Two years ago I started a platform that makes it easier for anyone to invest in U.S. farmland. What I quickly realized was that while a vital industry, farming still remains poorly understood, subject to many myths and misconceptions.
No one is to blame here. Urbanization has led us to become increasingly separated from the people who grow our food, or how that food is produced and transported. I held my own misconceptions when I started learning about the food and agriculture industry at the beginning of my career in 2005.
In this article, I’d like to address some of the most common misconceptions.
Before we jump in, let’s do a quick recap of the farming industry in the United States. The USDA does a phenomenal job taking a comprehensive census of the industry every five years. The latest censuscame out only a few months ago and gave us a great picture of what farming looked like in 2017.
According to the 2017 census, there are about 2 million farms and pastures in the United States, occupying around 900 million acres, or roughly 50% of the total area of the 48 contiguous states. It seems like a huge area, but the amount of farmland — especially high-quality farmland — has been shrinking for the past 20 years. From 1997 to 2017, the U.S. lost 54 million acres, roughly equal to the size of Minnesota. Most of this loss is permanent, with fields paved over for shopping centers or expanding cities.
So, what are some of the misconceptions about farming we hear most often?
1. Most farmland is owned by corporations.
This one comes up most often in my conversations. There is this idea that farming is mostly done by some faceless mega-corporations controlling tremendous swaths of land.
In fact, 96% of farms and farmland in the United States are family owned. Furthermore, the average farm size is only 434 acres. When it comes to harvested cropland, large farms, meaning farms larger than 5,000 acres, comprise only 30% of the total area.
2. Farmers farm only their own land.
According to the USDA, 40% of all U.S. farmland is rented by farmers every year. Of this farmland, 20% is owned by active farmers who choose to rent out some of their land, while 30% is owned by retired farmers. There are a variety of reasons why farmers choose to rent land instead of buying, including easier access (especially for younger farmers), more flexibility, higher return on their capital elsewhere and ability to spread their expertise and asset base over a larger acreage.
For landowners, renting out land historically provided a stable source of income and price appreciation (farmland returned roughly 10% annually since 1970).
With the average age of farmers approaching 60 and the next generation less interested in farming, the expectation is that at least half of all U.S. farmland will change hands in the next 20 years.
3. Farming doesn’t make any money.
Farming is a tough business, both physically and mentally. It doesn’t track with a 9-5 work schedule, and by definition can’t be done at scale in and around cities. Scale, differentiation, skills and access to capital matter. Farming also goes in cycles — you get lean years and fat years.
However, it can definitely be a lucrative endeavor. From 2011 to 2018, farming had an average net income margin of 20%. Some sectors, such as organic farms, have done incredibly well. Organic agriculture has doubled in revenue, from $3.1 billion in 2012 to $7.3 billion in 2017, according to the USDA report. Farming income has changed and fluctuated over the last 19 years.
4. Farming is a big contributor to climate change.
Of all the carbon emissions in the United States, agriculture represents just 9% of those emissions, behind transportation, electricity, industry, commercial and residential. However, what is remarkable is that agriculture is probably one of the very few industries that can become not only carbon neutral but potentially carbon negative through a process called “carbon sequestration,” or capturing carbon in soil and vegetation. Science consensus is still forming on what exactly the impact here can be, but without a doubt, a more diverse and regenerative farming ecosystem can be beneficial to all.
I firmly believe that agriculture isn’t part of the problem, but part of the solution.
5. Farmers are mostly men.
Yes, it’s true more men in the United States are farmers than women. However, today almost 36% of farmers are women. Furthermore, that ratio has increased from 30% in 2012. In fact according to the most recent USDA report, the absolute number of men farmers declined from 2012 to 2017 by roughly 38,000 while the number of women farmers increased by around 258,000.
Farmland is an asset class for investors looking for historically strong returns comprised of both cash yield and asset appreciation. It is ideal for investors seeking diversification and volatility protection, as farmland's performance is not correlated to the rise and fall of the stock market. Investors should be comfortable with the target hold period, as it may be difficult for them to get liquidity until the investment comes to term. Investors can use this information and speak to their financial advisor to decide if farmland matches their investment goals. When investors are considering investments in farmland, it's important to address these misconceptions. The industry is significantly more diverse by gender and business model than the public perception, and can also be a partner in fighting climate change through regenerative agriculture and carbon capture.
Farming is a vibrant and vital industry. It sits in the center of many major trends in health, food, climate and technology. The new generation of farmers coming in is passionate, energetic and innovative. Despite short-term challenges, the future for U.S. agriculture is undoubtedly bright.
The information provided here is not investment, tax or financial advice. You should consult with a licensed professional for advice concerning your specific situation
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