Last week I wrote about House Bill 88, which would ban foreign ownership of agricultural lands in Wyoming. There are now two other foreign ownership bills that have been filed in the Wyoming Legislature.
While foreign ownership has captured the attention of the American public, there are other trends in ag ownership that are underreported and are probably of even greater significance when it comes to food production in America. One of the most significant is the purchase of the nation’s most productive ag lands by pension funds and corporations.
According to the Center for Agriculture & Food Systems at Vermont Law School, a few global corporations are responsible for 65% of agrochemicals sales, 50% of seed sales and 45% of farming equipment sales. In the United States, just four companies represent 73% of all beef processing, 67% of all pork processing, 54% of all chicken processing, and 45% of all retail grocery markets.
The National Family Farm Coalition (NFFC) points out that a major farmland transition is underway right now, as the current generation of farmers and landowners retires and passes on their land, with up to 400 million acres of farmland set to change hands in the next decade.
“The trends of this land transition are already cause for concern: wealthy buyers are purchasing large tracts of land in high-value transactions that are unattainable for small-scale independent farmers,” reports NFFC.
“This means that for independent farmers, especially young and beginning farmers and farmers of color who do not have the opportunity to inherit land, land access will increasingly be a major barrier to starting or continuing to farm as land markets become increasingly competitive and dominated by corporate actors.”
Farmland prices in the United States doubled from 2005 to 2019, and some states experienced even greater increases. Iowa farmland sold at auction for $30,000 per acre in November 2022, and Nebraska farmland sold for $27,400 per acre in October 2022.
NFFC says that a new “land grab” is underway, with Wall Street investors, pension funds, and other financiers looking for a safe place to park their money and turning to farmlands as their preferred investment.
Unfortunately, data collection by the U.S. Department of Agriculture does not provide information specifically about farm sales that are done as real estate investments, but Forbes estimates that $26 billion of U.S. farmland is owned or managed by institutions.
A real estate investment trust (REIT) is a company that owns or finances income-producing real estate for investor shareholders, and most REITs trade on major stock exchanges. There are two publicly traded REITs that specifically focus on farmlands, and numerous other public (but non-traded) REITs.
The Farmland Property Index prepared by the National Council of Real Estate Investment Fiduciaries indicated that this investment index included 1,306 U.S. farmland properties with a market value of $14.9 billion at the end of the third quarter 2022. Investment was heavy in the Pacific West, Delta States, as well as the Corn Belt.
Farmland Partners reportedly owns or manages 195,000 acres on 340 farms in 19 states with tenant farmers, making it the largest farmland REIT in the country by acreage. Its shares are traded on the New York Stock Exchange. “Farmland is a rare sector that benefits from growing demand in the face of shrinking supply,” according to the company.
Gladstone Land Corporation is a REIT that is publicly traded on the Nasdaq Global Market. It owns 164 farms in US, including 112,542 acres in 15 states, producing mostly row crops by leasing the land back to growers, making for tenant-farmers rather than farm owners.
“Our business plan in part contemplates purchasing agricultural real property that we believe is located in the path of urban and suburban growth and ultimately will increase in value over the long term as a result,” according to its website. “Pending the sale of such real property to developers for conversion to urban, suburban and other more intensive uses, such as residential or commercial development, we intend to lease the property for agricultural uses, particularly farming.”
The company reports, “Most of our leases are on a triple-net basis, an arrangement under which, in addition to rent, the tenant is required to pay the related taxes, insurance costs, maintenance, and other operating costs. Our leases generally have original terms ranging from 3 to 10 years for farms growing row crops and 7 to 15 years for farms growing permanent crops (in each case, often with options to extend the lease further). Rent is generally payable to us in advance on either an annual or semi-annual basis, with such rent typically subject to periodic escalation clauses provided for within the lease. “
Many large pension funds have also invested in farmland, but the biggest is TIAA-CREF (Teachers Insurance and Annuity Association) through its Nuveen subsidiary, which owns 431 farm properties in 7 countries, with 254 farms in the US.
Nuveen’s website notes, “As the demand for food rises and the supply of arable land declines due to increased industrialization and development, owners of high-quality farmland are positioned to benefit for years to come.”
Nuveen points to global population increases in the next 25 years that will require increases in agricultural productivity to provide more protein and increasing pressure on global grain supplies, and ““Regions with secure water resources will become increasingly valuable: As water becomes increasingly scarce, farmland with sustainable water resources, including surface and groundwater, should see enhanced valuations.”
Nuveen notes that “since there is a finite supply of global farmland and growing demand for food” croplands “seem likely to appreciate even more strongly in the years to come.”
According to its website, Nuveen is largest manager of farmland assets globally, with $7.8 billion of farmland assets (and 2 million acres) under management.
But it sees its potential as much, much larger. Its assessment of agricultural lands identified 3.8 billion acres of croplands worldwide, of which the company views up to 32 million acres of croplands in the United States as “investable farmland,” with a market value of $420-400 billion.
Nuveen published a briefing paper advocating “Institutional farmland ownership: facilitating the separation of farming operations from its capital base” to promote its model of investors owning the farmland, while leasing to tenant farmers.
The company stated, “Institutional investment can act to improve governance of farming operations by improving environmental standards and employment, while also facilitating research and development, training and trade, as well as contributing to social improvements in rural economies. Institutional investors, who invest third-party capital, can act as stewards helping to implement appropriate ESG (environmental, social and governance factors) policies and procedures that inform the land acquisition due diligence process and the ongoing management of the farmland.”
Nuveen’s website also mentions the potential for carbon markets, ecosystem services, and “natural solutions to counter climate change through farmland investments.” It reports: “Just as we’ve seen with the development of carbon markets, at some point in the future there may also be markets for other ecosystem services. That’s another way that enhancing natural capital assets could potentially add to the financial value of the land over time.”
“Natural capital” is becoming an important focus for many investment companies, but it’s obvious they haven’t yet figured out a system to “monetize” these property components.
Hancock Agricultural Investment Group, (now Manulife Investment Management) bills itself as the world’s largest timberland investment manager and the second largest manager of agricultural investments, with more than 302,000 acres of farmland in the United States, as well as about 120,000 acres in Australia, 21,000 acres in Canada, and 2,570 acres in Chile.
The company operates some of its own properties, but has tenant farmers on other properties, growing annual and permanent crops along with operating integrated processing operations.
“As a nature-based solution, farmland can provide positive social and environmental benefits by sequestering carbon, maintaining biodiversity, and contributing to rural economic vitality,” according to its website.
“As the global population grows, demand for food and fiber is expected to increase. Investors can capitalize on this trend while also benefiting from opportunities to reduce greenhouse gas emissions and help mitigate climate change.”
The company is implementing a system for tracking how its agriculture operations affect biodiversity, land, and water: “We’re building a system of natural capital accounts across our global operations through which we intend to capture, quantify, and potentially monetize the relationship between our operations and nature.”
While most farmland investment has focused on permanent crops and row crops, agricultural properties with “natural capital” are gaining in popularity as well. For example, Dallas-based global holding company Sammons Enterprises, Inc., is one of the largest privately-held companies in the United States, with over $130 billion in assets in five countries.
In early 2016, Sammons announced it had acquired its first conservation-related business when it acquired properties in Wyoming, including the Sweetwater Ranches Conservancy, LLC and its associated conservation banks, as well as Pathfinder Land and Ranch Management with related assets from Pathfinder Renewable Wind Energy, LLC.
That announcement noted: “Wyoming-based Pathfinder Ranches is a water supply leasing entity supporting Wyoming industries, municipalities and energy development in the North Platte River drainage. Pathfinder’s senior water rights support our active agricultural operations, we have annual access to over 2,000 acre-feet (15.5 million barrels) of water per year to help meet your water supply needs.”
“Pathfinder Ranches owns and manages the nation’s largest sage-grouse mitigation bank, and the sale of sage-grouse credits is essential to the business operations,” according to its website, Pathfinder Ranches.
“Companies facing State and/or Federal sage-grouse mitigation requirements may purchase credits to move development projects forward in Wyoming while eliminating their sage-grouse liabilities forever. Credits can specifically be used to secure year-round access to sites and other development opportunities through seasonal stipulation exceptions.”
Nine midwestern states have already taken steps to limit or ban corporate farming within their borders, according to the National Agricultural Law Center, including Iowa, Kansas, Minnesota, Missouri, Nebraska, North Dakota, Oklahoma, South Dakota, and Wisconsin.
According to the center, “The primary goal of corporate farming laws is to protect the economic viability of family farms in light of the threats from competition with corporate-owned or corporate-managed farms. Some proponents of corporate farming laws also argue that corporate-owned or managed farms are more likely than family farms to inflict serious environmental damages and will be unfairly protected from liability for these damages by the farms’ corporate status.”
Most of the laws provide exemptions for cooperative associations and family farming corporations, and corporate farm interests are expected to fight the bans in court.