Small percentage of farmland owned by foreign investors

CHICAGO — Productivity is just one of many factors that impact the price of farmland.

“The drivers of farmland value are unique to the area,” said Mykel Taylor, associate professor and Alfa Endowed Eminent Scholar at Auburn University. “We think agricultural productivity should be the main determinant, but we also look at things like recreational demand, urban/suburban expansion and oil, gas and solar opportunities.”

Some people question if foreign investors are driving land values.

“There are many states proposing or passing legislation that will restrict foreign ownership of farmland in some way, shape or form,” said Taylor during a presentation at the Midwest Agriculture Conference hosted by the Federal Reserve Bank of Chicago, “Who Owns Midwest Farmland? And Why?”

“It’s happening at the state level, so it’s a patchwork of laws,” she said. “But there are some federal legislative proposals coming forward and some of them I think will be hard to pass because so much of our land ownership laws are at the state level.”

Currently, there are 24 states that have laws that restrict foreign ownership of private land, Taylor said.

“They vary widely on how they define agricultural land or farming, the amount of land that can be bought and who can buy the land,” she said. “From one state to another it can be very different in terms of what is or not allowed.”

Most states have proposed or have plans to propose legislation that will affect ownership by foreign entities, Taylor said.

“It is on the radar no matter where you live,” she said.

The Agricultural Foreign Investment Disclosure Act was passed by Congress in 1978.

“It does not do anything to prevent foreign investment of agricultural land, but it requires people to disclose what they’ve bought, the name of the foreign person, the country of residence, the parcel acreage, the land use, purchase price and date of transfer,” Taylor said.

In addition, the university professor said, this act also requires the reporting of leases that are 10 years or greater that are held by a foreign person.

“Failure to comply with AFIDA results in a civil penalty of up to 25% of the fair market value of the land,” she said.

The U.S. Department of Agriculture publishes an annual report on foreign ownership that is available on the internet.

“It does not track commercial acquisitions, just agricultural land which includes timber,” Taylor said.

“In 2020, the total amount of foreign or leased land was 37.6 million acres, or 2.9% of all privately held agricultural land,” she said.

“The top five countries are Canada, Italy, Portugal, Germany and the United Kingdom,” the professor said. “Canadian citizens own 12 million acres and they are heavily invested in timber.”

Taylor compared the acquisitions of a 40-year period from 1970 to 2010 to the 10-year period of 2010 to 2020.

“Canada has bought almost as much land in the last 10 years as they acquired in the previous 40,” she said. “The Netherlands is completely different. More of their acquisitions were prior to 2010.”

China is not a major holder of U.S. agricultural land.

“China is No. 18,” Taylor said. “China’s investment in the U.S. was very low and stable for many years and in 2013 it jumped up when they bought Smithfield Foods.”

Chinese purchases of U.S. land jumped again from 2017 to 2019.

“They purchased land in Texas for wind energy,” Taylor said. “But the Chinese have less than 1% of the foreign held U.S. acres.”

Canada is the largest lease holder of agricultural land in the United States.

“Leasing is more of a recent situation and it has become a popular way for foreign entities to acquire farmland,” Taylor said.

The top states for foreign ownership are Texas, Maine, Alabama and Colorado, the professor said.

Taylor talked about research that looked at domestic sales of farmland from 2015 to 2020 compared to purchases by foreign buyers.

“As you would expect there were 50 to 100 times more domestic sales than foreign sales so we tried to match comparable domestic sales in terms of size and location,” Taylor said.

“We found the foreign price per acre was slightly higher than the domestic price per acre,” she said. “The average parcel size was considerable larger for the foreign buyers who want bigger tracts for wind and solar development.”

The price per acre of land is influenced by factors such as size of parcel, percent of tillable acres, where it is located in the county and the year it was sold, Taylor said.

“Foreign buyers in the Midwest pay 13.7% premium compared to domestic buyers, but we’re not talking about large amounts of land,” she said.