What with farmland changing hands at price levels that would make a Beverly Hills realtor blanch, one could be forgiven for jumping to an obvious conclusion: Farm Country is flush with cash these days.
Indeed, based on pure numbers, the statistics are impressive. Midwestern farmland values increased 16 percent in 2012, the third largest gain since the late 1970s, according to the Federal Reserve Bank of Chicago.
Armchair economists say it’s simply a matter of supply and demand. Market prices for commodities like corn and soybeans are at all-time highs, so it naturally follows that prices for the soil that can produce those commodities would also be through the roof (it doesn't hurt that interest rates are at rock bottom levels as well). Supply and demand is partially responsible, but other non-market factors are at work here as well.
For example, government policies like crop insurance remove virtually any risk from farming land that in the past may have been considered too poor to raise a crop on profitably. This has made it quite lucrative for large landowners to bid up prices on even highly erodible, marginal land.
It also turns out that the conventional wisdom that high land prices always result in a healthier rural economy is also pretty simplistic, and in most cases, downright wrong. For example, Bloomberg News recently did a fascinating analysis that showed an uncomfortably close relationship between farmland values and income disparities. The focus of Bloomberg’s reporting was Iowa, which has traditionally had a relatively narrow gap between the richest and the poorest residents.
A wide income disparity gap has long been more closely associated with metropolitan areas—think New York’s Park Avenue and Harlem’s slums, for example. However, according to the U.S. Census Bureau, less populated areas now dominate the ranks of U.S. counties where income inequality increased the most sharply in recent years.
Some of the disparity can be attributed to the land boom. Take O’Brien County, Iowa, for example, which had the state’s highest—$9,513—average per-acre land value in 2011. According to Bloomberg, in that county, “The top 10 percent of wage-earning households collected 54 percent of the county’s income in 2010, compared with 40 percent a decade earlier. Of more than 3,000 U.S. counties, O’Brien had the 23rd highest jump in income inequality from 2000 to 2010.”
Families that sell out to the highest bidder are often not living in the community any more, meaning their wealth isn’t staying local. In addition, when a farm is sold, it’s more than likely bought to add acres to a larger operation, not to serve as a basis for a new start-up.
“Iowa had had historically low levels of inequality, but now it is skyrocketing,” Iowa State University sociologist David Peters told Bloomberg. “Today you have far fewer farmers and a small number earning larger and larger incomes. It doesn’t spread through the economy like it used to.”
This is bad news for Main Street businesses as well as local institutions like churches and schools, which rely on warm bodies to stay viable, no matter what land is selling and renting for. It’s also bad news for beginning farmers, who are priced out of even renting land, let alone buying it.
As the Land Stewardship Project’s Farm Beginnings program has shown, this means it’s a critical time to ask an important question of landowners: is getting the highest price possible for that acre of land worth the price it imposes on the community? That's a question that will be posed March 22-23, when LSP's popular one-act play about the future of farming, Look Who's Knockin', comes to St. Catherine University in St. Paul.
Dealing head-on with this question couldn't be more timely. A few days ago I was forwarded an e-letter that had been sent out by a Texas financial adviser to his clients. The memo, written in that breathless, excitable style only bubble-market loving financial wonks can pull off with a straight face, makes the argument that Midwestern farmland is now a "trophy asset" that should be captured, drug home and put on display, so to speak. Here's an excerpt:
"Trophy assets are the world's most valuable assets. These are the types of assets that wars are fought over. We're talking about assets like the Grasberg Mine in Indonesia, the world's most productive copper and gold mine… gigantic casinos on the Las Vegas Strip… prime Manhattan retail space… and Texas' giant oilfields.
"When you can acquire the world's elite mines, oilfields, retail locations, and casino properties for bargain prices, they are 'one decision' financial moves. You buy them… and never sell. You sit back and collect huge rents and capital gains. You can pass these assets onto your children (if you can stand them).
"Most people don't realize how important the black earth of Iowa and its neighboring states was to the formation of the American empire. To this day, the farmland of Middle America is a key component of America's dominance. On the geopolitical stage, it's 1,000 times more important than Las Vegas casinos.…
"No other region on Earth can produce such huge amounts of food and ship it at such low costs. Farming this region allowed America to develop a massive, well-fed population. It allowed capital to flow into railroads, factories, and cities. It allowed the build-out of the most powerful military on Earth.
"Thus, the farmland of Middle America is a 'trophy asset' on par with the oilfields of Saudi Arabia."
I suppose it's a bit flattering to hear that a big-time Texas financial expert thinks so highly of our farmland. In fact, I agree that our fertile topsoil is "1,000 times more important than Las Vegas casinos." But overall, this guy's "trophy asset" attitude is pretty sickening. Trophies are items you hunt down and conquer, not a resource you steward for coming generations.
We should all get a little queasy when farmland is compared to an extracted resource like oil or copper. Part of the problem with agriculture today is that we're already mining the soil like it's just so much coal to be dug up and burned, making our food production system less sustainable every year. Keeping land productive for the long haul requires a farming system based on a living, biologically-based cycle, not an extractive, one-way industrial process.
And a truly sustainable agriculture requires people actively living on and working the land. Trophies are to be mounted on walls and admired remotely; they aren't an active part of our everyday lives. What's next: a Manhattan investment banker showing off a glass case full of Lester Loam at his next cocktail party? "And this baby cranks out 200-bushel corn!" he crows while mixing martinis for his buddies.
The idea that you "never sell" and just "sit back and collect huge rents" leaves no room for the next generation of farming entrepreneurs. It's a recipe for exporting even more wealth, soil, water, and eventually, people, out of our rural communities.
Treating soil like dirt isn't the answer, but putting it up on a pedestal only reachable by a select few isn't sustainable either.