New Survey Indicates Organic Cropland Commands Higher Rents
Our friends over at Mercaris have put together an awesome new report. One of the highlights shows cropland that has made the transition to USDA certified organic commands rental premiums as much as +25% higher than conventional acres. The data comes from the first whitepaper issued in its Mercoterra project, which investigates the impact of organic certification on land value. Based on surveys of organic farmers and landowners, Mercaris found a price premium of+ $68 per acre annually for certified organic land.
Mercaris surveyed certified organic landowners and renters largely concentrated in the Corn Belt and East Coast. For those unfamiliar with the USDA organic program, cropland must undergo a three-year certification process, during which crops can not be marketed as organic. That means producers must forego the premium that most organic crops command while simultaneously taking on higher production costs. This “barrier to entry” has led to the supply of certified organic farmland trailing that of domestic demand for organic crops.
All organic acreage in the U.S. increased by more than +20% between 2011 and 2019, according to Mercaris. In 2019 there were 3.3 million acres of certified organic field crops in the U.S. That represents only about 1.15% of total U.S. cropland and the country remains a net importer of several organic grains and oilseed commodities.
Mercaris notes in their whitepaper that little research has been done to determine if organic farmland is valued differently than conventional acres. They cite one study by Joe Janzen and Kate Fuller of Kansas State University and Montana State University, respectively, that demonstrated on a limited basis, that certified organic farmland has a higher market value than comparable non-organic farmed land. As of July 2020, the paper was still under peer review and is forthcoming in the journal Land Economics. I encourage everyone to read the research in full HERE.
Mercaris compared the cash rental values reported by the 70 respondents who rent land to or from others to the average cash rental rate reported by the USDA National Agricultural Statistics Survey (NASS) in their 2019 Cash Rents Survey, for the corresponding counties. They believe their results confirm that a premium is being paid for certified organic farmland in the U.S. The boost in value was not universal, however, with some reporting no premium for the organic land they own or rent, and Mercaris says more research is needed to determine the extent of these premiums.
Among the survey respondents was a group who rent both certified organic and conventional land. Over half of those mixed-acre renters reported paying the same cash rental value for both the organic and the conventional acres that they rent; among this group, 14% of total acres are certified organic, and the rest conventional. Others reported paying a separate or differentiated, cash rental value for their organic land versus their conventional land, with 55% of their land farmed organically. Those same respondents, reported on average a +$68 price premium paid to rent certified organic land. That could imply that those not charging more for organic acres may be losing out.
Beyond rental values, Mercaris found that most organic landowners believe they can sell their land for a higher value than when they bought the land due to its organic status. Sixty-percent of organic owner-operators stated that net operating income has increased since the land has been farmed organically. Interestingly, 70% of the Mercaris survey respondents overall converted the organic land themselves, implying that most organically certified land is farmed by its original operator. You can learn more from Mercaris HERE.
