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, father of Ruth Rabinowitz

David Rabinowitz, father of Ruth Rabinowitz, at his Mitchell County, Iowa, farm in the 1980s.

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.

David Rabinowitz and Ruth Rabinowitz in California

David Rabinowitz and Ruth Rabinowitz visiting Natural Bridges park in Santa Cruz, California, in 2016.

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.

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.

USDA graphic shows percentage of farmland rented or leased in 2012

USDA graphic shows percentage of farmland rented or leased in 2012.

Past comparisons are difficult because the USDA hasn’t collected consistent data on land owners 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 1 percent annually.

Todd Henry Kuethe

University of Illinois professor Todd Henry Kuethe

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 land 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.

Spectators at farmland auction, New Carlisle, Ohio

Spectators at farmland auction in New Carlisle, Ohio, in the summer of 1948.

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 interests.

“Nobody wants to be the generation that has to get rid of the farm,” University of Iowa 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 changes 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.

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 such as the Mormon Church also own farmland across the country.

And then, there are institutional investors.

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,” said Pat Westhoff, director of the Food and Agricultural Policy Research Institute at MU.

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 a 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.

A screenshot of a slide from Gladstone Land investor presentation

A screenshot of a slide from Gladstone Land Corps. investor presentation on Feb. 20 shows the benefit of investing in farmland.

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 such as 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.

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.

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.

Iowa corn farm

A corn farm in Jasper County, Iowa, in May 1940 from the Farm Security Administration-Office of War Information Photograph Collection.

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 land owners from across the country to make up a profitable farming operation.

Oswald’s leases are crop share leases, which means his landlords gets 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 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 land owner.

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 University of Iowa and researcher for Iowa’s farmland ownership survey, said. “They’re essentially burning through their working capital.”

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 MU 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 10 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 who 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. Because the owner is disconnected from farming, he or she might 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, owners may see it as something to turn a profit rather than an investment in conservation or sustainability.

A 2012 USDA study did find that landowners who don’t farm themselves are less likely to participate in conservation programs.

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 connected with Iowa State University Extension and the Women, Food and Agriculture Network.

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.”

Supervising editors are Mark Horvit and Pamela Dempsey.

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