Project – 3 – Do Farmland Ownership Patterns Explain Variation in Farmland Rental Rates?

Location: University of Guelph
Research Team: Dr. Brady Deaton, Dr. Alfons Weersink and Dr. Karl Meilke
Duration: October 2009 – March 2011

Brief Project Description/Overview:
Farmland is a necessary input into agricultural production. Since the 1920’s the pattern of farmland use in Ontario has been similar to Canada’s overall pattern: i.e., the total acreage in farmland has declined, the number of farms has diminished, and the size of farms, in terms of acreage per farm, has increased. Statistics on these issues are readily available from Statistics Canada and often cited. What is less well understood is: who—e.g., widows, owner-operators, etc. – owns Ontario’s farmland and the economic consequences thereof.

We address the question of who owns farmland by empirically examining the farmer and non-farmer ownership of farmland in Ontario. With respect to non-farmer ownership we intend to categorize non-farmer owners of farmland into five categories: (1) Retired farmers; (2) Widows of deceased farmers; (3) Non-farmers who use the land as a place of residence; (4) Non-farmer owner investors; (5) A company or corporation who purchases farmland as a form of investment. In addition, information will be gathered on rental patterns so as to assess variation in rental rates across ownership categories.

Categorizing farmland owners in the above manner and gathering information on rental patterns allows us to answer three primary research questions. First, do rental rates vary by non-farmer owner? Second, does the proportion of land rented and the character of non-farmer ownership, vary depending on proximity to urban areas? Third, do rental payments stay within the region? Better understanding of each of these research questions will support our capacity to assess the consequences of various agricultural policies designed to enhance environmental goods and services. For example, if agricultural zoning reduces farmland property values does it reduce the wealth of non-farmer landowners but have little effect on farmer operators? Do some types of non-farmer land owners charge less rent than others? (Such a finding would obviously challenge conventional theory.) Who are the beneficiaries of agricultural support policies that become capitalized into land values and where are the beneficiaries located? This latter question lends itself to better understanding the relationship between rural development strategies and more general agricultural policies.

In addition to collecting information on landlord characteristics, data on relationship strength and competition for agricultural rental land will be collected. By collecting these two additional variables information regarding rental rates can be tested with regards to social capital theory, while taking into account the intensity of competition for farmland. Information will be collected on three types of rental agreements in South-Western Ontario, cash rental; crop-share and cost-share contracts regarding the 2010 growing season.

A preliminary survey of rental incidence in South-Western Ontario found that 43% of farmers rented land (compared with the 37% found in the 2006 Census of Agriculture for that region). Of the farmers who rented land the average amount of land rented was 250 acres with approximately one-half of the farmers dealing with only one landlord. Interestingly, 24% of tenants indicated that they dealt with five or more landlords, suggesting a divide between those whom rent large amounts of land with those who do not. The maximum number of landlords for an individual farmer was 25. Nearly 90% of the landlords dealt with had only one rental property. In this preliminary survey, no data on landlord characteristics or relationship strength was collected. However, our survey data remains to be processed and analyzed. The results should available by September 2010.