Hi Rheba,I'll start with the soil science question and then address the other questions.
Restoring natural soil fertility is a very core aspect of what we do: Jason, my partner, is a PhD in biology and my degree is in Biochemistry and Molecular Biology (with minors in Economics and Music). A particularly powerful way of enhancing soil fertility is by emphasizing perennial crops with livestock. Perennial root systems bring up nutrients from deep in the soil (6+ feet down) up to the surface (partially after going through ruminants). Crop rotations with perennials such as alfalfa have been shown to be as productive as chemical based systems with less inputs and equal profitability by a recent scientific study done by Iowa State University and the USDA. We wrote about the study here http://www.farmlandlp.com/2012/10/the-many-benefits-of-multi-year-crop-rotations/
Note that the study did not get the land certified Organic, and so there are no price premiums used in their analysis. Farmland LP does both more extensive rotations as well as benefits from the Organic price premium.
In addition, by not using chemical fertilizers or pesticides, we support micorrhiza development, which further unlocks micronutrients and minerals from deep soils and rocks. Kay wrote about it recently here http://www.bigpictureagriculture.com/2012/12/mycorrhiza-proves-valuable-in-qatars-saline-soils-307.html. If there is magic in agriculture today, it is in the realm of the fungi. Their role is under-appreciated, and they are very sensitive to chemicals and tillage. Supporting subsoil fungi development is part of our focus as land managers (though it's not very romantic to talk about).
Regarding New England farmland prices, economics and fertility, in a macro sense we're not focusing on the farmland up there based upon our initial selection criteria, but I'd be careful not to over-generalize. For example, I know many farmers who make a wonderful living from farming and who don't get subsidies, including Elliot Coleman in your area. Agriculture generates over $450 billion per year in gross farm income and $132 billion in net cash income, and the specialty crops and livestock producers get little if any subsidies. There are very large niches that farmers are great at accessing beyond the seven main subsidized commodity crops.
On farmland values, there are 800 million acres of farmland in the U.S worth $2.2 trillion dollars. All the different geographies in the U.S. have different pricing and agricultural dynamics, with the farmland in the upper North East being smaller parcels, farmed for longer (less fertility and more time for topsoil erosion), closer to high-density population centers (farmland prices increase with proximity to cities at between a square and a log rate), and it has colder winters which has some limits on livestock and crop options. Not to say that there aren't certain geographies or prices that do work there, but just that each region is different in many ways. We've been successful at buying 6,300 acres of farmland in Oregon and Northern California which met all our agronomic and economic selection factors, but every single property is different (which you know as an appraiser), just as each region is different.
You and I do absolutely agree on two points. First is that debt is a problem in agriculture. Our farmers need a certain scale to operate profitably, and yet land is so expensive it is difficult for them to scale well without taking on what I consider to be risky levels of debt. Second is that farmland is not an asset class to flip or to be "speculating on increases in the price of farmland" as you said.
We buy large tracts of land that most farmers would not be able to affort on their own (generally worth millions or 10s of millions of dollars). We convert the land from chemical-based agriculture and get it certified Organic and implement land management practices that restore the soil fertility naturally. We give young new farmers and experienced farmers access to enough land to augment or run a successful farming business at scale, and without going into land debt. And our 69 investors are long-term investors who think of this as a 30+ year investment (though they can exit at almost any time if they want to).
Personally I think this is an improvement to the current system, though it will never be a large part of the $2.2 trillion farmland sector. Currently only somewhere between $6 billion and $20 billion worth of farmland is institutionally owned (less than 1%), and yet 40% of farmland in the U.S. is leased, generally by retired farmers or by their kids who live in cities. What we do is much more hands on and is better than just leasing land to chemical-based farmers growing commodity crops.
This has been a long-enough answer…but I'm glad to discuss more.
Thanks,
Craig
Hi Keith,I'll reply regarding how we are an important part of the agricultural team and not just a middleman in a later post, but since you own and lease out farmland, I wanted to ask a question - does the farmer that you have a "sharecrop" lease with use sustainable agriculture best practices? Do you require that as part of your leases? If not, why not? Also, what type of crop rotations do you do? It sounds like you are in commodity corn country, possibly in or near Illinois.
The comment on Organics doesn’t seem related to what we do, and I wonder if you listened to the interview or just responded to a headline. Farmland LP focuses on sustainable agriculture on high quality farmland, integrating livestock and crops in rotations, with Organic certification being a small part of the value that we add. And Organic agriculture, even by itself, works. There are 3.6 million acres of farmland certified Organic in the U.S.; 9,140 farms in the U.S. are certified Organic; Organic food generates over $30 billion per year in retail sales. For farmers, a study by Purdue University in Indiana showed that if your investment time horizon was 5 years or longer the returns to Organic farming is higher than chemical agriculture, even with a similar crop mix. http://www.agecon.purdue.edu/extension/pubs/paer/2010/february/alexander.asp .
Over-generalized and stereotypical comments like "The economics on organics is OK, but no one is getting rich at it. It's hard work, with much lower yields" typically come from monocrop farmers that are highly dependent on fertilizers, pesticides, GMO seeds and commodity market pricing. From that world view, and after 60 years of adding pesticides and fertilizers to the soils, trying to grow Organic corn on depleted land as a monocrop isn't something that anyone would expect to do well. It takes a number of years of regenerative agriculture to restore and rebalance soil to the point that corn yields are good again – and then only on a portion of the land in corn rotation. Monocrops of corn aren’t sustainable, and nor are systems that try to grow them. Converting to a different, sustainable system is challenging enough, and takes long enough, that it necessitates us buying land and converting it ourselves. Fortunately it is also rewarding enough.
Some quick examples. Organic farmers are 2.5 times more likely to make $100k per year than conventional farmers. An Organic vegetable farming family I personally know does $44 million a year in California, on not a lot of land. Earthbound Farms is now the largest leafy greens producer in the U.S, and is Organic. And smaller but very successful companies and families produce pastured eggs, premium grass-fed beef, poultry including turkeys, and more very profitably.
I mention these things just to bring the diversity of agriculture into the conversation. It’s easy to over-generalize, and there is a lot of mis-information and bias out there, and not enough science or long-term thinking. Organic and sustainable agriculture farmers are doing very well both growing crops and making profits. How they do it looks very different than commodity crops, but it is valuable to remember that it is the chemical-dependent systems that are the brave new experiment, not the tried-and-true crop and livestock rotation systems.
Hi yieldqwest,It seems like you just read the headline and commented, rather than reading the article. We take a very active role in the farmland. We convert the farmland to certified Organic farmland, we develop sustainable agricuture plans for the farmland and then implement them, either with farmers or our own people, we find and help coordinate the different farmers (sheep, cattle, poultry, vegetable, etc), and much more. We do make it easy for investors to participate in this, but the fact is that not ever farmer can afford 1,000 acres or 4,000 acres, and in fact 40% of farmland is rented today. Office buildings are a good analogy – do you own your office building? When you double the size of your business, do you have a buy a second building? Not likely. Yet this is what we force or farmers to do, and Organic farmers have it much worse, as it takes them 3 years to convert farmland to organic land before they can sell their primary products. With what we do, farmers are more profitable with less risk, they have access to more land to build a successful business without going into debt to buy land, we create environmental benefits and produce safe and healthy food, and there is more revenue and profit per acre, so the investors benefit as well. It's win-win. Sustainable agriculture is a team sport, and our fund, our investors, and the farmers are all part of the same team. If you have a better idea, please get to work on it. There is a great demand for solutions, and scaling up sustainable agricultue is one of the key needs for our future.
Thanks,
Craig
The reply was nice, I think I suffered from misunderstanding of the meaning of the article, thanks craig.