Partnership looks at impact of organic conversion on farmland values

Farmland service provider Peoples Company and data firm Mercaris will work with producers and other industry contacts to produce a study on organic farmland as an asset class.

Peoples Company, a diversified farmland investment services provider, has partnered with sustainable agriculture-focused data firm Mercaris to study how organic certification impacts farmland values.

In the first phase of the effort – carried out by the two firms in collaboration with Midwestern BioAg of Madison, Wisconsin – Mercaris and Peoples Company will work with producers and other industry contacts to produce a study on organic farmland as an asset class.

That study’s conclusions will then be used to develop a digital tool for farmers, bankers and investors that will compare values of organic and conventional farmland.

Peoples Company president Steve Bruere told Agri Investor the project follows discussions about the impact that organic food demand should have on farmland acquisition and appraisal values.

He said it remains unclear what lasting effect converting to organic has on land values because of factors such as organic certifications being tied to tenants and not properties.

Converting to organic grain production can boost land values significantly in areas of the country where there are established organic dairy producers, he said. “That’s not unlike if you had an ethanol plant in that same neighborhood; so is it truly an organic premium or is it just because there are farmers with great offtake agreements?” Bruere asked to demonstrate the questions the study will aim to answer.

In October, Mercaris senior economist Ryan Koory told Agri Investor the growth of organic dairy production, in the south-west especially, helped drive a 2 percent increase in organic acreage last year.

While Peoples Company generally holds the view that conversion to organic production can help achieve capitalization rates not otherwise possible, Bruere said, academic and market research has yet to prove definitively that farmland values are lifted by such conversions.

He added that the most successful producers to switch to organic have been those that have also been able to vertically integrate and establish a distinct brand for their offerings.

“Then it starts functioning more like a permanent crop asset,” said Bruere. “It’s like running a wine grape through a bottle; if you can take your organic grain and not sell it as a commodity but sell it as a brand, that’s where we are seeing folks make the most money.”