The US’s most productive farmland is shrinking

Tracts of agricultural land are being lost to urban development, says the American Farmland Trust. We canvassed the market to understand what investors can gain from targeting assets covered by conservation easements.

Investors should prioritize long-term gains through maintaining the agricultural value of US farmland over short-term profit possible through conversion of land to other uses, according to an executive of the American Farmland Trust.

Speaking to Agri Investor after the publication of its Farms Under Threat report, AFT vice-president of programs Julia Freedgood said that because the metropolitan areas surrounding most cities in the US still include some land devoted to agriculture, new-build residential development tends to be concentrated there. In addition, because such land tends to be devoted to growing crops rather than for use as pasture, conversions away from ag can make a significant dent into overall food production, she said.

“Even if you are an investor, you should be thinking about the value of that land for agriculture and not thinking about: ‘I could make a lot more money if I sell it for urbanization.’ As a business decision, as land gets more scarce over time, its value will increase for what it’s valuable for.”

In the report, Freedgood and her co-authors detail how almost 31 million acres of agricultural land were lost to development between 1992 and 2012. Included in that figure, according to the report, were 11 million acres deemed best for intensive food and crop production, a status conferred on just 17 percent of overall US land area.

Designed as a follow-up to a similar report published 20 years ago, Farms Under Threat draws on new data giving a clearer picture of how farmland loss has changed over time, such as through the proliferation of low-density development that takes large tracts of agricultural land out of use despite resulting in relatively few new housing units.

“Through careful and thoughtfully implemented land use and agricultural policies, the nation can protect farmland and strategically direct development away from critical agricultural resources, while nourishing the land with conservation practices and helping the farmers and ranchers who manage this landscape to thrive,” the AFT wrote in the report.

Freedgood said that although 40 percent of US ag land is owned by individuals who are 65 and older, the expected transfer to younger generations of farmers is not happening as quickly as some in the market have expected. While the organization has not researched what role private investors have had in driving the dynamics leading to the loss of farmland specifically, Freedgood said that the AFT hopes to carry out additional research to help understand the part they could be playing in delaying such transfers to young farmers.

“We don’t know enough about who actually owns all that land and what the role of the investors is. We hear there’s more and more REITs and TIAA–CREFF and folks like that investing in farmland, but we don’t have good data,” she said. “People get very paranoid about things without good data, and then you just make bad decisions, so I want to know more.”

Gladstone Management chairman David Gladstone, who often mentions urbanization as a factor in farmland markets on quarterly earnings calls, told Agri Investor in an email that he agreed with the report’s conclusions and would like to have the option to buy and farm the land that has been covered by conservation easements.

However, Gladstone cautioned, although the one-half acre of farmland per person on a worldwide basis ratio is likely to be reduced even further by mid-century through development, governments are unlikely to reverse existing protections on conservation farmland.

“An acre of townhouses can be taxed for a long time, whereas an acre of low-taxed farmland is not generating as much revenue even though the farmer is paying taxes on the farm’s profits,” wrote Gladstone. “Until that is changed to support farming, land will be lost to development.”