Farmland for New Sustainable Farmers: A Capitalist Approach to Land Reform

About 10% of all US farmland, more than 91.5 million acres, is slated to change ownership in the next 5 years, according to a recent USDA report. Nearly 60% of all US farmland is owned by landlords who are over 65 years old. Many of these older farmers quite likely still hold traditional family farm values of farming as a way of life as well as a way to make a living. They are still good neighbors and good stewards of the land. Many want their farms to continue producing “good, clean, fair food” long after they are gone – stealing a phrase from the Slow Food Movement.

If food systems to meet the needs of all of current generations while leaving opportunities for future generations to meet their needs as well, we must seize this opportunity for meaningful “land reform” in the United States. The ownership and management of farmland that has been consolidated into large unsustainable industrial farming operations – today’s so-called modern farms – must be dispersed among smaller, independent family farms. I am not suggesting some socialist scheme to nationalize farmland, but instead a means of land transfer that will allow a far larger number of farmers with traditional family farm values to replace today’s large agribusiness-like farms. These new farmers must be committed to farming as a socially and ethically responsible way of life, not just a means of making money.

A variety of farmland trusts and farmland transition initiative have been designed and implemented to address the sustainability challenges of land transfer and land tenure. Various Land Link programs also attempt, by one means or another, to assist in transitioning farms from conventional agriculture commodity production for global markets to farms who produce “good, clean, fair food” for local and regional markets. These and other creative programs have been important in creating opportunities for beginning farmers to join the sustainable agriculture movement. Sustainability is ultimately about regeneration and renewal of farming and farmers as well as ecological and social restoration. Renewal or traditional family farm values and regenerating sustainable farming families is just as important to sustainability as restoring the health of soils and quality of life in rural communities. However, finding funding of such efforts remains a major obstacle.

The speculative value of farmland for residential and commercial development purposes represents a significant portion of the total cost of farmland – even for land not located near metropolitan areas. Beginning sustainable farming families who need to make a living farming rather than speculating on land values have had difficulty affording enough land to make a decent living by farming. Furthermore, the sustainability of agriculture depends on keeping the limited acreage of good farmland in agriculture, rather than allowing it to be developed for commercial or residential uses.

Several farmland trust funds have focused on raising money to buy development rights from farmers or encouraging retiring farmers to gift their development rights to farmland trusts and receive tax credits in return. The government has also allocated limited funding to purchase farmland development rights. While these efforts have been important to the sustainable agriculture movement, there is have never been enough money to meet the needs for beginning farm families committed to sustainable farming.

I was recently asked by a writer to suggest a scenario for a person in his current novel who in the mid-2000s had inherited a large sum of money – several billions of dollars. This person wants to use this inherited money in some way that will atone for the exploitative means by which the person who left it to him had “earned” it. He has other billionaire friends who are looking for similar opportunities. His family history is rooted in family farming and he is interested on helping to create a means of returning farmland to farmers with traditional family farm values. I think the scenario I developed for the writer is just as relevant today as it will be in 2040. By then, it may be a crisis of necessity and urgency if we don’t address the farmland tenure and transfer challenge today. I called my proposal The Family Farm Legacy Trust.

The Family Farm Legacy Trust (FFLT) is a revolving trust fund valued at $50 billion which would provide sufficient transition funds or bridge financing to leverage the transfer of approximately 20 million acres of farmland at any given point in time. (This is just a wild guess. Also, a few multi-million dollar projects could achieve similar results.) The following is my scenario: The FFLT is the brainchild of the young multi-billionaire who initially invested several billion dollars of his own money in the fund and has since encouraged several of his billionaire friends to do likewise. The mission of the fund is to make farmland available to facilitate the transition from industrial agriculture to sustainable agriculture. Industrial agriculture has eroded and degraded the health of soil, polluted air and water with chemical and biological wastes, and destroyed the quality and family farm culture of rural America. A sustainable agriculture is essential for the future of humanity.

Many of today’s older family farmers don’t have enough income to benefit significantly from tax credits available for gifting development rights to farmland trusts. For others, the value of their farm is essential the full value of their estate and they feel obligated to leave whatever is left of their estate at death to their children. Many of these potential beneficiaries worked on the farm as they were growing and have contributed significantly to its financial success and economic worth. If some farmers gave away the development rights on their land they might have little if anything of value left when they die.

The Family Farm Legacy Fund addresses these obstacles by giving farmers a lifetime annuity. The annuity guarantees an income for the farmer for as long as he or she lives. A lump sum payment for any amount of equity above the cost of the annuity is deferred until the farmer’s death. This insures an inheritance for farmers who own farmland valued at more than the cost of their annuity. Farmers are allowing to stay in their farm residences until they die. Farmers who chose to gift all or part of their farmland development rights to the FFLT are assisted in realizing the full tax benefits available. Farms of those who cannot or choose not to gift development rights are assessed with respect to their development potential. Some farmland near urban areas can be partially developed to cover cost of development rights, while leaving the bulk of good farm land for sustainable farming operations.

The FFLT only holds title to land it purchases for a short period of time. Most existing farms are subdivided into economically viable farming units or smaller farms to be sold to beginning sustainable farmers. The smaller farm units are sold at prices and on payment terms that make it possible for beginning farmers to make a decent living and make payments on their new farms from farm income. Sustainable farming is more “management-intensive” than industrial farms.  By relying more on management and family labor and less on land and capital, sustainable farmers are able to make a good economic living on smaller farms. The FFLT also assists farm families in securing low-cost loans to build modest farm residences on their new farms. To qualify to purchase these new farming units, farmers must commit to farming the land sustainably, under land-use covenants developed by the FFLT. The periodic payments made by those who purchase the new farm units pass through the FFLT to pay for the annuity of the retiring farmer. This frees the FFLT funds to purchase land from other retiring farmers.

Some of the land purchased by the FFLT is placed in a long-term farm leasing program to support beginning farmers who are not yet able to enter into a farmland purchase agreement. Again, larger farms are parceled into smaller farming units that are capable of providing a good living by farm families who use the more management-intensive farming approach of sustainable agriculture. Farmers in the farm leasing program are also obligated to farm under sustainability covenants. Once they have saved enough money to buy their own farms, farmers sell their long-term leases to other sustainable farmer, allowing them to benefit from improvements they have made to their land or homesteads. Some actually prefer to continue leasing farms rather than take the risks of ownership. This also achieves the FFLT objective of transitioning farmland to sustainable production. Again, the lease payments pass through the FFLT to cover the cost of annuities for retiring farmers, freeing FFLT funds to purchase additional farms.

A third option for use of purchased land is limited to cases where development rights cannot be secured as a gift or at reduced cost – as in cases where farmland is bought from speculative investors. For this option to be viable, the FFLT must conclude that the land is suitable for limited residential development. In these cases, the FFLT strategically sites enough residences around the farm for profits on residences to cover the value of development rights. The strategy is much like that of developers who strategically place residences along fairways of golf courses or the shoreline of lakes. Except in these cases, the focus of attention is sustainable farming operations. In such cases, the farmers and residents are all required to be members of neighborhood associations or farm community associations that are charged with maintain good working and living relations between farmers and non-farm community residents. Such farmers have a ready market for some of their food products, through CSAs, buying clubs, or other direct sales, and farm residences have many of the benefits of traditional farm life – without farming.

Most important to its success of the FFLT, its investors are not speculative investors. They emerged from the Slow Money  movement of the early 2000s. After the farmland has transitioned though the trust, it has no remaining speculative development value. The FFLT investor’s objective is to earn a minimal but positive return on his or her investments by FFLT subdividing larger farms into smaller farms which have more total value than the undivided farms. The profits from these transactions are used to cover the costs of setting up the lifetime annuities for retiring farmers, legal land transfers and leases, and other operating costs of the FFLT. The FFLT also recruits retired professionals with relevant skills and talents as volunteers to minimize costs of operation.

The primary reward for the investors of billions of dollars in the Family Farm Land Trust is the knowledge that they are fulfilling the responsibility of financial stewardship, much as the new sustainable farmers they assist are fulfilling the responsibility of land stewardship. Those who willingly buy foods produced by sustainable farmers at premium prices are also fulfilling important social and ethical responsibilities. Farmers, investors, and consumers are all foregoing some of the potential economic rewards of the capitalist economy to fulfill their responsibilities for the long-run health and well-being of humanity. That’s what Sustainable Capitalism is about, regardless of whether the investments are made individually by philanthropists, farmers, and consumers or collectively by people working together through government.

John Ikerd