By Neil Thapar, Food and Farmland Attorney
If you don’t follow investment trends, you may not know that one of the hottest investment opportunities in recent years is land, specifically farmland. Many investors, weary of investing in the stock market in a post-Great Recession era, are seeking alternative, stable investment opportunities. Farmland values have historically increased at a steady rate. As an added bonus, investors can also profit from whatever agricultural activities take place on the land. The flood of investment over the last several years means that agricultural land itself is being treated more and more like a profitable financial asset, instead of a productive natural resource. In a decade where both the average value of farmland and age of farmers have hit all-time highs, increased Wall Street ownership of farmland threatens a just transition by furthering principles of profit maximization, financialization of land, and absentee ownership.
Land grabs, the controversial acquisition of large parcels of land by governments or corporations, are nothing new in the United States. Beginning with settler colonialism and the Dawes Act, continuing through the Civil Rights era, all the way through to today’s large-scale corporate and institutional investment portfolios, the United States has a long history of land grabbing, particularly from Native communities and communities of color. What is new is the increasing involvement of individual investors in these land grabs through their participation in Real Estate Investment Trusts, or REITs. Previously focused on housing tracts, apartment complexes, and shopping malls, REITs are increasingly being created to facilitate the transfer of large amounts of wealth directly into centralized farmland ownership to do one thing: make money. You may never have heard of a REIT before, but everyone interested in creating a just and equitable food system should become familiar with these troubling investment tools. Here are three reasons why.
Farmland REITs put profit over principle. As an investment tool, the primary goal of a REIT is to generate a profit for its investors. This means that all other considerations, including the needs of farmworkers, farmers, soil health, surrounding community, and watersheds are secondary to the profitability of the asset, if they are considered at all. Farmland REIT managers see themselves as participants in a global food economy, which also means that they are likely to shift cropping practices and employment practices based on global market demands instead of responding to local needs.
Farmland REITs treat land as an asset in a portfolio instead of a natural resource in an ecosystem. As terrestrial beings, we have an inherent connection to land that, through place-based ownership or stewardship, can foster the growth and expression of our highest and best selves. When that connection to the land is taken away, as it has been forcibly done to Native peoples through settler colonialism, to Black people through enslavement and Jim Crow, and to many peasant farming communities in Central America, Southeast Asia, and Africa through international trade agreements – the social, economic, and ecological consequences are devastating. REITs are legal entities that are the real-world results of an economic and legal system that not only allows, but incentivizes, the commodification of land as a financial asset. One REIT manager put it this way, “the idea for the [American Farmland] Company was based on noting that U.S. farmland property values have generally been increasing over the long term….”
Farmland REITs recreate feudal relationships between landowners and land stewards. REITs acquire land, often from active farmers, then re-lease the land back to the farmer as a tenant on short-term leases, averaging 2-3 years for row crops and 5-8 years for orchards. If you were a farmer, would you invest in equipment, soil health, or water quality and conservation if you might be evicted in a few years? The result for farmers is that they have no incentive, let alone control, to invest in sustainable practices like crop rotation, cover cropping, no-till cultivation, native hedgerows, or other long-term cultivation practices that enhance soil quality, water retention capacity, and pollinator habitat. The result for the community is the loss of healthy local food production, exploitation of local human and agricultural resources, and wealth extraction by absentee landlords.
"There’s a reason I’m a landlord and not a farmer.” - Paul Pittman, CEO, Farmland Partners, Inc.
Farmland REITS know this, and in fact, are betting on it as a profitable strategy. The CEOs of these REITs, by their own words, understand and take pride in their status as landlords. Paul Pittman, CEO or Farmland Partners, Inc., a REIT with over 150,000 acres in its portfolio, says “there’s a reason I’m a landlord and not a farmer.” One reason might be that most REITs require their tenants to pay the entire year’s rent up front, in cash, before spring planting. So, at the same time that farmers need cash to purchase inputs and hire workers and before they’ve even sown a crop, let alone sold anything, they are expected to pay the entire year’s rent. Or, as David Gladstone, CEO of Gladstone Land Corporation, a REIT with nearly 34,000 acres in its portfolio, puts it, “[Y]eah, well the farmer takes on most of the risk, obviously.”
This exploitation of land and labor that investor-based land ownership deploys is why farmland REITs are so dangerous to the future of our food system, rural economies, and the land commons. Farmland REITs are essentially betting on a formula of increasing global food demand and shrinking availability of farmland to generate profits for their primarily wealthy investors. While most REIT investors are wealthy individuals, some REITs are also publicly traded, which means that ordinary people’s investment and retirement accounts may also be invested in a farmland REIT as part of a portfolio. Many of us wouldn’t know if this was the case unless we very carefully scrutinized each investment we made - something that is very important but not very easy to do.
Farmland REITs, public and private, continue to grow. According to Pittman, “this can be a multi-billion-dollar business, and that is our goal.”
Well, we have a different goal. Tune back in next week to read the second part of this blog. We’ll focus on existing and emerging principles and legal tools for community-based land acquisition and management models around the country. From community land trusts to real estate investment cooperatives to worker-ownership, these are the mechanisms that will help us start to grab the land back.
Sustainable Economies Law Centre | 22 June 2017
Sustainable Economies Law Centre | 22 June 2017
By Neil Thapar, Food and Farmland Attorney
The first part of this blog introduced the most recent iteration of domestic land grabs, by way of Real Estate Investment Trusts (REITs). These investment schemes threaten an equitable and sustainable future for farmland ownership and stewardship by prioritizing profits, commodifying land as a financial asset, and consolidating ownership with absentee-landlords. As the farmland REIT sector grows, Sustainable Economies Law Center is busy researching and piloting alternative models of farmland ownership that prioritize racial equity, ecological sustainability, and long-term stewardship. While consolidation, characterized most recently by REITs, represents the history of farmland ownership, we see the democratic, cooperative, and community-controlled models below as the future.
Community Farmland Trusts
While the overwhelming majority of the more than 250 community land trusts (CLTs) in the United States currently focus on preserving affordable housing, the roots of the CLT movement spring from agriculture and civil rights struggles of Black farming families dispossessed of their land in the 1950s and 1960s who purchased and collectively managed farmland as a survival tool in the face of racial discrimination and violence. Today, one of the biggest barriers to the equitable ownership of farmland is the increase in land values as a result of the financialization of land as an economic asset. CLTs effectively address this barrier by removing the speculative pressures from farmland when they acquire it. The CLT holds land for the benefit of the community and enters into long-term leases to provide farmers with secure tenure and the autonomy we generally associate with ownership. The CLT can also partner with another entity to sell a conservation easement, which drastically reduces the value of the land, making it that much more affordable for the farmer and preserving the agricultural character of the land forever. As nonprofit organizations, CLTs also legally bind the farmland to the charitable purposes for which the CLT was incorporated, essentially ensuring that the farmland it owns will be put to uses that will benefit the public in perpetuity.
Importantly, CLTs also structure their Board of Directors, the ultimate decision-making body for most nonprofits, to localize decisionmaking power. CLT boards include representation from professionals, tenants (in this case, farmers), and immediate community members to ensure that the CLT is acting in the best interests of those impacted by its activities. At the Law Center, we are working with Agrarian Trust to further develop the CLT model into a decentralized and democratic community institution by piloting the model of worker-self direction within the land trust itself.
Other examples of farmland CLTs include South of the Sound Community Farmland Trust and Sustainable Iowa Land Trust.
REITs exemplify a dominant feature of farmland in the United States, absentee ownership. This “out of sight, out of mind” approach leaves open a gap in land management that agribusiness has been all too eager to fill with its overuse of chemicals, export-driven cropping practices, and worker exploitation. It is one reason why communities in the Central Valley of California, mostly people of color, experience some of the highest rates of food insecurity and environmentally-influenced diseases in the state, even though they live in the heart of the richest agricultural economy.
Worker-owned farms, on the other hand, are by definition locally-owned. And local ownership matters. Placing farmland ownership in the hands of the people who work the land, live in nearby communities, and raise their children there leads to a seismic shift in decision making over land management. Empowered is this way, would farm worker-owners choose to spray chemicals in the fields where they work? Would they choose to grow crops without considering whether they will be able to feed themselves? Would they contaminate groundwater with nitrates from overusing fossil-fuel based fertilizers? We think the answers are no, no, and no.
At the Law Center, we are leveraging our expertise with worker cooperatives to put together a series of resources for farmers and farmworkers interested in developing worker-owned farm enterprises. While the cooperative model has a long history of supporting self-sufficiency in agriculture (see Federation of Southern Cooperatives), worker-ownership has not been a key feature. Recently, several examples of worker-owned farms have developed, including Our Table Cooperative, Solidarity Farm, and Our Harvest Cooperative. Swanton Berry Farm, while not set up as a cooperative, does include features of worker-ownership through an Employee Stock Ownership Program and a unionized workforce.
Community Financing for Farmland
There is no question that one of the biggest challenges to implementing a just transition in farmland ownership is identifying sources of financing. In traditional real estate transactions, financing tends to greatly influence the ownership structure. A common principle is that the person who invests the most money gets to own most of the land and make most of the decisions. While this may appeal to the investor in each of us, such a model perpetuates the myth that because wealth is generated based solely on merit, those with wealth ought to be in control. It also erases the history of unjust enrichment of White people in the United States at the expense of Native Peoples, Black farmers, and waves of immigrants of color.
If we are to truly develop an equitable food system, then we must envision a new relationship between money, land, and ownership.
Nonprofit lenders focused on supporting farmers already exist, and have been providing low-interest operating loans to farms for decades. California Farmlink and Northern California Community Loan Fund are great examples of the role nonprofit lenders can play in extending beyond operational support to finance equitable farmland acquisition. Both are Community Development Financial Institutions, or CDFIs, which allows them to access a larger pool of federal funding that they redirect to supporting economic development in low-income communities. As nonprofits, they may also have an easier path to aggregating investment capital because of exemptions from federal securities laws for charitable organizations.
There is also the example of a cooperative twist on REITs, called a Real Estate Investment Cooperative (REIC). REICs sell membership shares to community members, specifically targeting non-accredited investors (those who are not very wealthy), to aggregate capital to finance projects that benefit specific communities. Examples of this model include the Northeast Investment Cooperative and NYC Real Estate Investment Cooperative. Black Land Matters is using the REIC model to finance, among other things, farmland acquisition to rebuild Black land ownership in the United States.
At the Law Center, we are interested in supporting these models as well as exploring other less developed, yet potentially impactful, financing strategies to secure an equitable future in farmland ownership. These include unlocking people’s retirement incomes (like an IRA or 401k) from Wall Street and allowing people to self-direct their investments into local farm enterprises and farmland ownership. This could directly counter the current use of similar funds by pension fund managers that promote domestic land grabs. We also see potential in expanding crowdfunding laws to promote broad-based community investment in local agricultural enterprises, including supporting farmers in acquiring land. Or, how about creating pathways for advanced investment in cemetery plots to fund pasture land preservation and promote green burials?
Our guiding principle in exploring these possibilities is that the democratization of land ownership requires the democratization of capital. To reach this goal, it’s likely that all of the strategies discussed above - community control of land, worker ownership, and non-extractive finance - will need to work together in order to ensure an equitable and sustainable future for farmland.