Author: Mykel R. Taylor

Agriculture is a multi-generational industry, and it is a source of pride for many people in the sector. However, it is also a challenge we must navigate as we move our businesses from one generation to another. There are several hurdles to transitioning a farm business to the next generation, including legal, financial, and social. Initially, we often turn to lawyers and accountants with our questions. However, perhaps the first and most challenging obstacle is the communication needed to bring our families together for these major decisions. 

Research in the area of transition planning suggests that there are four stages to go through: (1) development of a retirement plan, (2) identifying a successor, either family or non-family, (3) transferring managerial control, and (4) legal transfer (lawyer and accountant). Many farm transition planning workshops host a lawyer and/or accountant to answer questions and help farm families, but it may be interesting to know that this is the last step in the complete process and that we tend to get stuck on the first step more often than not. 

The legal barriers to transitioning a farm require expert help and will vary by farm business, as will the tax implications for different asset bases and in different states. The financial barriers can either speed up or slow down transition plans as the available funds may affect the viability of bringing another person or family into the business. The social barriers will also vary and can include things like delaying a transition decision while waiting for a child to make career and/or marital choices. Marriages and divorces can complicate transition planning as well. Finally, it can be very hard for a farmer or rancher to give up their identity as a producer and control of business decisions by handing over the keys to another, even when it is the next generation of their family. The social barriers arise because farms are a unique intersection between families and businesses.

In conducting qualitative research in Alabama, we have talked to many farmers between the ages of 35 and 50 about their management styles and the issues that challenge them in their operations and lives. We are learning that transition planning is at the top of their minds but approaching the older generations who still own and/or control farm assets is not always easy. They don’t know how to start the conversation in a respectful way that keeps the line of communication open. It may be that encouraging them to attend a transition planning session put on by Extension or at a commodity meeting is one way to start the conversation. Another is asking a family friend to breach the topic, reminding them that time can slip away from them if this gets put off indefinitely. Maybe the first step is as simple as forwarding a copy of this article and asking them to share a conversation over a cup of coffee. Whatever your approach, it is a worthwhile thing to consider and discuss.

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Taylor, Mykel, and Kelli Russell. “Talking about Transitioning our Farms and Ranches.” Southern Ag Today 5(14.1). March 31, 2025. Permalink

An increasingly important decision facing farmers is incorporating conservation and ecosystem services into their production activities. U.S. state and federal agencies, market-based entities, and non-governmental organizations are all developing programs that modify how food and fiber are produced with respect to environmental concerns. Local soil and water conservation districts and the USDA Natural Resources Conservation Service provide cost share for specific conservation activities. One of the roadblocks to ecosystem service contracts and conservation practices is involving both landowners and tenants on land that might be eligible for the programs offered. Many ecosystem and conservation services contracts have longer terms than the underlying lease on the land. Most require the landowner to agree to the contract but then the tenant is responsible for complying with the contract provisions. This situation requires landowners and tenants to successfully navigate the negotiation of incorporating conservation practices into their farmland leases.

To help farmers and landowners augment a traditional lease, we suggest a four-step process: 1) understand objectives; 2) explore opportunities; 3) communicate; and 4) document the agreement. 

Understand objectives. Both landowners and tenants have various objectives in farming a piece of land. Landowners have objectives as diverse as profit maximizing to recreational enjoyment to improving the environment. Tenants also have various objectives – including making a profit, efficient use of existing assets, and family lifestyle. However, the first, and often only, objective discussed is the financial objective. Both landowner and tenant approach the other with the goal of settling on a rental rate that satisfies both. Because conservation has implications for the long-term value of the land, it is easier for the tenant to assume the landowner might value a lease change that involves conservation activities. Therefore, the tenant can merge financial goals (maintaining long-term investment) with conservation goals. 

Explore Opportunities. Conservation activities are site-specific. A conservation plan for one field may not be appropriate for an adjacent field for numerous reasons. Exploring opportunities is a transaction cost. Transaction costs include education about alternatives, investigation into sources of assistance, obtaining a viable conservation plan, and estimating the cost of enacting the conservation plan. The party most interested in modifying the lease is likely the one who will need to incur the bulk of the transaction costs. These expenses may occur before communication with the other party begins. 

Communicate. Success is enhanced by approaching the other party with a clear but flexible plan that acknowledges the other’s objectives and meets their educational needs. The act of beginning a conversation can reveal objectives and opportunities for meeting both party’s objectives. Communication takes time. The person receiving a request needs time to think about how it fits with his/her objectives. Often, a counterproposal is made that needs to be considered by the other party. Multiple discussions are common for all but the simplest changes. Even when a plan is agreed to, drawing up the final details and finding resources takes time. Waiting until lease renewal is due is not a good time to propose a change. Change needs to be proposed months before a lease renewal date so that neither party is rushed or rejects it outright for lack of time to think through the consequences. 

Document the agreement. Incorporating conservation practices into leases is not common practice in the U.S., so there is a danger of not understanding what each party agreed to do. Documenting the agreement in a written lease prevents misunderstanding. Because conservation activities tend to span more than a single year, the lease agreement may move from an annual lease to a multiple-year lease. Some ecosystems services programs (e.g. carbon credits) may go directly to the landowner, therefore rental rates need to be adjusted to incentivize the farmer to implement the practice on lease ground. For example, in the first year or two, when cover crops are planted, the landowner might reduce rent by a fixed dollar amount with the agreement that it will rise back to a more customary rate in year three. The same effect can be obtained by the landowner agreeing to pay for part of the expense of planting cover crops for years one and two but ceasing to pay after that. This way of incentivizing cover crops involves agreeing upon both the rental discount (or payment) amount and the number of years. These types of agreements need to be in writing so that they are not forgotten or become a point of disagreement in the future.

For more details see Massey and Hefley (2023) available at: https://extension.missouri.edu/publications/g421

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Taylor, Mykel, and Ray Massey. “Incorporating Conservation Practices into Leases.” Southern Ag Today 4(25.3). June 19, 2024. Permalink

We have written previously about foreign investment in U.S. ag land (found here). That article stated that there is currently no federal law that prohibits the ownership of private agricultural land by foreign persons or entities. The federal government’s only involvement is monitoring land acquisitions and recording information on those purchases through the passage of the Agricultural Foreign Investment Disclosure Act of 1978 (AFIDA). Under AFIDA, qualifying foreign entities who buy or sell an interest in agricultural land are required to report the transaction within 90 days of acquiring the land or face a monetary penalty.

Foreign ownership or leasing of U.S. agricultural land increased by 2.4 million acres in 2020 (USDA- FSA 2021). However, that acreage represents a relatively small proportion of the overall base of U.S. farmland and timberland. The total amount of U.S. cropland, pasture, and forest with foreign ownership or leasing interest in 2020 was 37.6 million acres, which represents about 2.9% of all privately held U.S. agricultural land. It is worth noting that AFIDA requires reporting of ownership and partial ownership in U.S.agricultural land by a foreign investor, as well as leaseholds of 10 years or more. In other words, foreign investments in U.S. land covered by AFIDA include both foreign ownership and leasing. Current AFIDA regulations exempt foreign investors from the reporting requirement if their lease of agricultural land is less than 10 years. As of 2020, over half of the transactions by foreign buyers holding U.S. agricultural land are via long-term leases, covering more than 30% of acres held by foreign entities and reported under AFIDA. For the past decade (2011 to 2020), that trend has shifted and long-term leases are even more important, as they account for 60% of the growth in foreign controlled acres and more than 70% of all transactions reported under AFIDA.

In 2020, 62% of foreign land investments in acres reported under AFIDA, which includes cropland, pasture, and forest, fell into the category of ownership, while 32% fell into the long-term lease category. The remaining 6% of land investments include the land categories of life estates, trust beneficiary, partially owned, and purchase contracts. This growth in leasing relative to ownership over the past 10 years manifests in the cropland category more than in the pasture, forest, or other agricultural land classifications. Figure 1a shows that foreign-owned agricultural land represents the majority of all foreign-held U.S. agricultural land. However, figure 1b, which measures only the cropland category of land, shows the percentage of cropland owned versus leased. The balance of owned versus leased prior to 2013 was majority owned, but after 2013 the majority of foreign interest in U.S. cropland was leased. By 2020, ownership accounted for 26% of foreign land holdings of U.S. cropland, while 71% fell under long-term (greater than 10 years) leases. In other words, most additional foreign acquisitions of U.S. cropland in recent years have been through long-term leases, which more than tripled from 2010 to 2020. Foreign-held forestland, on the other hand, does not follow this pattern—ownership accounts for 89% of foreign holdings, and long-term leases account for 4% of all forestland held by foreign entities, with the residual percentage falling in the other categories mentioned previously. 

The overall trend in cropland acquisition by foreign entities using long-term leases rather than ownership suggests possible different motivations for cropland relative to pasture or forestland. Buyer or lessor intentions, however, are not included in the data collected by AFIDA.

Figure 1. Cumulative foreign interest in U.S. agricultural land and cropland, 2000–2020.

For more information on this topic please see:

Mykel R. Taylor, Wendong Zhang, and Festus Attah. 2023. “Foreign Interests in U.S. Agricultural Lands: The Missing Conversations about Leasing.” Forthcoming at Choices Magazine. Available at https://www.card.iastate.edu/products/publications/pdf/23pb40.pdf

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Taylor, Mykel, Wending Zhang, and Festus Attah. “Foreign Investment in U.S. Agricultural Land: Leasing vs. Owning.” Southern Ag Today 4(5.3). January 31, 2024. Permalink

In August 2023, the USDA National Agricultural Statistics Service published their annual report of state-level land values for farm real estate, which includes both cropland and pasture values. The results of the report indicate a strong market in the Southeast, with Georgia leading the region at a 9.8% increase in 2023 farmland values over 2022. The overall increase for the United States was 7.4%, and Kansas led the nation with a 16.3% increase in farm real estate values from 2022.

Over the last three years, farmland values have increased by record amounts, according to the USDA-NASS survey data. At the same time, the financial position of many farmers has been affected by higher input costs and increasing interest rates. Why don’t we see a one-for-one decrease in land values when interest rates increase and farm profitability moderates? Well, the most straightforward answer is that farmers are a mixed group, and their individual financial positions aren’t necessarily the same as their neighbor’s. This makes it hard to predict the movement of the land markets during times of transition.

When I read about the farmland market in articles from across the country, I am always struck by the variety of factors at play. First, crop yields are going to drive willingness to bid. Several years of good yields and prices will motivate both farmers and non-farm investors to participate in the land market. But there are always other factors including proximity to urban development or water availability/rights. It is important to remember that farmers are the majority owners of farmland, and their motivations to buy and sell land are big drivers in the market. This means when that rare piece of good farmland near your operation comes up for sale, you will likely be in the market regardless of where interest rates are today. You may also be looking to expand your operation and bring on another generation. When that is the case, buying land becomes a priority for your farm business, and your willingness to bid in a strong market is going to be robust. Each of these factors will contribute to support for the local land market that may keep these recent increases in interest rates and moderation of farm incomes from having a big impact on land values in your area. 

Taylor, Mykel R. “2023 Land Values and Buyer Motivations.” Southern Ag Today 3(37.3). September 13, 2023. Permalink

Foreign land ownership has recently become a hot topic for politicians and the news media in the United States. Reasons given for interest in this topic include rising land values, added barriers for beginning farmers, and concerns about food security and national security due to non-U.S. ownership of agricultural assets. There is currently no federal law that prohibits the ownership of private agricultural land by foreign persons or entities. The federal government’s only involvement is the monitoring of land acquisitions and recording of information on those purchases through the passage of the Agricultural Foreign Investment Disclosure Act of 1978 (AFIDA).  Under AFIDA, qualifying foreign entities who buy or sell an interest in agricultural land are required to report the transaction within 90 days of the date of transition. Failure to comply with the AFIDA results in a civil penalty of up to 25% of the fair market value of the interest held in the land (USDA-FSA 2021). 

Under AFIDA, the term agricultural land includes cropland, pasture, and timber. Foreign holdings of U.S. agricultural land increased by 2.4 million acres in 2020 (USDA-FSA 2021). However, these holdings represent a relatively small proportion of the overall base of farm and timber land in the United States. The total amount of U.S. cropland, pasture, and forest land under foreign ownership in 2020 was 37.6 million acres, which represents about 2.9% of all agricultural land. It is also important to note that more than half of US farmland held by foreign countries are long-term leases, often by energy companies, as opposed to outright ownership.

The largest purchaser of U.S. agricultural land is Canada, representing 32% of land owned by all foreign buyers, or 12.4 million acres held. The next four countries holding U.S. agricultural collectively purchased 12 million acres or 31% of foreign-owned land. Those countries are the Netherlands (13%), Italy (7%), the United Kingdom (6%), and Germany (5%). In contrast, China owned 352,140 acres as of the end of 2020, which is less than 1% of foreign-held acres in the United States. As shown in Figure 1, China ranks 18^th overall in U.S. land holdings among foreign countries and ranks 11^th if we focus on U.S. farmland acquired between 2010 and 2020.

The USDA does not have the authority to intervene in private land deals, but individual states can and have passed legislation that affects who can buy agricultural land and how much they can own. In the past two years, many states have proposed legislation limiting foreign ownership of farmland and sometimes all real property. Those bills have varied in detail affecting scope of limitations, countries affected, and differentiating between individuals and corporations. Similarly, at the federal level there were several proposed measures introduced seeking to control, prohibit, restrict, or increase oversight on foreign investments in the U.S. agricultural sector.  As this issue continues to evolve in legislative spheres, it is important to stay abreast of the details of proposed state and federal legislation.

Figure 1. Top 25 Foreign Countries by U.S. Farmland Ownership in 2020

Reference:

Foreign Holdings of U.S. Agricultural Land through December 31, 2020, by the Farm Service Agency and the Farm Production and Conservation Business Center, U.S. Department of Agriculture. Available at http://www.fsa.usda.gov/programs-and-services/economic-and-policy-analysis/afida/index

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Taylor, Mykel. “Foreign Investment in Agricultural Land.” Southern Ag Today 3(20.3). May 17, 2023. Permalink