U.S. Best for Investing in Farmland, but...

January 6, 2010

According to AgWeb.com, “Midwestern U.S. farmland provides investors the best opportunity and risk to reward” in the world. Five factors were analyzed, including soil content, growing season, and infrastructure. But it was the last two, property rights and government support, which caught my attention.

On property rights: 
In regions where the political climate is unstable, farmland owners face the risk of their land being seized. The land may be able to be acquired for a low price, but unless the owner is willing to guard their land, they face the risk of losing it. In today’s weak global economic environment, property rights will become a significant issue. Farmland in the U.S. allows its owners to sleep well at night knowing that they have solid ownership rights. 
On government support: 
The U.S. Government has many farming subsidy programs available for domestic farmers and agribusinesses. These programs help balance the supply and demand of many commodities, as well as promote a greener environment. U.S. Government subsidies have been around for more than 75 years. The Conservation Reserve Program (CRP) pays land owners not to farm their cropland…Other programs subsidize commodities for farmers. 
Consider how those two advantages conflict: Government subsidies to farmers necessarily represent a violation of property rights. While farmland owners can “sleep well at night” knowing their land won’t be confiscated by the government (eminent domain abuses aside), taxpaying citizens aren’t quite so lucky. A portion of the incomes of millions of taxpayers is confiscated by the government annually and given to politically powerful farmers and landowners. If one’s income is not his or her property, then what is it?
The article says that although “farmland may be acquired at a cheaper price in other regions of the world,” Midwestern U.S. farmland is the best investment due to the aforementioned factors. But as a Cato essay on farm subsidies notes, the subsidies drive up the price of farmland: 
Farm programs result in overproduction, overuse of marginal farmland, and land price inflation, which results from subsidies being capitalized into land values. Subsidy programs create less efficient planting, induce excess borrowing by farmers, cause insufficient attention to cost control, and result in less market innovation. And policies often work against the claimed goals of Congress. As an example, while members of Congress say that they support small farms, owners of large farms receive the largest subsidies, which has given them the financing they need to purchase smaller farms. 
Given the natural advantages of U.S. farmland discussed in the article, it’s even harder to reconcile Congress’s continual abuse of property rights with confiscatory income taxes to pay for the subsidies. The reality is that politicians are generally more concerned with helping special interests than protecting taxpayers as this news item from National Journal’s CongressDaily demonstrates (subscription required): 
House Agriculture Chairman Collin Peterson intends to start hearings on the 2012 farm bill as early as this spring, a committee spokeswoman confirmed Monday… Agricultural lobbyists have told CongressDaily that Peterson told them at fundraisers in December he will begin hearings this year, and he wants to avoid involving other committees in the farm bill process.


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