They’re not making any more farmland.
That’s what Ruth Rabinowitz’s father used to tell her. He’d grown up poor in the great depression and, after putting himself through medical school, saved enough money to buy a few small broccoli farms near his Phoenix, Arizona, home.
But her dad didn’t farm those acres himself. In fact, he never farmed anywhere, or even lived in a rural community. For him, farmland was an investment.
“What he noticed was every time he sold a farm, he made money,” Rabinowitz said.
He read about globalization, about how many mouths would need to be fed in the future. And he saw development gobbling up tillable acres. So, he decided to look beyond his own backyard.
David Rabinowitz set his sights on Iowa, where he learned that glaciers had dropped some of the best soil in the country. Iowa, a place he had no connection to, a place he’d never even visited. He rented the land to local Iowa farmers and hired a manager to help.
That was back in 1978, before Wall Street investors turned a serious eye to farmland to diversify their portfolios.
A few years ago, Rabinowitz’s aging father passed the farms onto her and her sister. They both live in California.
Rabinowitz is part of a growing number of Midwestern farmland owners who don’t farm themselves and who don’t live on the land they own.
Farmland investment on the rise
Renting farmland is nothing new.
Think back to the days of sharecropping.
According to the USDA, the number of acres rented out has remained steady over the last 50 years, at around 40 percent.
The difference is the landowner is increasingly not the farmer next door or a landlord intimately involved in the farming operation.
Instead, many farmers rent from multiple owners who may have little to no connection to farming or the local community and who may own land strictly for investment purposes.
Some see the shift as a good thing.
They argue it’s putting more capital into rural communities, that investors rent to productive and responsible farmers and that farmers really can’t afford to buy land.
Others see it as one more barrier for farmers trying to access land or expand their operations.
They worry that the trend has driven up farmland prices, led to irresponsible conservation practices and drained money from rural economies.
According to the USDA, almost 40 percent of all landlords have no prior experience with farming, and a quarter of all Midwestern farmland is rented out by someone who doesn’t live in the county where the land is.
Of the roughly 46 percent of farmland that is rented in the Midwest, around 81 percent is owned by someone who doesn’t farm themselves.
Past comparisons are difficult because the USDA hasn’t collected consistent data on landowners over time, and methodologies have varied.
“A lot of people show they have high concern,” Utah State University Sociologist Peggy Petrzelka said.
She said the lack of data has led to a lot of assumptions, but not a lot of concrete information.
State data does show an increase.
The state of Iowa mandates an ownership survey every five years. In 1982, only 6 percent of Iowa’s farmland was owned by someone other than a full-time resident. That number jumped to almost a quarter by 2012.
Todd Kuethe, a land economics professor at the University of Illinois, said the increase across the Midwest has been slow but steady, around a half to one percent annually.
The numbers are highest in the most fertile parts of the corn belt.
Forty-one percent of Iowa’s and half of Illinois’ farmland is now owned by a non-farmer.
And in pockets like Northwest Iowa, where farmland can fetch as much as $10,000 an acre, that number is almost 70 percent.
A complicated relationship
The reasons for the shift are complex. Inheritance, individual investment and institutional interests all play a role.
Most trickles down from kids, to grandkids, to great-grandchildren. More than half of all the farmland rented out by non-farmers was acquired as a gift or an inheritance.
And as technology has advanced and fewer people are needed on the farm, those heirs have moved away from farming, both culturally and geographically.
That transition is expected to continue.
The USDA estimated that 10 percent of America’s farmland was expected to change hands between 2015 and 2019, most in the form of trusts or wills to relatives.
Only a tiny fraction of land was predicted to end up on the open market.
Although some of that inherited land may eventually come up for sale, many heirs who don’t farm hold onto the land for financial or sentimental reasons.
The land can also be tied up in a trust, and sometimes, it’s just too complicated to sell it with so many heirs and competing interest.
“Nobody wants to be the generation that has to get rid of the farm,” a Iowa State University associate professor of sociology, J. Arbuckle, said. “It’s part of a family legacy, and the longer it goes on, the harder it is to give up.”
Investment vs. inheritance
As the land is passed down through generations, Illinois farmland real estate broker Dave Klein said, he’s seen that distance change people’s perceptions of the land.
The financial returns they expect might be different, and they may view it as more of an investment than a family heirloom.
“As the next generation comes around, sometimes people look at things a little differently and compare it to other alternative investments versus, ‘Oh that’s the farm and I’ll take whatever it provides me for income,’” he said.
Helen Gunderson, who grew up on a farm in Iowa and still owns land in counties from afar, said her family’s relationship with farmland has always been complicated.
“I felt like in our family there was a lot of emphasis on owning land. How much in our family did we see land as our ‘groundedness’ or our home and how much did we see it as a capital investment?” she said.
But, in recent years, she’s noticed that many landowners don’t necessarily have a spiritual or emotional connection to that investment.
“I think what happens is that, in our culture or financial system when maybe investors feel there’s not secure investments, that land is, seems to people, to be secure,” she said.
That’s where investors with no obvious family ties come in.
Some are wealthy individuals looking to diversify their portfolios.
Kuethe said many are local, like the owner of Jimmy John’s who owns thousands of acres of prime farmland in central Illinois. Organizations like the Mormon Church also own farmland in Illinois and across the country.
And then, there are institutional investors.
Farmland attracts new buyers
Although interest in farmland by Wall street investors and pension funds dates back at least to the late 1980s and early 1990s, the 2007 financial crisis reignited interest.
Farmland investment looked stable in comparison to other real estate.
“It’s certainly true there was new money that came into agriculture during the boom period between 2007 and say 2013,” Pat Westhoff, director of the Food and Agricultural Policy Research Institute at the University of Missouri.
Institutional investors, both domestic and foreign, are still only a small fraction of the market. The vast majority of farmland is still bought and owned by individuals.
And depending on the state’s corporate farming laws, it may be difficult or even impossible for institutional investors to buy farmland.
But a recent investigation by the Midwest Center for Investigative Reporting did find that farmland investment by foreign owners doubled between 2004 and 2014.
And domestic avenues for investment have increased as well.
In 2013, Gladstone Land Corps. became the first farmland real estate investment trust, and in 2014, Farmland Partners followed suit.
Anyone can buy a share in their publicly-traded company, and they now own around 160,000 acres across the country.
Pension funds like TIAA investments, one of the largest retirement provider of financial services for academic, research, medical, cultural and governmental industries, have also bought into farmland. By 2016, they owned $6 billion worth of farmland globally.
Compared to more traditional investments, the returns on farmland investment haven’t been well understood, making some people hesitant to invest in a sector that they associate with the volatility of farming.
But that might be changing.
Research could spur more investment
In 2013, TIAA and the University of Illinois opened the TIAA Center for Farmland Research.
“It’s hard for me to sell you something where I (say)…I’m not really going to tell you what you’re buying here,” Bruce Sherrick, who heads the Center, said. “(It’s as if) I’m going to draw an apple out of this black box, and if it’s green, I’m going to give you this much and if it’s red I’ll give that much and you say, ‘How many apples are there in the box?’ and I go, ‘Oh, I can’t tell you.’”
Sherrick said the Center’s research is shedding light on this misunderstood asset class.
He thinks the increase in knowledge will lead to more interest in farmland investment and, in turn, could lead to more farmland ownership by people who don’t farm and don’t necessarily live near the land they own.
“A lot of people confuse the risks associated with actually farming with the risks of farm ownership,” said Paul Pittman, chief executive officer of Farmland Partners.
Pittman, who has a background in farming, started the real estate investment trust to invest back into agriculture.
“So, you know, farming as a business can have very, very high returns … but it also has very bad years. There’s a lot of volatility,” Pittman said. “The farmland itself has much less upside, but frankly much less downside, because it’s a stable, long-term asset. It appreciates gradually over time. Rental income from it is frankly modest but consistent.”
Questions of access
Holly Rippon-Butler, land access program director for the National Young Farmers Coalition, said that accessing land is one of the biggest challenges facing beginning farmers.
“Land access is a significant reason that farmers are leaving agriculture,” Rippon-Butler said.
A lot of that has to do with having enough money to buy land in the first place, but even if they do have the capital, finding good land to rent or buy can be hard.
“The first thing they want to do is go talk to people who might be willing to sell, what might be coming up for access,” she said. “It’s hard to access land because you can’t find a landowner to talk to, because their contact information is obscure.”
That’s because, often times, that person doesn’t live in the community.
And then there’s the issue of competition.
Joe Maxwell, head of the recently-launched advocacy group Family Farm Action, argues that as investors crowded prime farmland markets, they pushed farmland prices up well beyond the reach of the family farmer.
“Having more people interested in farmland, you have more bidders, you’re competing against more people,” he said.
Naturally, he said, that’s going to make it harder for the small farmer.
Many agricultural economists caution against that logic, saying that skyrocketing prices were supported by rising commodity prices, and most big investors don’t buy at auction anyway.
But Westhoff said the rise and subsequent fall in land prices was definitely higher in pockets of the corn belt states like Iowa than in less fertile places like Missouri.
“If you look across the Midwest, we saw pretty much prices increase everywhere in the Midwest, but they increased some places more than others,” Westhoff said.
And an increase in investment in certain areas may have had something to do with it.
“My impression at least is there’s probably been more outside money investing in farmland in Iowa than there has been in Missouri.”
A patchwork relationship
Richard Oswald is a farmer and the policy director of Missouri Farmers Union
Oswald and his brother farm around 2,500 acres.
Oswald said he rents his land from several different landlords, some of whom live in different states. He said he communicates with his landlords frequently, usually via email.
“It’s kind of like a marriage really,” he said. “There’s a lot of trust involved.”
In many ways, Oswald is typical of a Midwestern row crop farmer. He owns some land and rents the rest from multiple landlords.
Because, as plots of inherited farmland are being divided and subdivided among relatives, the average size of the farm has grown.
According to the last USDA Census of Agriculture, the average size of a farm is now 434 acres.
For prime farmland in Iowa or Illinois, that could cost a farmer a whopping $4 million.
This is where an outside investor is helpful.
“The upside is you don’t have to have 10 million dollars invested in farmland to have a good-sized operation,” Westhoff said. “You could do with a lot less than that.”
Add in institutional investors and wealthy individuals buying into farmland, and a farmer might rent from 10, 20 or even 40 different landowners from across the country to make up a profitable farming operation.
Oswald’s leases are crop share leases, which means his landlords get a portion of his profits from the harvest.
In good years, they get more, and in bad years they get less.
That means they’re typically pretty involved in Oswald’s farming operations. It also means that, if he has a bad year, not all the liability falls on him. His leases are long-term commitments, typically around 15 years.
He said that takes a strong relationship with his landlords.
“They want to make sure that it has income, so you have to educate them and teach them about yields, tell them about other problems you might have,” Oswald said. “That way if you have a bad crop because of a drought, then they’re kind of educated, they see that’s it not your fault.”
Crop share leases are now less common. Instead, farmers often rent farmland under short-term cash rent leases.
“Of course, those do put a higher percentage of the risk onto the farmer, the tenant. It’s one of the reasons that crop insurance is a very, very important,” Klein said.
Under cash rental agreements, farmers are solely responsible for buying seed and fertilizer and selling their crops. Crop insurance, a federally subsidized program, can reimburse farmers for losses from natural disasters on crops such as soybeans and corn.
“It places a high information burden on the farmer,” Westhoff said.
At least partly, outside landownership has played a role in the shift.
“As absentee landowners, maybe, are a little more removed than they used to be from the farm or maybe it’s a second or third generation, or they just don’t understand that ins and outs of what should be expected in managing a farm,” Klein said. “The cash rent route tends to become a more understandable alternative for them to be able to work with a farmer on.”
Under a cash rental agreement investors know exactly what returns to expect.
Farmers have less to negotiate with their landlords, and they may have more power to decide how the farm is run, Kuethe said.
But is also means it may be more difficult to explain farming practices and the necessity of long-term improvements to the landowner.
And it means that farmers bear the brunt of financial burden in bad years.
With low commodity prices and high rental rates in the last few years, fixed rents aren’t always easy to make. Rents have come down a bit in recent years, but not too much.
Most of the farmers across the Midwest are seeing three to four years of loss,” Wendong Zhang, applied economist at the Iowa State University and researcher for Iowa’s farmland ownership survey, said. “They’re essentially burning through their working capital.”
Even so, he said most have enough money saved from an uptick in commodity prices that they can still make their rent payments.
They just have less wealth to invest in equipment and may be selling some of the land that they own.
And even though farm subsidies are supposed to help in times like these, there’s evidence to suggest that a significant amount of that money still bleeds to the landowner via increases in rent.
“Most studies show that roughly 30 to 40 percent of that payment goes to the landowner,” Kuethe said.
That’s just one more way that money is draining away from farmers and, in turn, rural communities.
Arbuckle calculated in 2012 that around $900 million flowed out of the state of Iowa in farmland rental payments.
Of course, some of that money is being reinvested into the farmland.
And if the landowner comes to visit, they may spend some money on the rural economy.
But local, rural communities continue to lose wealth as seed and fertilizer companies no longer remain local and people move out of communities to find work as they’re no longer needed on the farm.
And outside land ownership doesn’t help, said Joe Koenen, who’s an agriculture business specialist for the University of Missouri Extension, mostly in rural Putnam and Sullivan counties.
“It does have an overall negative impact on the communities, because those folks don’t live here, and they don’t bring in the dollars and spend money here,” he said. “Probably half of our land is owned by absentee landowners.”
Meeting the farmer
About ten years ago, Rabinowitz’s father started emailing her the reports for his farmland investments.
He’d taken her to the farms when she was young, but she’d never been involved in the business.
But when she started digging through the reports, that changed.
“I could tell that something was wrong from a business perspective,” she said.
The erosion was terrible. Long-term conservation was an afterthought. And all of that was affecting the profitability of the business. She decided she had to do something.
“This land, my father loved (it) but didn’t really understand how to care for (it),” Rabinowitz said.
“Somehow he was kept insulated on these annual visits. He just got in the car with the manager and it was just them visiting the farm and that was it. He wasn’t going to talk to the USDA, the NRCS. He wasn’t meeting the farmer,” she said.
When Rabinowitz went to talk to the farm managers that managed the land for him, they couldn’t provide her with the data they were supposed to be tracking. They weren’t following the provisions in the leases.
This is one of the biggest fears that people have about“absentee” land ownership. That, because the owner is disconnected from farming, they may not know enough to take care of the land properly or to ask the right questions.
And if they’re only looking at the land from an investment perspective, they may see it as something to turn a profit rather than an investment in conservation or sustainability.
“You have people who want to invest who will try to drive the most profit out of the land, and the farmer farming the land drives the most profit out of the land,” Maxwell said. “You get greater soil erosion and greater, over-maximizing the production of that land.”
Whether those fears are founded is still unclear, Kuethe said.
“We don’t have enough concrete information about where the market power lies in these rental agreements,” he said.
He’s talked to farmers who feel they’re at the whim of landowners. And he said he’s talked with landowners who feel like they have to do everything they can to accommodate the farmer they rent to because they can’t find anyone else.
A 2012 USDA study did find that landowners who don’t farm themselves are less likely to participate in conservation programs.
And Teresa Opheim, who works with landowners for Practical Farmers of Iowa and Renewing the Countryside, said that landowners often have a different idea of how they want the land to be farmed than the farmer.
“If you’re a farmlandowner living in California and you don’t know Iowa and Iowa agriculture and Iowa ways of communication, I would think it would be really challenging,” she said. “And that’s happening increasingly.”
Arbuckle’s 2010 Iowa Farm and Rural Life Poll found that, on the whole, tenant-landlord relationships are strong, but he did find that the farther a landowner is from the farm, both culturally and geographically, the less confidence their tenants have in their relationships.
“We need programs to help reconnect them to the land, to help them ask the right questions, to help give them power of negotiation,” Arbuckle said.
Sherrick said that he thinks institutional investors care even more than the average landowner about conservation and stewardship.
“My suggestion is that they’re far more interested in conservation practices and in sustainability and in getting evidence that the land has had maintained fertility and maintained organic matter…than any other circumstance because the headline risk is so great,” he said.
Pittman said his tenants have to follow two rules: they have to have a farm plan on file with the USDA and they have to abide by environmental water quality and soil conservation principles. Otherwise, he trusts his farmers to make their own decisions about farming practices.
“If we need to teach the farmer to farm, what we need’s a new tenant,” he said.
He trusts that his tenants know the land better than he does.
And when it comes to longer-term investments, he said they have more capital than an individual would to invest in new tiling, wells and irrigation systems.
When Rabinowitz realized that her father’s farms weren’t doing well, she started asking questions.
“I wanted to meet every single farmer that first year. It was a little scary,” she said.
But the farm management company told her to leave farming to the farmer.
“I was told don’t get into the weeds of talking about fertility and the real stuff that we would be talking about. Just thank them for mowing,” Rabinowitz said.
Eventually, she took over management, realizing that the company hadn’t been enforcing many of the provisions outlined in their leases. And she started to fall in love with her father’s land.
“I bought an iPad and used the heck out of it doing research on NRCS programs, YouTube videos on cover crops, and I self-educated myself,” she said.
She even spent two and a half months, over a thousand miles from her California home, making sure the farms got back on track.
When the older tenants weren’t receptive to the changes she wanted to make, she shifted to younger tenants, lowered the rent and worked closely with the USDA to put in waterways and develop the land sustainably.
For a few of the farms she felt she couldn’t manage on her own, she found a farm management company that she could trust.
It’s important to her to honor her father’s investment and legacy in a way that also honors the longevity of the land.
“I put conservation above investment, and I don’t see land as a stock in a stock market. I see land as community,” she said.
Rabinowitz texts her tenants often. And she visits. She’s not letting go anytime soon.
“I have been approached a little bit about the future of these farms and ownership and my father raised us, he probably said it a thousand times, ‘Don’t sell the farms,’” she said. “He got himself educated and he bought something that he believed in. It’s that simple, I don’t want to undo what he did.”
Erin McKinstry is a graduate student at the University of Missouri School of Journalism. She’s reported for The Trace, Harvest Public Media, KBIA and The Columbia Missourian. She also edits the podcast LifeTK. Read more of her work at www.erinmckinstry.com and follow her on Twitter @erinmckinst. She’s currently working on a podcast about life in rural Alaska called Out Here.
Correction: April 25, 2018
An earlier version of this article misstated the university for which J. Arbuckle and Wendong Zhang are affiliated. They are with Iowa State University, not the University of Iowa.