Can you guess what these two statistics have in common: 1) foreign investors now own 30-million acres of U.S. farmland; and 2) two-thirds of the nation’s farmland will change hands in the next few decades.
If you guessed a big opportunity for foreign investors to expand their holdings of American farmland you nailed it. And as NPR pointed out in a recent article, a lot of people are concerned about it. The average age of farmers continues to increase (it’s currently 55). And as those farmers retire, or otherwise exit the industry, something has to happen to all that farmland. Rural Americans certainly aren’t in an economic position to capitalize on the transfer. So it could be an opportunity for foreign investors.
So what can we do about it?
The situation reminds me of my trip to Ukraine in 2013, which was sponsored by Michigan Farm Bureau. For 10 days we traveled around the country meeting farmers and learning about the area’s agricultural systems. We also met with Ukraine’s agriculture secretary to discuss the policies and problems facing the nation.
One thing was abundantly clear: land ownership was a big problem.
The communist government took over Ukraine after World War II. The regime eliminated private ownership of everything, including farmland. Most rural Ukrainians live in small villages surrounded by thousands of hectares. So each village was assigned the surrounding land to farm for the state.
But Ukraine declared its independence in 1997. The newly-formed government restored private-property ownership, almost literally, overnight. Suddenly, the world’s most sought-after arable land was once again available for private ownership. The farmland was split between the families who previously worked it.
Not surprisingly, the government worried about foreign investors. Villagers hadn’t owned anything in decades. And suddenly they had a piece of very valuable land. Who would blame them for selling out quickly and enjoying the earnings? So the government passed laws prohibiting the transferability of land. No sales. No gifts. No exchanges. Land could only be passed by inheritance.
The prohibition was meant as a temporary solution. Government leaders were supposed to figure out a way to restore alienability of property rights without risking foreign investments. But it still exists today. And time has only complicated matters.
Rural Ukrainians know they own a portion of these large fields. But it isn’t clear which 5 hectares they own. And even if they knew, the chances are that its landlocked by everyone else’s small plots. Worse, the original owners have passed away. So these small plots have been divided further and passed to the next generation, usually without anyone knowing who actually owns it now.
Most farmland in Ukraine has been leased to massive corporations for ridiculously low rents. The villagers who were supposed to benefit from private ownership now receive a pittance for it. The thug-like companies farming the land don’t necessarily hire local Ukrainians to farm it. And, as we found out in a rather scary moment, they don’t really like anyone keeping track of them. (Ironically, shortly after we left, Chinese companies purchased leases on a significant portion of Ukraine’s farmland.)
Our tour group questioned the policy when we met with Ukraine’s agriculture minister. He assured us then that the government only had the villager’s best interests in mind when adopting the prohibition. And they were diligently working to restore transferability rights. Six years later nothing has changed.
The group’s general consensus was that these policies hurt the villagers they were initially supposed to protect. They had no pride of ownership in the land. The land wasn’t being used to its full potential. And the policies were seemingly keeping the villagers in poverty. What’s the point of owning land if you can’t convey it? Ukraine’s overall agricultural production is repressed because of it.
Back in the United States, I still hope and believe we would never adopt such a regressive and shortsighted law. We’re firm believers in private-property rights. Our existing laws are fair, predictable, reasoned, and sensible. And we have a strong farm lobby that would (hopefully!) recognize the pitfalls of ending alienability.
But as we face the issue of rising foreign ownership of land, I do worry about the knee-jerk reactions. We don’t feel good about those faceless, foreign entities owning our farmland. We’re fiercely proud of our farm-family legacy. And we don’t like when something gets in the way of it.
Before you think it’s crazy to suggest that we could have Ukrainian-like laws in America, let me tell you that we already have some laws. The Agricultural Foreign Investment Disclosure Act requires foreign entities to report transactions to the USDA’s Farm Service Agency. And six states ban foreign ownership completely: Hawaii, Iowa, Minnesota, Mississippi, North Dakota, and Oklahoma.
I’m not trying to suggest that we shouldn’t have any laws about foreign ownership of farmland. There’s definitely a national-security interest in keeping our food production in the hands of Americans. So keeping farmland protected from foreign interests makes sense and has broad appeal.
Yet real property is so valuable because it comes with certain rights, including unrestrained alienability. My law-school professor referred to it as “the bundle of sticks” that each landowner obtains upon owning property, with each stick representing a different right. Those rights are important. And certainly restrictions that are too regressive may devalue farmland, which can hurt older Americans who’ve invested all their money in that land.
So I’m suggesting we proceed with caution. We can certainly take steps to protect national farmland ownership. But we don’t want to turn into Ukraine in the process.