Leasing Farmland 101 by Joel Salatin

Leasing is a way in and a way to scale. Goodness knows we need as much of this transitional farmland as possible to go to our tribe and not to the corporate industrial tribe. An owned hub is great, but it can be much smaller than the managed acreage. Don’t frustrate yourself with partners that only want as much money as possible. That’s not a good fit. Work with landowners who want wildlife, soil building, better water cycles. Those are the things our eco-farming tribe can bring to the table.

Chickens outside at a farm In the late 1960s farmland prices began spiraling far beyond historic price-to-production ratios. When my mom and dad purchased the core property for our farm, the land was $90 per acre (in 1961) and feeder calves brought $150. You could raise half a feeder calf on an acre of pasture, a gross annual production value of $75.

At a price-to-production ratio of $90:$75, that was nearly 1:1. Today, it’s worth $7,000 per acre and that calf is $700. We receive no more rain, sunshine, or fertilizer than we did in 1961. At half a calf per acre, the new ratio is $7,000:$350, or 20:1.

I’ve talked to many older farmers (all of whom are now gone) in the community who acquired their land from a couple years’ production. I mean, their wheat, cattle, milk, etc. paid for the land in a couple of years.

That’s now an outrageous idea. Yes, some of the most successful micro-farms are buying land with production, but it’s rare. So where to from here? Virtually all agricultural experts agree that in the next 15 years, half of all America’s farm equity (land, buildings, equipment) will change hands due to the average age of farmers being 60 years old. Only 6 percent of farmers are younger than 35. Business gurus say that anytime the average practitioner in an economic sector drops below 35, it’s a sector in decline.

The problem is that when the impediments to entry are too high for young people to get in, then the old people can’t get out. Both generations are stuck at the intersection: one at the on ramp and the other at the off ramp. Much if not most of this farmland transition will go to heirs. But most of the heirs do not want to farm. These children reside elsewhere, have their careers and proximity to pizza delivery, and have no intention of uprooting their teenagers to move back to the family farm.

Farmland acreage is becoming available at unprecedented rates as current farmers age out of the process. Cornell University did a study several years ago looking at New York state’s abandoned farmland. They took a 15-year period of time (I believe 1995-2010) and identified farmland acreage that was still privately owned but not actively farmed. It was not sold for development, not used for roads or buildings. The acreage was about 3.1 million acres … in New York state alone!

I remember well a busload of New York farmers who came to see our farm in the early 1990s. They asked what our property taxes were, and I think at the time I was paying about $1,500 a year on our 550 acres. They said a farm like this in New York would be paying $15,000 in annual property taxes. According to them, the urban areas, primarily New York City and Buffalo, needed rural taxes to remain afloat because the cities sucked too much state money. It eventually ran the farmers out of the state and dropped farmland prices by 70 percent (the market has a way of adjusting to government shenanigans).

One of our early apprentices was from upstate New York. After he finished the program he went back home and within a month was offered 1,000 acres (3 different land owners) for free if he would just do something with the land. Which brings me to the point of this article: leasing farmland.

I’m certainly a big fan of owning a home base. But even on a livestock operation, home base can be relatively small — 5 acres? You need a minimal animal holding area, animal starting area, maintenance shop, equipment storage and a place to live. Other than that, production is possible on leased land.

Here at Polyface, we now lease 12 parcels in the community, totaling about 1,400 acres. Our hub is only 175 acres of pasture, so the leased acreage dwarfs home base. That has enabled us to achieve some economies of scale (more hours on equipment overheads), heal more land, serve more customers and germinate more young farmers.

My dream is that as half of all farmland changes hands over the next 15 years, most of it will go to management under a new generation of bright-eyed, bushy-tailed, land-caressing entrepreneurs increasing the commons and serving communities with integrity-based food and fiber.

In all cases, customized leases speak to the unique desires of individual landowners. They vary in personality, expectations and needs. While we certainly use a template, each one speaks distinctly to the arrangement. In our case, most landowners contact us; we don’t contact them. They’ve seen what we do or know about what we do and want us to manage their property.

Consider leasing as a property management business. You’re providing a service to the landowner who is unwilling or unable to keep up fences and maintain the property. What makes a farm a farm is not the land; it’s not production; it’s a farmer. This is the problem with most farmland preservation efforts — they seek to preserve farmland without preserving farmers. Like upstate New York, if we preserve farmland without farmers, we just create wilderness without economy or community.

To land a lease, therefore, you need a working model of what you’re going to do. That’s where the hub comes in. Whether it’s pastured poultry or a garden, you need to be able to take a prospective landlord to a place and say: “Here’s what it will look like.” Even landlords who abuse their land have a fetish about what it looks like.

Leasing Farmland: Great Expectations

A lease is a partnership, and you need buy-in from the landlord. I’ve walked away from a couple of leases over the years that eventually became too tense because the landlord’s expectations did not fit. One was a couple who asked us to come manage their place because they saw the beauty of the place next door that we were leasing. After three years, however, it became painfully obvious that they really wanted a golf course. They didn’t realize that the month or two a year of “blown out” forage was why it looked gorgeous the rest of the time. The mob stocking on lignified carbon was our recipe; they didn’t want lignified carbon.

The other one that went south was a wealthy family that really wanted a park ranger for their private country club. It took us awhile to figure out their expectations; when we did, we took our eggmobiles, chicken shelters, gobbledygo, hoophouse and water pumps and walked away — best day of my life. Sometimes it doesn’t work out, but we’ve had far more positives than negatives.

Remember, the 1,400 acres of pasture we lease is worth nearly $10 million on the open market, and we’re leasing it all for $60,000. That’s 0.6 percent. Even if you bought it at 4 percent interest, the interest payments alone would be $400,000 per year. You can afford some babysitting, handholding and explanation time to get access to land at that price. Leases tie to the real production market and therefore reflect real agricultural value, not speculative viewscape value.

Once you have an interested landowner, you must discuss expectations. Every landowner has a hot button. For one, it may be thistles. For another, it may be lane maintenance. Fences, visitors, landscape appearance — these all enter into the discussions. Always remember that managing land is an incredible privilege. Few people get to viscerally touch land anymore; to do so is an honor. Treat the land and the landowner that way and the respect will show through the discussions.

Joel Salatin at Polyface Farm

Farmer Joel Salatin speaks to Polyface Farm visitors in Swoope, Virginia.

We have one landowner who doesn’t want any animals there during hunting season. The farm is his get-away from a high-pressure business, and he doesn’t want his hunting encumbered with electric fence gates and animals when he seeks his solitude. That’s not always easy to accommodate, but it’s certainly doable.

Often in farming, some non-portable capitalization may be required. That’s always ticklish on un-owned land. For our operation, it’s buried waterlines, perhaps pond development, electric fences and corrals for livestock. Portable and semi-portable infrastructure helps, of course. Here is our solution. We pay for non-portable capital improvements and have one year to install whatever we want to install. At the end of the year, we put an addendum on the lease with the cost and payback plan. The payback is a simple 20-year amortization (5 percent per year) forgiveness. No money changes hands.

If our cost is $20,000, then $1,000 (5 percent) comes off each year until it goes to zero. If the lease breaks before that time, regardless of fault, the landowner must pay us the leftover amount of the infrastructure capitalization cost. This arrangement frees us up to develop as completely and rapidly as we want without asking the landowner for money, and it protects us from the landowner kicking us off once we do all the development. It also creates a de facto 20-year lease out of an actual 5-year lease.

Leasing Farmland: Communication is Key

Landowners do not like surprises. While leasing sounds financially rewarding, it requires communication. In our livestock operation, we routinely move herds from one leased farm to another. We had lined up the trailers for three mornings hence for what was to be a typical load-out and move, but the night before the designated morning, we got 3 inches of rain. Needless to say, we made some ruts getting in and out of the loading area. Rather than wait for the landowner to see it, we communicated immediately that we had torn up that spot and asked if he could meet us there to look it over and agree on a solution.

It was ticklish because it was at the entrance to their sophisticated horse operation. He met us and was frustrated, but our initiative defused an otherwise explosive situation. We ended up getting a truckload of stone and made a nice rock apron, which has now served us for years. Take pictures of what you’re doing and send them to the landowner. Keep them as involved as possible. If you cut a tree off a fence, tell them.

Landowners have no idea what maintaining the property requires. Keep a list of what you’re doing — even the tiniest thing. That way you can document all the pot sweeteners you’ve brought to the table. An annual review, with bullet points, is a great way to help the landowner appreciate what you’re doing. Little pot sweeteners are far more valuable than money.

Above all, listen to the landowner’s concerns. What does the landowner consider unsightly? What does the landowner consider an offensive odor? Agree together about compost piles, water pumping stations, corrals, access and projects. What can you do to endear yourself to the landowner? The main thing here is to listen. We have landowners who love us and give us tremendous freedom to do whatever we want. We have others who watch over our shoulder and want us to clear everything with them before proceeding. Regardless of the type of landowner, always ask how you can serve their interests better. If you’re the first to offer and listen, the landowner can’t help but love you.

Landowners have short memories. If you begin to improve the land, nobody will remember what it looked like a couple of years before. As it improves, the expectation standards will rise. We have one landowner who had rented to another farmer for 20 years and then came to us. That place was covered in thistles and ragweed — massive ragweed 10 feet tall. Today, the thistles are far fewer and the ragweed is nonexistent, but the landowner complains about thistles. Don’t be frustrated by this. Remember, it’s 0.6 percent land. Pleasing the landowner has a cost, but it’s normally less than the price of the land. We do quite a bit of clean-up with a big batwing rotary cutter.

We would never do it that meticulously on our own place; we do it to please the landowner. So it costs us $1,000 a year? Big deal. We’re still getting access to 240 acres for $10,000. We can afford a few hours on a mower to make him want to show off his farm and recommend us to his neighbors. What’s that worth?

Before ending, let me discuss two areas of tension. The first is the idea that in a lease, I’m improving someone else’s property. If I build soil and increase fertility, I can’t haul that away in a trailer if the landowner and I part company, regardless of reasons. Fortunately, soil responds fairly quickly to proper care. While it’s not portable, the experience of building it is. On the next place, you’ll create fertile soil better and faster. Creating soil is a skill just like any other; moving land bases is not the end of the game. Get over it.

The other area is one we’ve encountered with landowners struck by the higher productivity of mob grazing and stacking complementary enterprisers. Once we sign the lease, we institute our intensive and symbiotic models. Whatever was being done on the property before, whether by the landowner or by a manager-renter, chances are it was fairly conventional. That means it was single species and low productivity.

When we go onto a property that never had more than 50 cows with a herd of 300 (not for the year, but a couple of two-month stints throughout the year) it shocks the landowner. To be sure, we have never rented a single grazing farm in 25 years on which we did not double production the first season. Landowners aren’t blind; they see that increased production. If we then add eggmobiles, turkeys and broilers, the landowner does some quick math and has a financial epiphany: “The guy before was generating $35,000 a year off my property; these guys are generating $100,000.” Guess what the next thought is? You got it: “I think they’re taking advantage of me; the rent should be higher.”

That creates the most ticklish conversations we have with landowners. When it comes up, here is my answer to their logic: “Could you please tell me anything you did that enabled us to generate more production? Did you bring anything to the table that increased the production? Anything?”

After a pregnant and sometimes awkward pause, the landowner must admit the obvious: “Nothing.” That settles it once and for all. The point is that the agricultural paradigm of a community sets the lease rate for land. It might fluctuate a little, but not much. Land type X is worth a certain amount; land type Y is worth another amount. If I figure out how to double the income, that’s my cleverness, hard work or a combination of both; the landowner did not add anything to that equation and therefore has no part in its benefits. Once we get that “nothing” answer from the landowner, we never have trouble with that issue again.

Perhaps our culture will eventually follow Europe into the 99-year lease and tenure. Who knows? But one thing is sure: farmers who know how to make beautiful landscapes, who have a servant’s heart and who radiate an enthusiastic disposition will always find a place to blossom. Be willing to start small and let it develop slowly. Don’t worry about speed; just worry about trajectory.

My dream is that as half of all farmland changes hands over the next 15 years, most of it will go to management under a new generation of bright-eyed, bushy-tailed, land-caressing entrepreneurs increasing the commons and serving communities with integrity-based food and fiber. Let’s do it.

By Joel Salatin. This article appeared in the November 2018 issue of Acres U.S.A.magazine. 

Joel Salatin operates Polyface Farm in Virginia’s Shenandoah Valley with his family. He is the author of several books on ecological, family-scale farming, including Your Successful Farm Business, Fields of Farmers, Everything I Want to Do is Illegal and many more, available from the Acres U.S.A. bookstore or by calling 800-355-5313. Joel will be keynoting and presenting at the 2018 Eco-Ag Conference and Trade Show in Louisville, Kentucky, in December.

, , , ,