Can The Systemic Barriers to Sustainable Farming Be Addressed?

Steve Savage, Ph.D. Presented at the Ag 2.0 Conference Toronto, Canada, November 8, 2011

Focus For This Talk: US, Rain-fed, Row Crops

Farming Sustainability Challenges

Rising food demand

Need to avoid land-use-change

Need to mitigate environmental consequences Need to deal with greater climatic variation

Sustainable Practices For Rain-Fed Row Crops

Sustainable Practice Elite Genetics Precision Fertilization Effective Pest Control Diverse Crop Rotation Reduced Tillage Cover Crops Controlled Wheel Traffic

Long-term Soil Quality Enhancement

Environmental Benefits (beyond resource use efficiency)
Reduced erosion/sedimentation/surface water pollution Reduced ground water pollution Reduced nitrous oxide emissions

Practical Outcomes
Improved water capture and storage (drought-proofing, yield stability) Improved aeration (increased yield) Improved fertility (increased yield, cost savings) Earlier spring access (increased yield)

How widely have these practices been adopted?

Adoption Sustainable Practice Elite Genetics Precision Fertilization Effective Pest Control Diverse Crop Rotation Reduced Tillage Cover Crops Controlled Wheel Traffic

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Some Barriers To Adoption of Longterm Soil Enhancement Strategies

Capital Expenses Transitional Yield Risk Negative Past Experience Delayed Economic Returns

Can sustainability Pay Its Own Way?

Adoption Sustainable Practice Elite Genetics Precision Fertilization Effective Pest Control Diverse Crop Rotation Reduced Tillage Cover Crops Controlled Wheel Traffic Economic Benefit Short-Term Longer-Term

***** *** **** * ** * *

Grower Economics Are Dominated by Annual Cost and Risk Factors

Annual Input Costs Seed Fertilizer Other Annual Expenses Crop Financing Land Rent Annual Risks Assumed Input Price Shifts Planting/Emergence Weather

Crop Protection
Fuel Custom Services Labor

Crop Insurance Premiums

Equipment Maintenance Crop Consulting Equipment Payments

Growing Season Weather

Harvest Season Weather Pest Pressures Commodity Prices

Grower Economics Are Dominated by Annual Cost and Risk Factors

Annual Input Costs Seed Fertilizer Other Annual Expenses Crop Financing Land Rent Annual Risks Assumed Input Price Shifts Planting/Emergence Weather

Crop Protection
Fuel Custom Services Labor

Crop Insurance Premiums

Equipment Maintenance Crop Consulting Equipment Payments

Growing Season Weather

Harvest Season Weather Pest Pressures Commodity Prices

Land Tenure: a Fundamental Barrier to Long-term Sustainability Practices

USDA Census of Ag 2007

How Big Is The Farmland Leasing Industry?

All US Acres Rented 2007
45 40 35 30 25 20 15 10 5 0 $200 $$1,000 $800 $600 $400 $1,400
$MM Rent Total For Category

$1,200

MM Rented Acres in Category

10

30

50

70

90

10 $2

$1

$3

$5

$7

$9

$1

$1

$1

$1

$1

USDA Census of Ag 2007 NASS County Level Rent Data

Rent Per Acre (2008-11 Average)

217MM rented acres, total $14.7B in rent 27.4MM acres rented at >$150/acre, $4.9B in rent

$2

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High Value Rental Land Is Concentrated in Certain States

Top 15 States For Farm Rental Receipts 2011
OKLAHOMA KENTUCKY MICHIGAN WISCONSIN TEXAS OHIO MISSOURI KANSAS NORTH DAKOTA SOUTH DAKOTA INDIANA NEBRASKA MINNESOTA ILLINOIS IOWA $227 $252 $284 $347 $550 $554 $647 $709 $766 $799 $936 $938 $1,234 $2,329 $2,437

Top 15 82% acres 90% value 150MM acres $13billion

$0

$500

$1,000

$1,500

$2,000

$2,500

Million Dollars

Rent vs Crop Value In The Heart of the Corn Belt

Illinois
$250
$250

Indiana

Average Rent ($/acre)

$200 $150 $100 $50 $0 $200

Average Rent ($/acre)

y = 0.393x - 76.136 R2 = 0.8424

$200 $150 $100 $50 $0

y = 0.3165x - 47.23 R2 = 0.7379

NASS county level land rent data

$400 $600 $800

$400

$600

$800

$200

Average Income From Main Crops ($/acre)

Average Income From Main Crops ($/acre)

Iowa
$250
$250

Minnesota
y = 0.3859x - 81.267 R2 = 0.8633

NASS production and value for Corn, Soy, Sorghum, Wheat

Average Rent ($/acre)

Average Rent ($/acre)

$200 $150 $100 $50 $0 $200 $400 $600 $800 Average Income From Main Crops ($/acre)
y = 0.2185x + 37.638 R2 = 0.6673

$200 $150 $100 $50 $0 $200

$400

$600

$800

Average Income From Main Crops ($/acre)

Rent vs Crop Value In Other Corn Belt States

North Dakota
$250

Missouri
$250

Average Rent ($/acre)

Average Rent ($/acre)

$200 $150 $100 $50 $0 $200

$200 $150 $100 $50 $0

y = 0.2989x - 48.509 R = 0.7884

2

y = 0.2604x - 22.115 R2 = 0.4295

$400

$600

$800

$200

$400

$600

$800

Average Income From Main Crops ($/acre)

Average Income From Main Crops ($/acre)

Nebraska
$250
y = 0.449x - 110.15

South Dakota
$250

Average Rent ($/acre)

Average Rent ($/acre)

R = 0.885

$200 $150 $100 $50 $0 $200 $400 $600 $800 Average Income From Main Crops ($/acre)

$200 $150 $100 $50 $0 $200

y = 0.3927x - 82.554 R = 0.8506

2

$400

$600

$800

Average Income From Main Crops ($/acre)

Land Rents Are Mainly Driven By Productive Potential

Selected Corn Belt Counties
$250
y = 0.3869x - 81.593 R2 = 0.8234

Average Rent ($/acre)

$200 $150 $100 $50 $0 $0

$200

$400

$600

$800

Value Of Main Crops ($/acre)

Typical Land Rents Represent A Significant Share of Gross Crop Value

Selected Corn Belt Counties
10 9 8

% of Counties

7 6 5 4 3 2 1 0

NASS county level land rent data NASS production and value for Corn, Soy, Sorghum, Wheat

9 12

15

18

21

24

27

30

33

36

Percent of Average Major Crop Value As Rent

39

Land rents have risen significantly in recent years

US Farmland Rentals 2009 and 2011
1,600

Rental Payments ($MM)

1,400 1,200 1,000 800 600 400 200 0

2009 2011

10

30

50

70

90

0 23

11

13

15

17

19

21

Rent Dollars Per Acre

2009: 180.7 MM acres rented, $13.1 billion total rent, average $72.40/acre 2011: 182.3 MM acres rented, $14.5 billion total rent, average $79.72/acre
2007 rented acreage in the counties with 2009 and 2011 rent data

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Recent Rent Trends in Key States

Rent Trends
$200

IA IL

State Average $/Acre Rent

$180 $160

IN
$140 $120

MN OH

$100 $80 2007 2008 2009 2010

NE MO
2011 2012

Longer-term Trend Data Is Available for Some States

Rent Trend for the Top 40 Iowa Counties
300

250

Average Rent ($/Acre)

200

150

100

50 1994 1999 2004 2009

A shift seems to have begun ~2004 in North Dakota

North Dakota Land Rents and Values
30

Ratio of Land Value To Rent

25

20

15

10

1985

1990

1995

2000

2005

2010

2015

What Needs To Change To Favor Longterm Sustainable Practices?

Annual Input Costs Seed Fertilizer Other Annual Expenses Crop Financing Land Rent Annual Risks Assumed Input Price Shifts Planting/Emergence Weather

Crop Protection
Fuel Custom Services Labor

Crop Insurance Premiums

Equipment Maintenance Crop Consulting Equipment Payments

Growing Season Weather

Harvest Season Weather Pest Pressures Commodity Prices

Are these systemic issues being addressed?

Approach
Government payments Environmental Services Markets Downstream Customer Initiatives Farm management companies Land Investment for Improvement Sustainable Farm Lease .org

Lease Design Lending Insurance Expert Advice

Sketch of A Sustainable Farming Support System

Investors

Landowners

Environmental Groups Lease Design

Sustainability Support Entity

Lending Insurance Expert Advice

Transition Specialists

Sustainable Farm Operators

Grower Organizations

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Obvious Challenges
Educational Confidence Building Equitable Value Sharing Quantifying the Improvement Trajectory

Conclusions
Sustainability is, by definition, something that requires the long-term view The economic reality of a row crop farming enterprise is dominated by short-term demands and signals The widespread rental of farmland is a major barrier to sustainability Many approaches do not fully address this fundamental issue of long-term vs short term economics An alternative system is needed

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