Why Bill Gates Is Buying Up U.S. FarmlandNov 11, 2021
Bill Gates owns more land than the entire city of New York. Jeff Bezos' land is double that and amounts to 420,000 acres. John Malone, America's largest private landowner, owns just 2.2 million acres, a land mass slightly smaller than the island of Puerto Rico. The United States is huge, yet 100 of America's largest and richest private landowners own 1.86% of all available land in the United States, with the majority of their land being forests, ranches, and
farmland. Some people like me find farms beautiful and peaceful. and nice place to live. Land is becoming more and more valuable. In the mid-1990s,
farmlandwas valued at less than $1,500 per acre adjusted for inflation.
By 2020, that figure had risen to $3,160 an acre. It is expensive. So if someone wants land, it is mainly rich people who can afford it. Institutional capital is growing and becoming a larger portion of the market. This is an approximately $3 trillion asset class when you look at the entire United States. However, not everyone is benefiting from rising farmland prices. It will continue to be more difficult for farmers, for beginning farmers like me, if prices continue to rise. Everything is going up. The land is critical. And it's at the center of how we survive and persist as communities and as people, and farmland in the U.S. is something we don't think about as often.
So why do the ultra-rich invest in agricultural land? And what impact will it have on the agricultural industry? In 2020, Bill Gates made headlines for becoming the largest private owner of farmland in the US. He had amassed more than 269,000 acres of farmland in 18 states in less than a decade; Protection is acquired by purchasing land through shell companies. Because? It is a good economic investment. Land has always been something that the ultra-wealthy and people of real means have desired. It has great intrinsic value. Beyond that, it's a limited resource. They are not creating more of that. And in fact, quite the opposite.
We lose farmland all the time. In the United States, we are losing farmland at a rate of approximately 2,000 acres per day. Not only is it becoming more important over time, but we have less and less of it. Therefore, it is an asset with increasing value. Farmland values began rising in 1988. And, except for annual declines in 2009 and 2016, values have seen a steady increase over the years. In the mid-1990s, farmland was valued at less than $1,500 an acre. By 2020, that figure had risen to $3,160 an acre. It's not correlated to the stock market and other major asset classes, so people like that diversification and it's been a very stable performer.
If you go back to COVID when the stock market, you know, lost 10, 20, 30, 40% at the beginning of COVID, you don't wake up and find out that your farmland was worth 5 cents on the dollar the next day. Bill Gates is not the only one considering this investment. In 2011, the 100 largest private landowners owned about 32.7 million acres of land across the United States. Today, that number has grown to more than 42.1 million acres, roughly the size of Florida and Connecticut combined. Its farmland grows onions, carrots and even potatoes that are used to make McDonald's fries. Thomas Peter Five is the 17th largest private landowner in the US, owning 581,000 acres.
The reason I have land in the Midwest is because it's farmland, right? And that's where the farms are, right? I'm not farming in Boston. If someone is really interested in acquiring land and with farmers, once they own a plot, they often want to own the adjacent plots. So if you can make those purchases quietly, it could be a much more successful way to make them cheaply. They are not one large transaction, they are several smaller pieces and are usually purchased at auction. The vast majority of land held by the largest private landowners is forest, ranch, and farmland located in states west of the Mississippi River, with a few exceptions such as Maine and Florida.
When we think about farmland, we think about the Midwest being, you know, the most fertile and valuable farmland in the world. And I compare it to the Manhattan of farmland when you look at Iowa, Illinois, those types of regions. But then when you look at California, California and the Pacific Northwest, in Washington, Oregon and the Mississippi Delta, there are other major regions where you're going to see a lot of major capital at play and that's where the agricultural productivity is. Today, the US Department of Agriculture estimates that 30% of all agricultural land is owned by landowners who do not farm themselves.
Buyers typically buy land from farmers who have owned it for decades. Many of which are asset rich, but perhaps cash poor. The way the market works is that land primarily goes into the hands of the people who will pay the most money for it. Therefore, many agricultural lands are purchased by non-farmers. I think many farmers would like their land to remain in agricultural production, they would like to sell it to another farmer. But the economic reality for them typically is that they have spent their lives farming. Your retirement, your capital is all in the land and tied to the sale of the land.
Institutional capital is growing and becoming a larger portion of the market. And it's part of that transfer of wealth that happens when you look at the demographics behind who owns farmland. Profits can also be made by using land in numerous ways. About 39% of the 911 million acres of farmland across the United States are rented to farmers, and 80% of that rented farmland is owned by landowners who do not farm themselves. Many non-farmers who buy property can hire someone to farm it for them. They can rent the property for others to farm. And leasing is often a very good strategy for farmers if it is a well-structured lease.
What we're seeing right now in peak cropland rates in the Midwest is about two and a half right now. And if you buy a farm and put that cash rental lease in place, you'll get a return of about 2.5 percent on your capital. In some cases, there are tax incentives that encourage landowners to carry out agricultural activities on their land. And that gives them a tax break essentially for the work done by the farmers who rent to them. But in some cases it may mean farmers also get a discount on the lease price. The involvement of private landowners has had a significant impact on America's farmers.
Some argue their support, suggesting that the farmland leasing process has provided new opportunities for farmers who normally couldn't afford to buy much. One of the biggest barriers for entering farmers is the high cost of agricultural land. And one way around this is that if you can have a good lease with a landowner, you can farm successfully without having to make that initial outlay. Young farmers are equally happy to lease land because whether you're young or old, it's a business, right? The agriculture business is becoming more specialized. There are people who worry about what to plant. There are the people who plant, own the machines and operate them.
And then there are the people who market the product. So efficient farming is not just one person doing it all. Those against the idea fear that new farmers will not be able to compete with the likes of Bill Gates when it comes to acquiring land. People who don't even live in this community are coming and grabbing land. They can live in California and buy property here in our city just like that. But someone who lives here, who works here, who mows the grass next door because that lot hasn't been mowed in a year, who picks up trash in the streets.
They try to buy a property and have to go through hurdles and obstacles. The increasing competition for land and rising land values really puts farmers in a challenging position because they are not competing against people with the same income as them. A year ago this month I tried to buy a 10 acre farm here. And the owners are asking $1.75 million for the property in Kentucky. $1.75 million for 10 acres. I couldn't afford that, you know, but a developer steps up and can take advantage of that offer, you know, that opportunity right under me, because they could. And while leasing may seem like a good idea on paper, it often puts farmers in a difficult situation.
The problem with leasing is that it doesn't really offer farmers the long-term security they need to invest in their businesses. If someone says, well, we're going to sell the land, now you have the option to stay or go, that can put farmers in a really difficult situation. In some areas, the involvement of private landlords has also caused house prices and the cost of living to skyrocket. When you look at these rural communities. There are definitely winners and losers in various parts of the country. When you get to the Mississippi Delta, for example, where they've lost a lot of the tobacco industry or the cotton industry that's evolved over the years, you see how some of these cities are really struggling and have lost their industry. and that has created a lot of poverty in some areas of agriculture.
It is not yet known whether private landowners are a positive or negative force for agriculture. But more agricultural land is expected to come to the market in the future. When you look at the demographics of who owns the land, it is not practical to think that farmers will buy every acre that changes over the next 20 years. We believe that, in some form, about 50% of US farmland will be renewed in the next 25 years. Given this time, I'd say the jury is still out on whether big purchases by the ultra-rich are a good or bad thing. But honestly, I think having large landowners with the ability to look at the land long-term and do what's right for it, and maybe be in a position to lease the land to incoming farmers at affordable prices, all of that could be positive. .
And I'm hoping that it could be that. There are fewer and fewer farmers in each US agricultural census and there is a slight increase in the number of young farmers, but it's really not enough right now to replace farmers who are leaving the industry. That's why we need more young farmers and we really need to support them by making access to land possible.
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