DRAKEAGRICULTUR

AL LAW CENTER

Conservation Opportunities With New Non-Operator

LandownersTenure Trends

•Background•Dangers?•Opportunities?

Agency Programs• Program Regulations• Practical Issues• Outreach

Using Conservation Tenure Arrangements

DRAKEAGRICULTUR

AL LAW CENTER

Conservation Opportunities With New Non-Operator

Landowners

• Approximately 40% of U.S. farmland is leased.1

• The most productive areas with intensive row crop production, such as northern Iowa have tenancy rates closer to 70%.2

• 55% of Iowa’s farmland is owned by individuals over the age of 65 and 28% is owned by people over the age of 75.3

• 53% of landowners in Iowa anticipate transferring land to family by will or gift.4

• Approximately 33% of farmers with adult children have a child engaged in farming.5

• Increased land purchases by investors.6

• Increased purchases by recreation enthusiasts.

(1) National Agricultural Statistics Service, USDA, 2007 Census of Agriculture 262, 268, available at http://www.agcensus.usda.gov/Publications/2007/Full_Report/usv1.pdf.(2) Iowa State University Extension, Rented Land in Iowa: Social and Environmental Dimensions 2 (2010), http://www.soc.iastate.edu/extension/farmpoll/PMR1006.pdf.(3) Michael Duffy et al., Iowa State University, Farmland Ownership and Tenure in Iowa – 2007 11, http://www.extension.iastate.edu/Publications/PM1983.pdf.(4) Id. at 20.(5) Iowa State University Extension, Iowa Farm and Rural Life Poll: 2009 Summary 2, http://www.extension.iastate.edu/Publications/PM2093.pdf.(6) Beth Anderson, Leasing Farmland for Profit, NuWire Investor, Dec. 20, 2007, available at http://www.nuwireinvestor.com/articles/farmland-investment-51384.aspx;.J. Huffstutter, Investors Seeing Farmland as Safer Bet than Stocks, Los Angeles Times, September 19, 2010, available at http://articles.latimes.com2010/sep/19/business/la-fi-farm-land-grab-20100919.

Some Tenure Background

DRAKEAGRICULTUR

AL LAW CENTER

Conservation Opportunities With New Non-Operator

LandownersHistorical Notions of Tenure and Conservation“[H]e must be too improvident a man to be a good farmer, who should invest in the land capital sufficient for high cultivation, without some security that a change in the ownership of the estate . . . may not at any moment bring a notice to give up farm, improvements, and capital, and leave it all, uncompensated, to a stranger.” — George Wingrove Cooke, Attorney, 1850.

“Tenantry is unfavorable to freedom.  It lays the foundation for separate orders in society, annihilates the love of country, and weakens the spirit of independence.  The farming tenant has, in fact, no country, no hearth, no domestic altar, no household god.  The freeholder, on the contrary, is the natural supporter of a free government; and it should be the policy of republics to multiply their freeholders, as it is the policy of monarchies to multiply tenants.” — Senator Thomas Hart Benton, 1854

“The tenant who expects to remain but a short time on a farm has little incentive to conserve and improve the soil; he has equally little incentive to maintain and improve the wood lot, the house, barn, shed, or other structures on the farm.” — Report of the President’s Committee on Farm Tenancy, February 1937.

DRAKEAGRICULTUR

AL LAW CENTER

Conservation Opportunities With New Non-Operator

LandownersFarmers’ Notions of Tenancy and Conservation“I’m not going to want to put in hundreds of hours of sweat-equity into soil that I may not have next year.  Why should I as a tenant build up the soil fertility of land that is not even mine just so he can rent it to someone else for more than I am paying and so that person can benefit by having richer dirt? I don’t think any rational person would be foolish enough to really build-up dirt that’s not even his. — Iowa farm tenant, 2001

Michael Carolan, Barriers to the Adoption of Sustainable Agriculture on Rented Land, 70 Rural Sociology 387 (2005).

1

DRAKEAGRICULTUR

AL LAW CENTER

Conservation Opportunities With New Non-Operator

Landowners

Several economic and sociologic studies do indicate a negative correlation between conservation and tenancy. 1

• Tenant operators, either cash or share, are less likely to adopt practices with long-term benefits.• Owner-operators and tenants are similar in terms of short term practices, except• Cash renters are less likely than share-renters and owner-operators to use conservation tillage. (Soule)

What Does the Research Say?

DRAKEAGRICULTUR

AL LAW CENTER

Conservation Opportunities With New Non-Operator

Landowners

• Iowa Landowners as full time residents• 1982: 94% - 2007: 79%

• 75% of farm leases in Iowa are year to year tenancies

• Majority of the other 25% are for terms of two years or less

• Actual tenure on the land averages 9.5 years for cash renters and 18.1 years for share renters.

Tenure Trends

Iowa State University Extension, Survey of Iowa Leasing Practices (2007), http://www.extension.iastate.edu/Publications/FM1811.pdf.

DRAKEAGRICULTUR

AL LAW CENTER

Conservation Opportunities With New Non-Operator

Landowners

• Agricultural Easements• Conservation Easements• Transfer of Development

Rights• Wind and Solar

Easements and Leases• Conservation Program

Contracts• Ecosystem Service

Contracts

• Farm Leases• Mineral Leases• Timber Sale Contracts• Manure Application

Agreements• Custom Farming Contracts• Recreational Leases

Proliferation of Non-ownership Arrangements

DRAKEAGRICULTUR

AL LAW CENTER

Conservation Opportunities With New Non-Operator

Landowners

• Multiple Heirs• Corporations and Partnerships• Trusts

• 10% of farmland in Iowa• Impact of the Rule Against Perpetuities?

• Who are the decision-makers and how do we contact them?

Proliferation of Dispersed Interests

DRAKEAGRICULTUR

AL LAW CENTER

Conservation Opportunities With New Non-Operator

Landowners

Dominant-Tenant Subordinate-Landlord• Increasing disparity in rental rates for similarly situated land• What is separating owners from their land?

• Geographic distance, • Cultural distance from farming, • Gender biases• Structure of Land Tenure Agreements

• But, many tenants believe landowner is responsible for conservation• Over 1/3 of farmers renting land in Iowa say the landowner is responsible.

What Are the Dangers?

DRAKEAGRICULTUR

AL LAW CENTER

Conservation Opportunities With New Non-Operator

Landowners

Source: J. Arbuckle, "Non-Operator Land Ownership and Conservation, available at http://www.soc.iastate.edu/staff/arbuckle/Non_operator_Landownership_and_Conservation.pdf

DRAKEAGRICULTUR

AL LAW CENTER

Conservation Opportunities With New Non-Operator

Landowners

Data from Iowa State University Extension, Survey of Iowa Leasing Practices 2 (2007), http://www.extension.iastate.edu/Publications/FM1811.pdf.

Percent of Leased Farmland

Share Cash Share Cash

• Shorter lease terms and actual tenure

• Less landowner involvement

• Tenants bear the costs of production

• Tenants bear the risk of production

DRAKEAGRICULTUR

AL LAW CENTER

Conservation Opportunities With New Non-Operator

Landowners

Non-operator and Operator Reasons for Owning•Current Income

• Non-operators: 40% - Operators: 59%•Long-term Investment

• Non-operators: 33% - Operators: 20%•Family and Sentimental

• Non-operators: 23% - Operators: 14%(Iowa State University Extension, Survey of Iowa Leasing Practices 2-3 (2007), http://www.extension.iastate.edu/Publications/FM1811.pdf.)

Where are the Opportunities?

DRAKEAGRICULTUR

AL LAW CENTER

Conservation Opportunities With New Non-Operator

Landowners

Source: J. Arbuckle, "Non-Operator Land Ownership and Conservation, available at http://www.soc.iastate.edu/staff/arbuckle/Non_operator_Landownership_and_Conservation.pdf

The Key Landowner

Demographics from ISU Landowner

Study

DRAKEAGRICULTUR

AL LAW CENTER

Conservation Opportunities With New Non-Operator

Landowners

Source: J. Arbuckle, "Non-Operator Land Ownership and Conservation, available at http://www.soc.iastate.edu/staff/arbuckle/Non_operator_Landownership_and_Conservation.pdf

Growth of Key Landowner Demographics• 52% of the landowners were former farmers or widows and their average age was 75.

• However, these are also the landowners most disconnected from the land, operational decision-making, and agricultural agencies.

• So, how do we move forward regarding conservation and program participation?

DRAKEAGRICULTUR

AL LAW CENTER

Conservation Opportunities With New Non-Operator

Landowners

• Control of land for contract period and landowner approval to protect public investment, but

• Is the result poor participation in long-term conservation?• Requires participant to refund program payments if land is

transferred• What about early termination of lease?• Under what conditions is it beyond the participants control.

• In light of short tenancies and tenant reluctance to involve landowners in conservation program decision-making how can regulations encourage participation in long-term programs?

Regulatory Issues to Consider

DRAKEAGRICULTUR

AL LAW CENTER

Conservation Opportunities With New Non-Operator

Landowners

• State Non-Operator Landowner Committees• Use of shorter program contracts to match tenancy• Movement to whole farm programs.• Practical difficulties may remain at the field office level

• Field office staff encounter tenant farmers that don’t want to bring landowners into the conversation.

• Three way communication on conservation remains a problem.

• Enforcing program contracts with successors in interest.• Regulations require notification by participant.

Practical Issues to Consider

DRAKEAGRICULTUR

AL LAW CENTER

Conservation Opportunities With New Non-Operator

Landowners

• Going Straight to the Landowner

• Focusing outreach where key landowner demographics reside.

• Need for a facilitator in conservation discussions.

• Outreach based on benefits of conservation but also legal responsibilities of landowners and legal authority for making decisions about the land.

• Outreach that enable landowners to approach tenants

Outreach Issues to Consider

DRAKEAGRICULTUR

AL LAW CENTER

Conservation Opportunities With New Non-Operator

Landowners

Tailored to Concerns of Key Landowner Demographics• Selling Points:

• Insuring Assets

• Diversifying Investments

• Off-farm environmental concerns

Outreach

DRAKEAGRICULTUR

AL LAW CENTER

Conservation Opportunities With New Non-Operator

LandownersNew Forms and Examples are Needed•Landowners cannot rely on sample form leases available

• Landowners may be able to dictate rent but not practices in the lease

• Reports of tenant farmers crossing out conservation language from form leases

•Need enough knowledge to communicate, negotiate, and monitor conservation provisions

• What is the impact on labor and inputs?• Is there foregone production?• What programs are available for assistance?

•Need to be willing to share costs (reduced rent) and risks

Using Tenure Arrangements

DRAKEAGRICULTUR

AL LAW CENTER

Conservation Opportunities With New Non-Operator

Landowners

• The Landlord and Tenant must mutually agree in writing to participate in any offered program of the United States Department of Agriculture or other federal, state, or county government agencies for crop production control, soil and water conservation, providing public recreation opportunities or other purposes.

• Reimbursement: The two parties will carry out new conservation practices and measures and make other improvements, and share contributions and costs necessary for completing such practices and improvements as set forth below. The tenant will be reimbursed by the landlord when the practice, measure, or improvement is completed, or will be compensated for its unexhausted value when the tenant leaves the farm, according to the table below:

Lease Language to Encourage Participation

DRAKEAGRICULTUR

AL LAW CENTER

Conservation Opportunities With New Non-Operator

Landowners• Participants must refund all program payments received if

they transfer their interest in the land. (7 C.F.R. § 1466.21(b)(3)(iii)).

• Landlord agrees that if, for any reason other than a default of the provisions of this lease by Tenant, this lease agreement is terminated early, Landlord will assume, or contract with Tenant’s successor to assume, the responsibilities of existing USDA conservation program contracts.

• The Tenant agrees to record any conservation program contracts and ecosystem service contracts involving the lease premises in the County Recorder’s Officer in the county in which the property exists and in accordance with State law.

DRAKEAGRICULTUR

AL LAW CENTER

Conservation Opportunities With New Non-Operator

Landowners• Conservation Plan. The Landlord and Tenant agree to prepare and

comply with a Conservation Plan under the guidance of USDA Natural Resources Conservation Service (NRCS) personnel. This plan shall include conservation practices including but not limited to crop rotation, cover crops, drainage management, soil conservation, soil fertility, waste management, weed and pest control, and wildlife habitat management.

• Meetings and Communication. The Landlord and Tenant agree to conduct joint inspections of the Premises on an annual basis. At the agreed upon time of inspection the parties shall review and update, if needed, the conservation plan with NRCS personnel. The parties shall also agree on major repairs, improvements, and discuss conservation program participation. The parties shall include all agreed upon repairs and improvements in Table ____ attached to this Lease and signed by both parties.

DRAKEAGRICULTUR

AL LAW CENTER

Conservation Opportunities With New Non-Operator

Landowners• The Landlord retains the right to grant conservation and agricultural easements provided the terms of such easements do not unduly restrict the normal agricultural activities as established in this Lease. The Landlord shall provide the Tenant with at least _____ days notice prior to granting any such easement. The notice shall be in writing and contain the terms and conditions of the easement. The Tenant shall have _____ days to request a meeting, the sole purpose of which is to express concerns and to clarify easement terms. The meeting shall take place within _____ days of the Tenant’s request and can be held in person or via telephone at the Landlord’s discretion. The Tenant agrees to subordinate this lease to the interests of the easement holder.

• During the term of this lease, the Landlord shall not voluntarily grant any other easements over the lease premises.

• During the term of this lease, the Landlord shall not voluntarily grant any other easements over the lease premises, unless, at least _____ days prior to granting any such easement, the Landlord provides the Tenant with notice of the Landlord’s intention to grant such easement, and the Tenant provides written consent to the granting of such easement.