Home Commodities U.S. farmland is a hot commodity. That’s not great for farms |...

U.S. farmland is a hot commodity. That’s not great for farms | Business

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Looking for a hedge against inflation? Midwestern farmland might be for you.

Across the Midwest, values are up 23% from a year ago, fueled by surging commodity prices. Rents on Iowa farmland have surged 10.22% so far in 2022. And more opportunity is on the way. More than 40% of U.S. farmland is owned by people older than 65, so hundreds of millions of their acres will transfer to new owners in the coming years.

That’s good news for real estate brokers, but a challenge to would-be farmers, who consistently cite the high cost of land as their greatest barrier to entry. That’s not just a rural problem. During the early days of the COVID-19 pandemic, supermarket shelves went empty due in part due to farm-industry consolidation. Smaller, innovative and more productive farmers are a means of counteracting the trends that led to those shortages. But to do it, they need land.

Before automation created factory farms, farming was a vocation for the young, the fit and those with large families. Older farmers worked the fields, but over time passed their knowledge and land to the next generation. That cycle began to break down in the 19th century as machinery extended the working lives of older farmers and urbanization lured young people away from the countryside.

By the mid-20th century, the U.S. was majority urban and the average farmer was 47 years old. By 2017, the last date for which data exists, that farmer was 57.5. (The aging farmer isn’t just a U.S. phenomenon. In Kenya, the average farmer is 60, in Japan, 67.)

New and beginning farmers (a formal category defined by the U.S. Department of Agriculture as operating a farm for 10 years or less) naturally trend younger than established ones. And like younger, entrepreneurial people in any profession, they tend to be more open to new ideas and products.

For example, organic farmers are 5.5 years younger, on average, than their traditional counterparts, and USDA data show that new and beginning farmers are less likely to grow grains and oilseeds — the most common U.S. crops — than older farmers. Anecdotally, at least, interest in climate-friendly farming appears high among younger farmers and organizations representing them.

New and beginning farmers tend to operate on a smaller scale, using one-third less acreage to generate a similar proportion of revenue.

But smaller, in modern agriculture, isn’t always better. Over the last three decades, agricultural production in the U.S. has become heavily consolidated, providing big producers with cost efficiencies and marketing advantages. Those advantages manifest themselves in several ways, including increasingly centralized food procurement channels (such as supermarkets) not available to small farmers. That works out well for consumers — until a crisis hits and knocks out a major producer or two. The pandemic was one such shock, and empty supermarket shelves and meat cases illustrated the risks.

In February, the USDA released a report examining the U.S. food chain, its vulnerabilities and opportunities to strengthen resiliency. The first listed priority is addressing concentration and consolidation in food production, manufacturing and distribution. A key means for doing so, according to the report, is boosting local and regional food networks, such as farmers markets, food boxes and e-commerce channels that provided a safety net to consumers and producers during the early days of the pandemic.

Around 23% of beginning farmers sell through regional and local markets and — as any visitor to a Midwestern farmers market can attest — many of them are young. Working in parallel with other less established farmers, they are the vanguard for a food sector that’s adapting to climate change and changing consumer tastes.

Like young homebuyers in big cities, however, they rent more and own less land than their veteran counterparts. Today’s surging land prices make the challenge more difficult. But it is certainly not a new challenge. In the 1980s, Congress ordered banks that participate in agricultural lending programs to favor young, beginning and small farmers. That program and others have had some successes, but the continued ownership gap suggests that participating banks could do more.

To encourage them, the administration of President Joseph Biden is proposing to begin scoring banks on how well they extend credit to new and beginning farmers.

Its rule, which is in the midst of a 60-day comment period, would encourage lending. It should be adopted. Meanwhile, Congress should consider measures that will encourage retiring farmers to sell their land to new ones. One model can be found in Ohio, which recently created a program to provide tax credits to farmers who sell or lease land to young farmers under certain conditions.

None of these measures could produce an immediate uptick in land ownership by younger and beginning farmers facing record land prices. But over time, they could help grow the next generation of resilient and productive US farmers.

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