Farmland prices and populism

Over a year ago the Saudi company Almarai was in the news (here and here) for having accumulated thousands of acres of farmland in California and Arizona. The issue was not so much that they had invested in farmland but that they were growing a water intensive crop (alfalfa) and shipping it back to Saudi Arabia at a time when California and Arizona were in the middle of a severe drought.

To our knowledge, nothing came of the temporary outrage, however it does foretell a shift in popular sentiment away from the owners of farmland. A recent article we came across called ‘Who really owns American farmland‘ lamented the ‘high price’ of land and how it was preventing small owner/operators from owning land. Without any direct evidence, the author assumes that small owner/operators would be better ‘stewards’ of the land (which presumably means more environmentally friendly).

Setting aside the validity of this claim, the author of the article falls into the classic pattern of assuming:

Small Business = Good

Corporation = Bad

Foreigner Owners = Evil

One of our investment theses for investing in farmland is a move away from an owner/operator model to one with larger farming operations that can’t or won’t want to tie up all their capital in land ownership. However, as this happens, farmers and farmland might lose their protected status in regards to government regulation and taxes.

Sorry we didn’t take the time to make a more recent one, but a great chart that speaks to long term farming labor productivity is the % of jobs that are farm jobs through time.

Historically the farming sector has been favored by politicians and has achieved favorable benefits such as lower taxes and in many cases grandfathered water rights. This has historically be less of an issue when those benefits accrued to the local farmers who represented a larger portion of the voting population and who often struggled to make ends meet. But as farming is increasingly becoming more corporate, farmings protected status is accruing to a smaller handful of people. For years Iowa has laws in place prohibiting foreign ownership and limiting the size of the holdings that any one entity can have. However, besides regulation of ownership, the trend away from small family farms may also someday end or limit some of the historical regulatory benefits that farmers and farmland owners currently have. This would limit the appreciation potential of farmland values.