A potato field in Idaho isn’t as exciting as a Bored Ape NFT, but as far as investment potential goes, it might be getting more alluring.
In the U.S., one of the world’s top agricultural producers, farmland now goes for more than $4,000 an acre on average, according to the U.S. Department of Agriculture.
That amount has grown by almost 75% since 2007. It’s expected to keep marching upward steadily as climate change shrinks the amount of arable land around the globe, and population growth continues. Technological advances increasing output, particularly the U.S., also are projected to further drive up prices — helping investors keep a step ahead of surging inflation.
Who is buying U.S. farms
While the movement away from family-owned farms toward corporate control has been going on for some time, now third-party investors are increasingly looking for a piece of the action. They are buying up stakes through real estate investment trusts and even crowdsourcing platforms.
For instance, anyone with $36 can buy a unit of Gladstone Land Corporation REIT, becoming an indirect investor in the 113,000 acres of farmland it owns across 15 states. Meanwhile, crowdfunding platforms can function as a one-stop-shop for farm real estate transactions, allowing investors to choose the properties to purchase, review due diligence and fill out paperwork.
Another option is a company like Acre Trader and Farm Together, which allows investors to pool their resources to buy land and rent it out to farmers. Only accredited investors are able to partake and they are required to make a minimum investment (usually $10,000 or more).
High-net-worth individuals, like Microsoft founder Bill Gates, and foreign investors are also sinking wealth into U.S. farmland. Through investment groups, Gates owns 269,000 acres of U.S. farmland, making him the single largest private holder of the asset class.
As of 2019, non-U.S citizen investors held almost 3% of U.S farmland, with most coming from Canada, Netherlands, or Italy. Over the prior decade, control of U.S. agricultural land by foreign nationals doubled, according to the USDA.
Food supply and conservation worries
But not everyone is happy with farmland becoming a hot commodity among investors that don’t wield pitchforks and wear overalls.
As non-farmers buy up farmland, there is no consensus about what that means for small farmers and food supply chains. Arable land is a scarce resource and who controls it has implications for global food security.
Some experts say that institutional investors buying up farmland drives up prices and makes it more difficult for aspiring farmers to access land. Others are concerned about the sustainability of the farming practices on the land controlled by non-farmers.
Wendong Zhang, assistant professor of economics at Iowa State University told us that third-party agricultural investors are less likely to invest in land conservation practices than traditional farmers. “This applies to corporations as well as out-of-state individual land owners,” he added.
Questions about power and paranoia
The concept of farmland investing has understandably produced a lot of unease among some observers. While some are deeply concerned about potential land grabbing by powerful interests, others dismiss the fears as undue paranoia.
Conspiracy theories abound about Gates’ reasons for buying farmland, for instance. Some people on the internet have been spreading rumors that Gates was after “the majority” of U.S. agricultural land in order to starve people and cause widespread food shortages. The theory was debunked by Snopes.com, but that hasn’t stopped people from asserting that the billionaire has a diabolical plot.
Worries about Chinese investors buying U.S. land have also intensified as of late. Politicians from across the political spectrum have called for restrictions on foreign farmland investment, especially as it relates to investors from China. Legislation has been introduced in Congress that would curb the practice.
All this fretting might be unwarranted, however, some experts said. Agricultural economics professor Bruce Sherrick, of the University of Illinois, told us that the concern largely stems from a “romanticized notion of how farmland should be owned” rather than actual threats. The structure of ownership makes little difference in how the land is tended, he said.
“Somebody is gonna farm it, whether Bill Gates buys it or the neighboring farmer buys it,” he said.
Sherrick, who is also the director of the TIAA Center of Farmland Research (sponsored by an institutional investor with significant farmland holdings), added that farmers can benefit from partnerships with third-party investors. Renting land from investors instead of buying it takes far less capital, making it easier for farmers who are just starting out, he said.
The impact of foreign ownership is perhaps also exaggerated. Much of the recent increase in control of farmland by foreigners is driven by international wind farm companies signing long term leases on cropland and pastures. And investors from China control less than 1% of all foreign-held land.
While foreign investors are often willing to pay more for farmland than domestic investors, possibly driving up prices, foreign ownership is still too small of a factor to significantly impact the market, Zhang told us.
Most U.S. farmland is still owned by families, and those dynamics aren’t likely to change significantly in the future, according to Sherrick. He added that institutional investors and other third parties also play a more limited role in driving up prices than many people believe.
“No institutional investor is thinking, ‘Hey I’m going to overpay because my investors don't care how much rate of return I get,’” he quipped.