also be documented by a multi-stakeholder agreed upon sustainability metric.  Any ideas about how to make this happen are welcome!