13. Sustainable Farming
The men of olden times believed that above all moderation should be observed in landholding, for indeed it was their judgment that it was better to sow less and plow more intensively. To confess the truth, the latifundia [large landed estates] have ruined Italy, and soon will ruin the provinces as well.
Rice Terraces of Batad, Philippines
One of the many concerns people have about community land contributions is their impact on agriculture. After all, farmers, ranchers, and horticulturalists depend upon their extensive and productive use of land for their livelihood. The concern is that they may be unable to afford the land they cultivate. But this perception is based upon a misunderstanding of farmland contributions, which are merely payments for the benefits that farmers receive from their land and from working near communities; they don’t impinge upon any of the wealth that farmers generate through their enterprise (net profits are apt to significantly increase with the removal of taxes on productive endeavors). Also, farmland contributions tend to be comparatively low by default, since farmland tends to be much more affordable than urban land. Farmland contributions encourage large acreages of land that have been previously withheld from the market and not put to productive use to once again become available. More available farmland, in turn, leads to even lower farmland contributions. In addition, food production itself can become more sustainable since the cost of production inputs such as labor, supplies, and machinery will be reduced while the demand for goods is likely to increase due to the absence or reduction of conventional taxes.
In our current distorted reality, land is often held speculatively without being put to productive use. As a result, agricultural land today often bears a speculative value based on the belief that it will be used in the future for urban purposes. Because people are able to profit from land, suburban sprawl has become a major issue; towns and cities use up significantly more land than they really need. This causes the value of farmland to increase. Because of these artificial wealth distortions, certain artificial legal interventions, such as agricultural zoning laws and tax breaks, have become increasingly necessary to prevent farmland from being converted to urban use.
Urban sprawl also entices older farmers priming for their retirement to cash out by selling their farms to urban developers in order to fund their retirement. This dynamic, in turn, incentivizes urban developers to apply pressure on local authorities to change zoning ordinances—a practice that’s obviously unsustainable but nonetheless encouraged under our current system.[71] According to the U.S. Department of Agriculture, half of all current farmers are likely to retire by the year 2020;[72] they will leave the next generation of farmers with nearly insurmountable hurdles, chief among them being the elevated price of land. In a poll of 1,300 young and aspiring farmers from across the U.S. conducted by the National Young Farmers Coalition, an advocacy organization for young farmers, 78 percent of respondents cited a lack of funds while 68 percent specifically cited lack of land access as preventing them from successfully owning and operating a farm.[73] In the face of these challenges, isn’t it evident that less and less farmland will become available to a younger generation of independent farmers, despite their need for farmland in their quest to provide food for society? And with more farmland used for speculative purposes instead of for food production, won’t more and more of the available land remain concentrated in the hands of those with plenty of access to money, such as large agribusinesses and Wall Street investors?
MEDIA 13-1: TENNESSEE FARMLAND PROTECTION LAW SHELTERS TAXES FOR RICH AND FAMOUS
Nationally, preferential tax laws benefiting farming are abused by businesspeople holding land for development, despite scant evidence the programs actually prevent development.
http://unitism.co/farmlandtaxshelter
Because farmland contributions will never be greater than the cost to lease farmland on the open market (excluding the value of improvements), and because the rental value of farmland will always be at a rate at which hardworking and efficient farmers can profit, farmland contributions guarantee profits for those who know how to use land efficiently. According to another study by the U.S. Department of Agriculture, a staggering 29 percent of all farmland in 2007 was owned by landlords who leased to tenant farmers.[74] If tenant farmers can succeed even now with taxes on labor and capital, clearly owner-occupants can succeed as well, even when they are unable to profit from farmland itself. Tenant farmers, too, will succeed in an economy based on land contributions because they’ve already proven their ability to pay for their use of land—except that they will now have to pay their communities instead of their landlords. Farmland contributions won’t negatively impact tenant farmers because land contributions, as we’ve discovered in Chapter 11, Affordable Housing, can’t be passed on from landlords to tenants. With farmland contributions, farmers will only lose money if they use land below its productive potential. Farmland contributions—as a fraction of the market rental value of farmland—always guarantee a profit for those who use farmland well.
In order to help us better understand this dynamic, let’s again consider the example in Chapter 3, The Free Market, a scenario in which we own an unimproved plot of land that we can either rent out on the open market for $6,000 per year, or, alternatively, use for our own purposes. In that example, we choose to use it for our own purposes and hire a part-time farmer who generates a total of $20,000 worth of produce. We pay the farmer $9,000 in wages and purchase equipment for $3,000. We realize, however, that due to our outright ownership of land, we’re able to profit from land by pocketing its rent (Table 3-1, Farm Profit).
TABLE 3-1: FARM PROFIT
In our current distorted reality, land is often held speculatively without being put to productive use. As a result, agricultural land today often bears a speculative value based on the belief that it will be used in the future for urban purposes. Because people are able to profit from land, suburban sprawl has become a major issue; towns and cities use up significantly more land than they really need. This causes the value of farmland to increase. Because of these artificial wealth distortions, certain artificial legal interventions, such as agricultural zoning laws and tax breaks, have become increasingly necessary to prevent farmland from being converted to urban use.
Urban sprawl also entices older farmers priming for their retirement to cash out by selling their farms to urban developers in order to fund their retirement. This dynamic, in turn, incentivizes urban developers to apply pressure on local authorities to change zoning ordinances—a practice that’s obviously unsustainable but nonetheless encouraged under our current system.[71] According to the U.S. Department of Agriculture, half of all current farmers are likely to retire by the year 2020;[72] they will leave the next generation of farmers with nearly insurmountable hurdles, chief among them being the elevated price of land. In a poll of 1,300 young and aspiring farmers from across the U.S. conducted by the National Young Farmers Coalition, an advocacy organization for young farmers, 78 percent of respondents cited a lack of funds while 68 percent specifically cited lack of land access as preventing them from successfully owning and operating a farm.[73] In the face of these challenges, isn’t it evident that less and less farmland will become available to a younger generation of independent farmers, despite their need for farmland in their quest to provide food for society? And with more farmland used for speculative purposes instead of for food production, won’t more and more of the available land remain concentrated in the hands of those with plenty of access to money, such as large agribusinesses and Wall Street investors?
MEDIA 13-1: TENNESSEE FARMLAND PROTECTION LAW SHELTERS TAXES FOR RICH AND FAMOUS
Nationally, preferential tax laws benefiting farming are abused by businesspeople holding land for development, despite scant evidence the programs actually prevent development.
http://unitism.co/farmlandtaxshelter
Because farmland contributions will never be greater than the cost to lease farmland on the open market (excluding the value of improvements), and because the rental value of farmland will always be at a rate at which hardworking and efficient farmers can profit, farmland contributions guarantee profits for those who know how to use land efficiently. According to another study by the U.S. Department of Agriculture, a staggering 29 percent of all farmland in 2007 was owned by landlords who leased to tenant farmers.[74] If tenant farmers can succeed even now with taxes on labor and capital, clearly owner-occupants can succeed as well, even when they are unable to profit from farmland itself. Tenant farmers, too, will succeed in an economy based on land contributions because they’ve already proven their ability to pay for their use of land—except that they will now have to pay their communities instead of their landlords. Farmland contributions won’t negatively impact tenant farmers because land contributions, as we’ve discovered in Chapter 11, Affordable Housing, can’t be passed on from landlords to tenants. With farmland contributions, farmers will only lose money if they use land below its productive potential. Farmland contributions—as a fraction of the market rental value of farmland—always guarantee a profit for those who use farmland well.
In order to help us better understand this dynamic, let’s again consider the example in Chapter 3, The Free Market, a scenario in which we own an unimproved plot of land that we can either rent out on the open market for $6,000 per year, or, alternatively, use for our own purposes. In that example, we choose to use it for our own purposes and hire a part-time farmer who generates a total of $20,000 worth of produce. We pay the farmer $9,000 in wages and purchase equipment for $3,000. We realize, however, that due to our outright ownership of land, we’re able to profit from land by pocketing its rent (Table 3-1, Farm Profit).
TABLE 3-1: FARM PROFIT
With our newfound knowledge, let’s consider this scenario again, but this time let’s analyze several other factors. At present, incomes are taxed, while land can be owned outright, so let’s use an income tax rate of 20 percent, which gives us an income tax of $1,600 (20 percent of $8,000, our gross profit), as well as a property tax of $1,500, and compare it to an 80 percent land-contribution rate, which gives us a land contribution of $4,800 (80 percent of $6,000, the land’s rental value). For illustrative purposes, the precise rates we use aren’t nearly as significant as the general implications we can derive from how increases and decreases to our numbers affect our profit and loss calculations.
What happens if we increase our income tax rate as well as the land contribution? If we gradually increase our income tax rate, income taxes will gradually eat into the wealth generated by our labor and hard work until nothing remains. If, however, we gradually increase our land contribution so that it approximates even more of the rental value of land, any additional wealth produced with our labor and ingenuity remains untouched, since land contributions always remain at or below the rental value of the land, in this case $6,000.
Clearly the farmer is better off with a combined income tax and property tax payment of $3,100 rather than with a land contribution of $4,800. But is she really? Another important financial factor plays into the profit and loss equation: High land values lead to greater financing costs for those unable to purchase land outright, while those able to purchase land without a mortgage by definition have less money to spend on production (since they used their money to buy land). Either way, elevated land prices prevent the optimal use of money, which affects a farmer’s bottom line.
Let’s continue the previous example in which we have income and property taxes of $3,100 and land contributions of $4,800. Since we know the land’s rental value, assuming a rate of return of 3 percent and a property tax rate of 1 percent, we can approximate the purchase price of this land to be about $150,000 (see the Appendix, The Math behind the Science, for more details). If we apply a land contribution of $4,800 per year on the use of this land and remove the property tax, the land’s purchase price is likely to diminish to about $40,000, since the prospect of land contributions reduces the amount we’re willing to pay out of pocket for land.
Let’s assume that in both scenarios we purchased this land with a mortgage using a down payment of 20 percent at an interest rate of 5 percent. In an income tax and property tax scenario, high land values cause our yearly payment for a thirty-year mortgage on the outstanding balance to be about $5,960 for the first year, resulting in an annual net loss in spite of our productivity as a farmer. In a land-contribution scenario, however, land values are lower, and this greatly decreases what we owe the bank: Our financing costs average out to only about $1,589 annually, which still enables us to make a profit (see Table 13-2).
TABLE 13-2: FARM PROFIT AND LOSS
What happens if we increase our income tax rate as well as the land contribution? If we gradually increase our income tax rate, income taxes will gradually eat into the wealth generated by our labor and hard work until nothing remains. If, however, we gradually increase our land contribution so that it approximates even more of the rental value of land, any additional wealth produced with our labor and ingenuity remains untouched, since land contributions always remain at or below the rental value of the land, in this case $6,000.
Clearly the farmer is better off with a combined income tax and property tax payment of $3,100 rather than with a land contribution of $4,800. But is she really? Another important financial factor plays into the profit and loss equation: High land values lead to greater financing costs for those unable to purchase land outright, while those able to purchase land without a mortgage by definition have less money to spend on production (since they used their money to buy land). Either way, elevated land prices prevent the optimal use of money, which affects a farmer’s bottom line.
Let’s continue the previous example in which we have income and property taxes of $3,100 and land contributions of $4,800. Since we know the land’s rental value, assuming a rate of return of 3 percent and a property tax rate of 1 percent, we can approximate the purchase price of this land to be about $150,000 (see the Appendix, The Math behind the Science, for more details). If we apply a land contribution of $4,800 per year on the use of this land and remove the property tax, the land’s purchase price is likely to diminish to about $40,000, since the prospect of land contributions reduces the amount we’re willing to pay out of pocket for land.
Let’s assume that in both scenarios we purchased this land with a mortgage using a down payment of 20 percent at an interest rate of 5 percent. In an income tax and property tax scenario, high land values cause our yearly payment for a thirty-year mortgage on the outstanding balance to be about $5,960 for the first year, resulting in an annual net loss in spite of our productivity as a farmer. In a land-contribution scenario, however, land values are lower, and this greatly decreases what we owe the bank: Our financing costs average out to only about $1,589 annually, which still enables us to make a profit (see Table 13-2).
TABLE 13-2: FARM PROFIT AND LOSS
The point is clear: The more money is tied up in land, the less people are able to support themselves through their contributions to society. No wonder banks are so powerful in our economy! Of course, land contributions aren’t likely to be welcomed by the financial and real-estate industries that continue to make a killing from the trade of land. These industries want to keep real estate prices high. If we consider that farmland contributions currently paid to private individuals and financial institutions for a profit represent a significant portion of farm expenses today, we quickly realize that land contributions can minimize farm expenses and greatly increase total farm profits.[75]
Toward the end of the nineteenth century in the United States, cattle ranchers owned vast amounts of land. Henry Miller, for example, was one of the most prominent landowners and cattle ranchers of his time: At one point he owned over 1.4 million acres of land and supposedly could drive his cattle from the Mexican border all the way up to Oregon and spend every night on his own property! Back then, much of the land that bordered California’s lakes and rivers had been bought up by private landowners who charged farmers exorbitant fees for their use of water—a precious and scarce commodity in California— consequently putting many family farms out of business.
In 1887, the State of California passed the Wright Act, which allowed the creation of special water-irrigation districts. The cost to build the irrigation infrastructure was financed through the taxation of land, which actually rose in value as a result of increased irrigation and fertilization. Land became too costly to own for ranchers; consequently, they sold the land at affordable prices to farmers who were able to put the land to productive use. Within ten years, California’s San Joaquin Valley transformed into a vast network of irrigated independent farms. A once-arid desert became the “breadbasket of America,” one of the most agriculturally productive areas on the planet.[76]
The moment we begin to share the value of land, farmland will once again become affordable; anyone with the skill and ability to efficiently grow food will be able to purchase or lease land from their local community at a significantly lower cost and turn a profit. Small family farms, which tend to use land efficiently, will once again have a viable chance at growing food for their local communities, empowering them in the process. Agricultural methods such as permaculture, which use land both intensively and harmoniously, are poised to thrive in this new economic paradigm.[77]
MEDIA 13-3: THE KILLING FIELDS
The Killing Fields is a documentary highlighting the importance that economics plays in wildlife conservation. The film explores the relationship between wildlife, land, economics, and law. It’s presented by economist Fred Harrison and features Peter Smith, CEO and founder of the Wildwood Trust, Dr. Duncan Pickard, landowner and farmer, and Polly Higgins, environmental lawyer, author, and campaigner.
http://unitism.co/thekillingfieldsdoc
Toward the end of the nineteenth century in the United States, cattle ranchers owned vast amounts of land. Henry Miller, for example, was one of the most prominent landowners and cattle ranchers of his time: At one point he owned over 1.4 million acres of land and supposedly could drive his cattle from the Mexican border all the way up to Oregon and spend every night on his own property! Back then, much of the land that bordered California’s lakes and rivers had been bought up by private landowners who charged farmers exorbitant fees for their use of water—a precious and scarce commodity in California— consequently putting many family farms out of business.
In 1887, the State of California passed the Wright Act, which allowed the creation of special water-irrigation districts. The cost to build the irrigation infrastructure was financed through the taxation of land, which actually rose in value as a result of increased irrigation and fertilization. Land became too costly to own for ranchers; consequently, they sold the land at affordable prices to farmers who were able to put the land to productive use. Within ten years, California’s San Joaquin Valley transformed into a vast network of irrigated independent farms. A once-arid desert became the “breadbasket of America,” one of the most agriculturally productive areas on the planet.[76]
The moment we begin to share the value of land, farmland will once again become affordable; anyone with the skill and ability to efficiently grow food will be able to purchase or lease land from their local community at a significantly lower cost and turn a profit. Small family farms, which tend to use land efficiently, will once again have a viable chance at growing food for their local communities, empowering them in the process. Agricultural methods such as permaculture, which use land both intensively and harmoniously, are poised to thrive in this new economic paradigm.[77]
MEDIA 13-3: THE KILLING FIELDS
The Killing Fields is a documentary highlighting the importance that economics plays in wildlife conservation. The film explores the relationship between wildlife, land, economics, and law. It’s presented by economist Fred Harrison and features Peter Smith, CEO and founder of the Wildwood Trust, Dr. Duncan Pickard, landowner and farmer, and Polly Higgins, environmental lawyer, author, and campaigner.
http://unitism.co/thekillingfieldsdoc
Footnotes
- The United States alone lost over 23 million acres of farmland from 1982 to 2007 due to development—an area equal to the en- tire state of Indiana (U.S. Department of Agriculture, “Summary Report: 2007 National Resources Inventory,” 2009).
- U.S. Department of Agriculture, “Providing Resources for Beginning Farmers and Ranchers,” USDA blog, May 8, 2009.
- National Young Farmers Coalition, “Building a Future with Farmers: Challenges Faced by Young, American Farmers and a National Strategy to Help Them Succeed,” November 2011.
- Is there any data to back up these claims? Although we don’t have historical economic data on farmland contributions per se, we do, however, have historical data on property taxes levied on the values of farm buildings and farmland combined. In his 1992 paper “Rising Inequality and Falling Property Tax Rates,” Mason Gaffney shows that higher property taxes on farmland benefit farmers, while property tax relief correlates to increased wealth inequality within the agricultural sector (Mason Gaffney, “Rising Inequality and Falling Property Tax Rates,” 1992). This increased wealth inequality, according to Gaffney, has potentially disastrous consequences for society: “In the Great Depression (1930–1941), millions of small family farms provided a refuge for the jobless and homeless. Today, that refuge is closed, with explosive social consequences in urban slums.”
In his research, Gaffney shows that farmland is used far more productively, and distributed more equitably, if higher property taxes are instituted on farmland. His research also reveals that lower property taxes on farmland allow people and companies to use farmland as a tax shelter and for speculative investment purposes instead of agricultural production. The resulting rise in property prices and the increased appropriation of high-quality farmland by large agribusinesses make it increasingly difficult for farmers to find the best farmland and put it to optimum use. Average farm sizes are increasing as large agribusinesses swallow up land, particularly since property taxes on farmland were lowered in 1930.
ILLUSTRATION 13-4: AVERAGE ACRE PER FARM
Alan Olmstead and Paul Rhode, “Average Acreage per Farm,
by Region and State: 1850–1997,” in Historical Statistics of the
United States, Earliest Times to the Present: Millennial Edition, 2006,
225–90
- For a good summary on the California Wright Act, see Alanna Hartzok, “The Wright Act, California, USA SWOT Analysis,” n.d.
- According to a 2013 report released by the United Nations Conference on Trade and Development (UNCTAD), “The world needs a paradigm shift in agricultural development: from a green revolution to an ecological intensification approach.” The report warns that unless such drastic changes occur, food security may be threatened due to future resource constraints and climate change.