Systemic Barriers to Sustainable Farming

Can The Systemic Barriers to Sustainable Farming Be Addressed?

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

1

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

Elite Genetics

Precision Fertilization

Effective Pest Control

Diverse Crop Rotation

Reduced Tillage

Cover Crops

Controlled Wheel Traffic

Sustainable Practice

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)

5

How widely have these practices been adopted?

* * * * * Elite Genetics

* * * Precision Fertilization

* * * * Effective Pest Control

* Diverse Crop Rotation

* * Reduced Tillage

* Cover Crops

* Controlled Wheel Traffic

Sustainable PracticeAdoption

Some Barriers To Adoption of Long-term Soil Enhancement Strategies

• Capital Expenses

• Transitional Yield Risk

• Negative Past Experience

• Delayed Economic Returns

Can sustainability “Pay Its Own Way?”

Short-Term Longer-Term

* * * * * Elite Genetics

* * * Precision Fertilization

* * * * Effective Pest Control

* Diverse Crop Rotation

* * Reduced Tillage

* Cover Crops

* Controlled Wheel Traffic

Economic BenefitSustainable PracticeAdoption

Grower Economics Are Dominated by Annual Cost and Risk Factors

Annual Input Costs

Other Annual Expenses

Annual Risks Assumed

Seed Crop Financing Input Price Shifts

Fertilizer Land RentPlanting/Emergence

Weather

Crop ProtectionCrop Insurance

PremiumsGrowing Season

Weather

FuelEquipment

MaintenanceHarvest Season

Weather

Custom Services Crop Consulting Pest Pressures

Labor Equipment Payments Commodity Prices

Grower Economics Are Dominated by Annual Cost and Risk Factors

Annual Input Costs

Other Annual Expenses

Annual Risks Assumed

Seed Crop Financing Input Price Shifts

Fertilizer Land RentPlanting/Emergence

Weather

Crop ProtectionCrop Insurance

PremiumsGrowing Season

Weather

FuelEquipment

MaintenanceHarvest Season

Weather

Custom Services Crop Consulting Pest Pressures

Labor Equipment Payments 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

0

5

10

15

20

25

30

35

40

45

Rent Per Acre (2008-11 Average)

MM

Re

nte

d A

cre

s in

C

ate

go

ry

$-

$200

$400

$600

$800

$1,000

$1,200

$1,400

$MM

Ren

t T

ota

l F

or

Cat

ego

ry

217MM rented acres, total $14.7B in rent27.4MM acres rented at >$150/acre, $4.9B in rent

USDA Census of Ag 2007NASS County Level Rent Data

High Value Rental Land Is Concentrated in Certain States

Top 15 States For Farm Rental Receipts 2011

$2,437

$2,329

$1,234

$938

$936

$799

$766

$709

$647

$554

$550

$347

$284

$252

$227

$0 $500 $1,000 $1,500 $2,000 $2,500

IOWA

ILLINOIS

MINNESOTA

NEBRASKA

INDIANA

SOUTH DAKOTA

NORTH DAKOTA

KANSAS

MISSOURI

OHIO

TEXAS

WISCONSIN

MICHIGAN

KENTUCKY

OKLAHOMA

Million Dollars

Top 1582% acres90% value150MM acres$13billion

Rent vs Crop Value In The Heart of the Corn Belt

Illinois

y = 0.393x - 76.136

R2 = 0.8424

$0

$50

$100

$150

$200

$250

$200 $400 $600 $800

Average Income From Main Crops ($/acre)

Av

era

ge

Re

nt

($/a

cre

)

Indiana

y = 0.3165x - 47.23

R2 = 0.7379

$0

$50

$100

$150

$200

$250

$200 $400 $600 $800

Average Income From Main Crops ($/acre)A

ve

rag

e R

en

t ($

/ac

re)

Iowa

y = 0.2185x + 37.638

R2 = 0.6673

$0

$50

$100

$150

$200

$250

$200 $400 $600 $800

Average Income From Main Crops ($/acre)

Av

era

ge

Re

nt

($/a

cre

)

Minnesota

y = 0.3859x - 81.267

R2 = 0.8633

$0

$50

$100

$150

$200

$250

$200 $400 $600 $800

Average Income From Main Crops ($/acre)

Av

era

ge

Re

nt

($/a

cre

)

NASS county level land rent data

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

Rent vs Crop Value In Other Corn Belt States

Missouri

y = 0.2604x - 22.115

R2 = 0.4295

$0

$50

$100

$150

$200

$250

$200 $400 $600 $800

Average Income From Main Crops ($/acre)

Av

era

ge

Re

nt

($/a

cre

)

Nebraska

y = 0.449x - 110.15

R2 = 0.885

$0

$50

$100

$150

$200

$250

$200 $400 $600 $800

Average Income From Main Crops ($/acre)

Av

era

ge

Re

nt

($/a

cre

)

South Dakota

y = 0.3927x - 82.554

R2 = 0.8506

$0

$50

$100

$150

$200

$250

$200 $400 $600 $800

Average Income From Main Crops ($/acre)

Av

era

ge

Re

nt

($/a

cre

)

North Dakota

y = 0.2989x - 48.509

R2 = 0.7884

$0

$50

$100

$150

$200

$250

$200 $400 $600 $800

Average Income From Main Crops ($/acre)

Av

era

ge

Re

nt

($/a

cre

)

Land Rents Are Mainly Driven By Productive Potential

Selected Corn Belt Counties

y = 0.3869x - 81.593

R2 = 0.8234

$0

$50

$100

$150

$200

$250

$0 $200 $400 $600 $800

Value Of Main Crops ($/acre)

Av

era

ge

Re

nt

($/a

cre

)

Typical Land Rents Represent A Significant Share of Gross Crop Value

Selected Corn Belt Counties

0

1

2

3

4

5

6

7

8

9

10

Percent of Average Major Crop Value As Rent

% o

f C

ou

nti

es NASS county level

land rent data

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

Land rents have risen significantly in recent years

US Farmland Rentals 2009 and 2011

0

200

400

600

800

1,000

1,200

1,400

1,600

Rent Dollars Per Acre

Re

nta

l Pa

ym

en

ts (

$M

M)

2009

2011

2009: 180.7 MM acres rented, $13.1 billion total rent, average $72.40/acre2011: 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

Recent Rent Trends in Key States

Rent Trends

$80

$100

$120

$140

$160

$180

$200

2007 2008 2009 2010 2011 2012

Sta

te A

ve

rag

e $

/Ac

re R

en

t

IA

IL

IN

MN

OH

NEMO

Longer-term Trend Data Is Available for Some States

Rent Trend for the Top 40 Iowa Counties

50

100

150

200

250

300

1994 1999 2004 2009

Av

era

ge

Re

nt

($/A

cre

)

A shift seems to have begun ~2004 in North Dakota

North Dakota Land Rents and Values

0

5

10

15

20

25

30

1985 1990 1995 2000 2005 2010 2015

Ra

tio

of

La

nd

Va

lue

To

Re

nt

What Needs To Change To Favor Long-term Sustainable Practices?

Annual Input Costs

Other Annual Expenses

Annual Risks Assumed

Seed Crop Financing Input Price Shifts

Fertilizer Land RentPlanting/Emergence

Weather

Crop ProtectionCrop Insurance

PremiumsGrowing Season

Weather

FuelEquipment

MaintenanceHarvest Season

Weather

Custom Services Crop Consulting Pest Pressures

Labor Equipment Payments 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

Insurance

Lending

Expert Advice

Sketch of A Sustainable Farming Support System

24

Landowners

Transition Specialists

Sustainability Support Entity

Environmental Groups

Grower Organizations

Sustainable Farm Operators

Lease Design

Insurance

Lending

Expert Advice

Investors

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

26