Are farmland conservation easements associated with greater farm investment?

Posted on July 10, 2025 by Dan Bigelow

In this post, I’m going to present an overview of a recently published paper on the relationship between farmland conservation easements and farm investment. Before I dive into the paper, I first want to provide a brief overview of how conservation easements work.

Farmland conservation easements

Conservation easements provide a way for private landowners to permanently prevent their land from being developed. Under an easement, landowners voluntarily forego the right to put their land to certain uses (typically development for housing and similar uses) in exchange for compensation. An easement represents property rights that are permanently given up by the landowner. Once the easement is put in place, the surrendered property rights are usually held by a land trust. The details vary, but easements on farmland typically allow the land to continue to be used for agricultural production.

The value of the easement determines how much landowners are compensated for giving up their development rights. The easement value is determined by an outside appraiser, who will compare recent sales of similarly productive land parcels that are subject to different degrees of urban influence (or parcels that already have conservation easements). This can be thought of as the hypothetical difference in sale price for the same parcel with and without the easement. Essentially, the easement value is the price associated with the right to develop the land if that could be sold separately from the land itself.

Landowner compensation generally takes one of two forms. First, the easement can be purchased outright, with landowners receiving full cash compensation for permanently relinquishing their development rights. In acquiring an easement this way, land trusts can sometimes leverage matching funds from the U.S. Department of Agriculture’s Agricultural Land Easement (ALE) program. However, acquiring easements this way is not always feasible because most land trusts are relatively small entities constrained by limited budgets.

For most landowners, an outright purchase is the preferred form of compensation. The main alternative comes from the US income tax code. As a result of rules passed in 1976, conservation easements are considered charitable donations, meaning that the value of an easement can be deducted from the landowner’s federal income taxes. A more recent tweak to this rule in 2006 allows qualifying farm producers to deduct up to 100% of the easement value over a carryover period of 15 years. For example, if the easement is worth $1.5 million and the landowner earns $100,000 per year, they will effectively pay no federal income tax for 15 years. In addition, some states offer additional incentives through state income tax deductions (e.g., Oregon) or credits (e.g., Colorado).  

Why would landowners put an easement on their land?

There are different motivations landowners might have for using easements. One reason is that they may simply want to prevent their land from being developed in the future. Easements provide a permanent guarantee that this type of land-use conversion won’t happen. Farm succession planning can also come into play, especially concerning estate taxes levied by state governments, as the easement reduces the property’s market value and hence the tax responsibilities of any heirs. The same generally doesn’t apply to federal estate taxes because of rules that limit estate taxes on land that will remain in agricultural production.

In a recently published paper (ungated version), Conner McCollum (a former graduate student I worked with at Montana State) and I explore a third potential motivation. Specifically, we study if easements might be used to finance farm-related investments. The underlying premise of our analysis revolves around the way that modern agricultural lending institutions operate.

Producers often use their land as collateral to obtain loans for farm-related investments. However, land collateral is generally not appraised at its full market value. Due to concerns about default risk, lenders typically exclude the land’s non-agricultural (e.g., development) value from appraisals. If this weren’t the case, using an easement to finance farm investments would be harder to justify from an investment standpoint. Why would a landowner permanently give up a property right through an easement when they could just borrow against its value to make the same investment? In this sense, future development returns that are capitalized into the value of farmland are not “liquid” because the only way they can be accessed by the landowner is if they sell the land. Importantly, the idea that easements are used to finance farm investment has been found in a number of smaller-scale surveys but had not been borne out with observational data.

In the paper, we first document a negative county-level correlation between the fraction of agricultural market value borrowed against and different measures of development pressure (past land conversion and population density). This means that landowners in areas where future development is more likely borrow less, relative to the market value of their land, than those in more rural areas. 

We then turn to our main objective of measuring the county-level correlation between past easement activity and current farm investment. In line with the survey work referenced above, we document precise statistical relationships between easement activity and:

  1. an increase in land ownership by producers, alongside a decrease in total land rent expenses,
  2. greater use of machinery (tractors), and
  3. a weaker but positive association with increased labor use.

These relationships hold up under a variety of tweaks to our research design (e.g., removing potential outliers and controlling for different factors that might affect investment).

Of course, the paper has its limitations. First, we rely on imperfect observational data sources (including the Census of Agriculture and the National Conservation Easement Database). We also cannot attach causality to the relationships we estimate. That is, we can’t say with certainty that the easements themselves are the reason why counties with more easements see greater investment.

Policy implications

When it comes to conservation easements, Oregon tends to lag behind other states. This is generally chalked up to our state’s strong system of land use regulations that potentially limit how future development potential is priced into land outside of urban growth boundaries. However, that is not to say that development outside of UGBs doesn’t happen. Recent efforts to promote easements in Oregon have been bolstered by the Oregon Agricultural Heritage Program (OAHP), which provides state funds that can be used to leverage matching funds from the USDA’s ALE program. The first two rounds of the program funded 9 easements covering 12,252 acres of farmland across the state. Although the $2 million in OAHP funding recently approved by the legislature falls well short of the $17.3 million requested, the program seems to be growing in popularity and has broad statewide support.

I think this line of research is important because it highlights how conservation policy can be a win-win for both environmental conservation organizations and farming advocates, two groups that are not always on the same page. Environmental groups are often concerned with long-term land conservation goals. Farm advocates, on the other hand, are often concerned with property rights being stripped away without just compensation. If agricultural conservation easements actually promote farm investment, they have the dual benefits of conserving land and improving the resilience and vitality of farming communities in urbanizing areas.

Posted in Agricultural policy, Farmland, Land use, Natural Resources | Tagged , , , , | Leave a comment

Farmland loss and land development: More on the misuse of statistics from the Census of Agriculture

Posted on June 10, 2025 by Dan Bigelow

During last week’s hearing for the Oregon Senate Committee on Natural Resources and Wildfire, Kelly Howsley-Glover (President, The Association of County Planning Directors) cited some of my blog posts concerning how to interpret the decrease in Oregon’s farmland reported in the 2022 USDA Census of Agriculture. The 2022 Census numbers show a decrease in farmland of 667 thousand acres between 2017 and 2022. On the surface, this seems like an alarming change, as it represents a loss of 4.18% of the 2017 farmland area. Although this most states lost farmland since the prior Census, the rate of farmland loss for Oregon is about double the national rate. Upon its release, the national Census statistics were cited as a cause for concern by some of the most influential people in US farm policy, including former Ag Secretary Tom Vilsack and American Farm Bureau Foundation President Zippy Duvall.

To be sure, a 4% loss in farmland over a five-year period is an alarming change. Farmland loss tends to be taken as a synonym for farmland conversion, where agricultural land is irreversibly developed for things like housing. It’s easy to read too much into these trends, and the widespread media coverage they receive doesn’t help, but the fact is that the loss of farmland accounted for in the Census is not the same as that land actually being lost forever to development. Instead, it’s a statistical loss pertaining to the land that’s tracked by the Census, which has been subject to declining response rates over the past decade. More importantly, it doesn’t match the pattern revealed in any other data source I’m aware of. On a more practical level, Oregon has a severe shortage of housing, which seems hard to square with the idea that we’ve been losing farmland at a rate of over 100 thousand acres per year.

Figure 1 shows the total amount of new land developed in Oregon in five-year increments from several different data sources. Although each measure comes from an entirely different source, they collectively paint a picture that should put to rest any notion that the Census farmland trend is indicative of land development. Below the figure I explain how each source is measured, along with its high-level pros and cons for this type of analysis.

First, note that I put Oregon’s Census-reported farmland loss (in thousands of acres) in parentheses under the years on the x-axis. Large farmland losses have been reported for Oregon in each of the past five Census years. The loss of 667,000 acres in 2022 is actually the second-highest loss reported over the past 25 years, with 681,000 acres in 2007 being the largest. In all but a few cases, the total amount of land developed in Oregon is less than 20% of the of the reported farmland loss. When we account for the fact that most land development in Oregon occurs on forestland, the fraction of farmland lost to development would be even smaller.

Note: The HISDAC-US periods are 1995-00, 2000-05, etc., and were matched to the nearest Ag Census period.
  • NRI (National Resources Inventory): The NRI is conducted by the USDA’s Natural Resources Conservation Service in cooperation with Iowa State University. It is based on a stratified sample of over 300,000 land segments (representing over 800,000 individual sample points) throughout the United States. Land use information comes from a combination of detailed satellite and aerial imagery and local knowledge from county NRCS and Farm Service Agency offices. Importantly, the NRI is designed to capture land use (as opposed to land cover) and has tracked the same plots of land since 1982.  I’ve shown this elsewhere, but the NRI indicates a steady decline in land conversion throughout Oregon since 1997. The 2022 version is supposed to be released in Fall of 2025.
    • NLCD (National Land Cover Database): The NLCD is a produced by the U.S. Geological Survey’s Earth Resources Observation and Science Center. USGS personnel use NASA’s Landsat (Land Satellite) images to develop annual maps of the US divided into 30m-resolution pixels (about 0.22 acres in size). As the name indicates, the NLCD tracks land cover, which does not always correspond with how land is used. For example, there may be houses that are obscured by surrounding trees and thus won’t be picked up in the satellite image. Similarly, forests that are harvested will appear from space as grassland or shrubland, which obviously misses how the land is actually used. The general trend shown in in the figure is similar in direction to the NRI, but less extreme and with a higher total area of development.
    • HISDAC-US (Historical Settlement Data Compilation): HISDAC-US is a relatively new database developed a few years ago by geographers at the University of Colorado. It divides the US into a 250m grid (about 15 acres per grid cell) and then consults local county assessment records (and other supplemental records) for the year when individual buildings were constructed across the US. The HISDAC-US data can also be thought of as representing land use, as they represent actual buildings that have been constructed. A downside is that not all buildings have recorded construction years, especially older ones. This limitation should be minimized by focusing on a relatively recent period, but it is worth keeping in mind. In 2020, the most recent year available, about 57% of all buildings in Oregon have construction year information.

    The plot is showing the HISDAC built-up area (BUA), which is the area of Oregon covered by 15-acre grid cells where at least one building is present, so if there’s one building in the cell (even if it’s a barn), the entire 15 acres is considered developed, which might exaggerate the total amount of development in more rural, low-density areas. That likely contributes to the large amounts of development shown earlier in the figure, which still represent at most 25% of Census-reported farmland loss, but the rate falls off dramatically in more recent periods.

    Despite the large differences in how total land development is measured across these three sources, which again includes all land developed (not just farmland), they collectively suggest that farmland loss reported in the Ag Census should not be confused with land development.

    So, what did happen to farmland between 2017 and 2022? Ideally, we could look to something like the NRI, but that isn’t currently available for 2022. Between 2012 and 2017 (Figure 2), when the Census showed Oregon losing 339 thousand acres of farmland, the NRI shows that most of the actual land-use change for agricultural land was due to moving between cropland, pasture, and range, with about 0.4% (63 thousand acres) being converted out of these three categories. Most of the agricultural land that changed use went into forest or “other” rural land, like farmsteads and farm buildings, and about 11 thousand acres were developed.

    If we look at the 2017-22 change in the satellite-based NLCD land cover data (Figure 3), 95% of the 2017 cropland remained that way in 2022, as did 91% of pasture/hay. Most of the land-cover changes for two categories were movements to and from each other or movements into grassland or shrubland. Agricultural land, especially in eastern Oregon, is sometimes misclassified in the NLCD as grassland or shrubland. These categories also retained 88 and 92% of their 2017 area, with most of the remainder representing changes across the two categories or, in the case of shrubland, movements into forest cover.

    As I’ve said before, the Census is a valuable resource when it is used correctly. The statistics that come out of the Census are cited widely and can inform policymaking at all levels. It provides important information on all sorts of things about farms and ranches throughout the US, but it is not a definitive source of land use information. The main issue is that it does not provide repeated information on the same farms over time, which contributes to misleadingly large statistics concerning farmland loss. To that end, it would be helpful if the USDA were to provide supplemental information on the same farms that responded to the previous Census. This would give both policymakers and the general public some context on how to square the data with reality.

    Posted in Agricultural policy, Farmland, Land use, Natural Resources | Tagged , , , | 1 Comment

    Recent trends in the price of Oregon’s timberland

    Posted on May 15, 2025 by Dan Bigelow

    A large proportion of Oregon’s land is forested. Based on a 2024 Oregon Department of Forestry estimate, forestland covers 10.4-11.3 million acres (about 39%) of the state’s non-federal land. Oregon’s forest products sector is nationally significant, as we consistently lead the United States in softwood and plywood production. In 2021, the forestry sector accounted for about 3% of all jobs in the state, employing roughly 62,000 people.

    This post gives an overview of recent trends in the market for western Oregon’s privately-owned timberland. I specify “privately-owned” because an important piece of the forestry sector’s modern history concerns the role of timber harvests on federal land. Until the late 1980s, private and federal forestland (mostly National Forests managed by the US Forest Service (USFS)) each supplied 40-60% of the timber harvested in Oregon. Between 1989 and 1995, following the listing of the northern spotted owl under the Endangered Species Act and other policy changes, timber harvests on federal lands fell by roughly 90%. Although total harvests remain about 50% lower than they were in the 1970s and 1980s, private lands have supplied about 75-80% of harvested volume in recent decades.

    The timberland price data I’m using cover 3,789 transactions in western Oregon over the period 1999-2024. (See the end of the post for details on how I constructed the sample.) To define western Oregon, I use the US Forest Service’s Resource Area regions and focus on land in the Northwest and Southwest regions, which includes all counties west of the crest of the Cascades. The northern boundary of Lane County divides the Northwest and Southwest regions. Western Oregon is responsible for the vast majority of logging and standing timber volume in the state. Eastern Oregon, containing the USFS-defined Central and Blue Mountain regions, is omitted because its forestry sector is particularly dependent on federal timber harvests. As a result, its private timberland market is relatively inactive, with only 378 sales occurring since 1999.

    Figure 1 plots the acreage-weighted average price of timberland in western Oregon between 2000 and 2024, with the centered 3-year average (which includes 1999 prices in the value for 2000) shown in gray to smooth out some of the year-to-year movement. The average price of timberland increased by about 50% from 2000 to 2007 but gave back most of the gain over the next five years during the Great Recession and its aftermath, with the market bottoming out in 2012. The reason is straightforward. US timberland is a primary source of the raw timber used in domestic residential construction. When the housing market crashed, so did the demand for lumber and the land from which it is sourced. Everything else being equal, this demand contraction reduced timberland prices. Note that this contrasts with what happened to agricultural land markets during the 2007-2009 recession, when farmland prices remained fairly stable.

    Figure 1. Timberland price per acre (weighted by sale acres), western Oregon, 2000-2024

    Between 2012 and 2017, timberland prices regained all of the lost value, increasing to around $12-13,000 per acre, and holding at around that level today. Over the past couple years, Oregon’s private timberland market has become more erratic. To understand why, consider what’s occurred with lumber prices, or the price of processed timber used in things like housing construction. Lumber prices in the Pacific Northwest generally correlate reasonably well with log prices (or pond prices, the price of logs delivered to a mill) and stumpage prices (the price that would be paid to the landowner for the standing timber on their land). Stumpage prices are most relevant for understanding movement in timberland prices, but stumpage price data, particularly for private timberland, are not easily accessible.    

    After peaking in 2017-18, Pacific Northwest log and lumber prices declined and remained low through the start of the pandemic. The decline in lumber prices has been attributed to perceptions that the pandemic would bring about a prolonged weakening of lumber demand from the construction industry. However, the demand for new housing, as well as remodels of existing homes, remained strong, leading to a lumber shortage. The shortage was created by several factors, including supply-chain bottlenecks and mill capacity constraints, culminating with a spike in softwood lumber prices in 2021. Similar increases in log prices have been reported by OSU Extension’s Lauren Grand in Lane County and for Douglas-fir stumpage prices from National Forests in the PNW. Lumber, log, and stumpage prices eventually came down as housing starts slowed, coinciding with the dip in timberland prices between 2021 and 2023, but have since increased and remained relatively stable.

    I’m not showing the regional breakdown but note that both the Northwest and Southwest have followed similar trends over time, with timberland in the Northwest being worth about $4,000 more per acre on average since 1999. Over the past five years, the gap has widened, with average per-acre timberland prices of $15,586 in the Northwest and $10,573 in the Southwest.

    Looking ahead forward, several key factors could shape Oregon’s timberland market. For one, President Trump issued an executive order in March that outlined a strategy to boost federal logging by 25%. The intent of the executive order goes hand in hand with another ongoing issue affecting the sector – trade with Canada, which supplies about 30% of the softwood lumber used in the US. Since August, Canadian lumber has been subject to a 14.5% tariff, a rate that was originally set to rise to 39.5% under Trump’s tariff plan. Although the tariff increase was scrapped amid industry push-back, ongoing federal investigations could result in increased tariffs in the near-term. On balance, greater tariffs would work against the softening of lumber prices that would result from a federal supply increase. These changes could lead to a more erratic land market, as we’ve seen in the past few years, but with minimal effect on long-term land price trends. In Oregon, Governor Kotek specifically mentioned the importance of lumber imports in light of her ambitious aims to address our housing shortage, so the way this all plays out could have rippling effects that are felt throughout the broader state economy.

    Finally, wildfires have and will continue to pose a large risk to the forestry sector, not to mention the people and communities they affect. A recent analysis indicates that the combined effect of the post-2000 increase in the occurrence of large wildfires and climate change (namely increased drought) have already reduced timberland prices by 10% relative to what they would have been had pre-2000 wildfire and climate conditions remained.

    Note: Timberland price data come from a database of property transactions I developed using CoreLogic’s proprietary nationwide property transactions database. The 1999-2024 timberland property sales used in this analysis are: (1) exclusively made up of forested parcels (per CoreLogic’s land use codes), (2) at least 10 acres in size and made up of fewer than 10 individual parcels, (3) priced between $100 and $60,000/acre, (4) at least 2 miles outside urban growth boundaries, (5) have a majority of land classified as privately owned based on a recent Oregon Department of Forestry GIS shapefile, and (6) have a majority of the sold area in forest cover at least once between 1985 and 2023 per the Annual National Land Cover Database. All prices are adjusted for inflation to the year 2024 using the Bureau of Economic Analysis’s Gross Domestic Product Implicit Price Deflator.

    Posted in Economic policy, Forest land, Land use, Natural Resources | Tagged , , , | Leave a comment

    Do trends in Oregon’s cropland prices reflect farm profitability?

    Posted on April 11, 2025 by Dan Bigelow

    In agricultural economics, we typically think of the value of farmland as representing the discounted stream of net income (or profit) that accrues to the landowner. This is sometimes referred to as the “fundamental market value of farmland.” Future net income is discounted because money earned in the future is worth less than the same amount earned today. The further into the future the income is earned, the more it is discounted. If we earned the income today, we could make an investment and reap some positive return from it. This hypothetical positive return represents the discount rate – i.e., what we give up in exchange for earning income later rather than sooner.

    Importantly, the source of the income capitalized into the value of farmland can change when we think about the future profit from owning land. Because the income a landowner would receive from converting the land to a developed use (e.g., housing) is typically much higher than the income that could be earned from farming, discounting explains why land located close to cities commands a much higher price than comparable land with the same productivity located further away. Specifically, because development is generally viewed as being more imminent for lands close to cities, the future income from that potential future land-use change is discounted less steeply, which raises the land’s value.

    A natural measure of the net income from farming is annual profit from producing and selling agricultural commodities. Profit, however, is hard to measure directly and is not well captured in any regularly updated data sources. As an alternative to profit, cash rent, the price a landowner charges to a tenant who farms the land, is often used to approximate the net income that a farmland owner would expect to receive in a given year. I’ve noted in previous posts how inflation-adjusted cash rents in Oregon have remained flat over the past 15 years or so.

    In contrast, land values have mostly trended upward. The figure below shows the average per-acre price of irrigated and non-irrigated cropland in Oregon over the period 1999-2024 as a three-year moving average. (See the note at the end of the post for how I’m classifying land as irrigated or non-irrigated.) Irrigated land prices have more than doubled, from under $6,000 to almost $12,000 over the past 25 years, but the trend has flattened since 2022. Non-irrigated prices show more volatility, but despite a drop in recent years current prices are still up by about $2,000 (50%) over the 1999 three-year average. Both trends are generally in line with the annual land value estimates from USDA surveys. It is worth noting, however, that the sample size for non-irrigated cropland sales (1,956) is a lot smaller than that for irrigated cropland (8,467).

    Rolling three-year average of irrigated and non-irrigated land prices in Oregon, 1999-2024

    The profitability of a farmland investment is commonly measured using the rent-to-value ratio, which is just the rent divided by the land price (multiplied by 100). This is also referred to as the capitalization rate (or cap rate). It can be thought of as the rate of return to someone who buys and rents out farmland. The figure below shows the three-year rolling average cap rates for irrigated and non-irrigated farmland in Oregon for 1999-2024. Since the 2007-09 recession, both cap rates show a general decline, in line with what has been observed other regions of the US (see here and here).

    Along with the cap rates, I’m also plotting the market yield on 10-year U.S. Treasury notes. These are typically considered a benchmark investment asset, representing a safe (or risk-free) way to earn interest income. Treasury yields are also used as the basis for mortgage rates, including farm mortgages. From a farmland investment perspective, the Treasury yield can be thought of as the return on a competing, safe interest-bearing investment.

    Rolling three-year average irrigated and non-irrigated rent-to-value ratios (cap rates), 1999-2024

    Overall, the trend non-irrigated cap rates appear to be more closely linked with Treasury rates. Because the non-irrigated cap rate lies below the Treasury yield for most of this period, it suggests the net income from farming alone (measured by cash rent) is not sufficient to justify the current prices of non-irrigated land. Another interpretation is that additional sources of land-related profit, or expectations of changes in future profit, would be needed to make purchasing non-irrigated cropland worthwhile. The low cap rate may also explain the relatively small number of non-irrigated cropland sales over this period, which itself suggests the non-irrigated cropland trends presented here should be taken with a grain of salt.

    Up until the last couple of years, the downward trend in irrigated cap rates tracked fairly well with Treasury yields from 2012-2019. The fact that the irrigated cap rate lies above the treasury yield for most of the past 15 years indicates that the net farm income from irrigated crop production generally justifies its relatively high price. That’s not to say that current farm profitability is the only factor driving the demand for irrigated cropland, just that it alone is sufficient to justify its current price.

    Of course, the analysis presented here should not be interpreted as investment advice, but rather as a general overview of how well trends in Oregon’s cropland prices reflect farm profitability. Given how diverse Oregon’s farm sector is, an important caveat is that the profitability of investing in farmland is likely going to vary considerably across the state, which I’ll leave for a future post. Additionally, Oregon’s farmland rental market is less fluid than those in other states (e.g., in the Midwest), which potentially makes cash rent a less reliable approximation of farm profit.

    In terms of how cropland cap rates might change in the future, rents have been fairly stable across the board over the past 15 years. One thing that might change this is trade policy, which could affect commodity prices, and, in turn, farm profits and rents. Producers were at least partly compensated for the losses they suffered during the last trade war with China, so it is hard to say what will happen as things continue to escalate in the current round of tit-for-tat tariffs.

    For farmland prices, the broad macroeconomic factor to keep in mind will be further changes in the Federal Reserve’s benchmark interest rate. Because higher interest rates cause future income to be discounted more steeply, farmland prices tend to have an inverse relationship with interest rates. The federal funds rate has gone up in recent years and although this seems to have cooled Oregon’s farmland market somewhat, it is worth keeping in mind that changes to the Fed’s benchmark rate can take a decade or more to be fully reflected in farmland values.

    Notes: Farmland price data come from a database of agricultural property transactions I developed using CoreLogic’s proprietary nationwide property transactions database. The 1997-2024 agricultural property sales used in this analysis are: (1) exclusively made up of agricultural parcels (per CoreLogic’s land use codes), (2) between 10 and 2,000 total acres in size, (3) priced between $100 and $75,000/acre, (4) outside urban growth boundaries, (5) have at least 25% of the parcel area zoned exclusive farm use, farm-forest, marginal farmland, or non-public, and (6) have at least 25% of the sold area in crop production between 2009-2023 per USDA’s Cropland Data Layer.

    Irrigated cropland is defined as land satisfying the above criteria and also having (1) 50% of the sold area covered by a primary irrigation water right per the Oregon Water Resources Department (OWRD) or (2) 50% of the sold area irrigated between 1997 and 2020 according to an updated version of the LANID data developed by Xie and Lark (2021). The latter is used because OWRD does not comprehensively account for water rights attached to land in irrigation districts. Non-irrigated cropland has no more than 10% of the sold area in both of these two categories.

    Posted in Agricultural policy, Economic policy, Farmland | Tagged , , , | Leave a comment

    Do small parcels of farmland tend to sell for more in Oregon?

    Posted on February 18, 2025 by Dan Bigelow

    Note: This post has been updated to reflect a coding error that affected the numbers in the previous version. None of the overall conclusions regarding the differences in land prices between small and large parcels are affected, but it does affect the scale of the land prices shown in the table and figures. Apologies for the error. In addition, this post reflects an updated and more accurate version of the sales price data that runs through 2024.

    A recurring feature of farmland markets throughout the US and other parts of the world is that smaller parcels of land tend to sell for higher per-acre prices. What explains this so-called “small parcel premium”? More importantly, how prevalent is this pattern in Oregon’s farmland market?

    A popular theory is that the price premium attached to smaller parcels of land is driven by demand-side factors concerning the potential for non-agricultural uses. For example, a land developer looking to buy farmland is unlikely to be interested in purchasing 100 acres of land. Even at a relatively low housing density of 5 units per acre (0.2 acres per home), 500 residential homes could be built on 100 acres, which would be a massive housing development in most parts of Oregon. Of course, even less land would be needed to build a 500-unit apartment or condo complex. Similarly, smaller parcels of land are often sought by non-commercial producers (e.g., hobby farms, retirement farms), who may be willing and able to pay a price above the land’s value solely attributable to agricultural use.

    Farmland price data: To look at the parcel size-land price relationship in Oregon, I assembled a database of farmland transactions using property transaction data from CoreLogic. This analysis focuses on transactions involving exclusively agricultural land parcels between 2000 and 2024, where agricultural land is identified based on CoreLogic’s property codes. To refine the sample, I only include land meeting the following criteria:

    • Located outside of urban growth boundaries
    • Zoned Exclusive Farm Use, Mixed Farm-Forest, or Non-public
    • Total area between 5 and 2,000 acres
    • Sells for a price of $100-$75,000 per acre

    These restrictions yield a sample of 20,661 properties that could be reasonably considered to be in an agricultural use at the time of sale.

    Two different ways to calculate an average price: To provide a high-level summary of the small parcel premium in Oregon, consider two ways of calculating the average price of land. One approach is to take the simple average per-acre price across all 20,661 sales, which I refer to as the unweighted average price. Alternatively, we can take the same average but weight each sale by its acreage, which puts more emphasis on larger sales and gives the average price of an acre of land as opposed to the average sale price.

    To make the difference more concrete, suppose we have two sales with total sale prices of $100,000: (1) $10,000 per acre (10 acres) and (2) $1,000 per acre (100 acres). The unweighted average price would be ($10,000 + $1,000)/2 = $5,500 per acre, while the weighted average would be $10,000*(10/110) + $1,000*(100/110) = $1,818 per acre. To the extent that smaller parcels of land sell for a higher price, we would expect the weighted average to be lower than the unweighted average.

    The table below summarizes the two different versions of the average per-acre price (adjusted for inflation to 2024 dollars) and the average sale area (in acres) for the state as a whole and by region. As you can see in the first row, the statewide weighted average price ($6,457) is dramatically smaller than the unweighted average price ($18,883). Naturally, the average acreage and price varies across regions due to differences agricultural production (e.g., eastern Oregon tends to have about 4x larger acreages compared to the Willamette Valley), and this is all mixed together in the statewide averages.

    However, the same general pattern of differences in the two average prices holds in all regions. At most, the weighted average price is just over half of the unweighted price (Willamette Valley, OR Coast, and Southeastern OR). Northeastern OR and Central OR/Mid-Columbia have the biggest small parcel premiums by this measure, where weighted averages are less than one-third of the unweighted average.

    Binned scatter plots: To break this down further, I summarize the weighted average price by region and acreage bin using binned scatter plots. These plots help illustrate patterns in data that are harder to detect with a scatter plot of raw data, which, with more than 20,000 observations, would look like something from a Rorschach test.

    With the binned scatter plots, a clear pattern emerges showing that an acre of land in the smallest acreage category sells for the highest price. The pattern is most pronounced in the more populated parts of Oregon. In the Willamette Valley, an acre of land sold in a sale containing 5-10 acres sells for about $10,000 more than an acre of land in the next-largest bin (10-20 acres), and over $30,000 more than an acre in a 100+ acre sale. The small parcel premium remains clear in the less populated parts of the state. In Northeast and Southeast Oregon, which both have average sale acreages of over 100 acres, the smallest-acreage sales have prices that are about 20x and 10x the price of a normal sale in the 100+ acreage category.

    Wrapping up: Overall, without digging in further and going beyond the scope of this blog post, it is harder to say much more about what is driving the small price premium in Oregon beyond the general factors I referenced at the start (demand from development potential and small hobby/retirement farms). I didn’t include it in the post to save space, but the same general pattern emerges if we look at different chunks of time (e.g., the 2000s versus the 2010s) or within counties instead of larger regions. From the fact that we have urban growth boundaries to the wide variety of agricultural outputs produced here, Oregon’s farmland sector is unique in a lot of ways. As far as the small parcel premium goes, this is one area where it fits in with the crowd.

    Posted in Farmland, Land use | Tagged , , , | Leave a comment

    Estimating the Impact of Ag Overtime with Recent Farm Payroll Records

    Posted on January 31, 2025 by Tim Delbridge

    On January 1st, the Oregon agricultural overtime threshold dropped from 55 hours per week to 48 hours per week, as required by 2022 HB4002. Agricultural employees are now entitled to 1.5x pay for hours worked that exceed 48 hours in a week. On January 1st, 2027, the overtime threshold will fall to 40 hours per week. Oregon follows California and Washington in implementing similar ag overtime policy, and those states are now fully phased in to a 40-hour per week threshold. There has been plenty written on this topic in the popular press but there hasn’t been much analysis of the impact of ag overtime on farm profitability or worker pay.

    In this blog post, I share analysis that my OSU colleague Jeff Reimer and I recently completed on the impacts of agricultural overtime in Oregon using farm-level payroll data from Oregon dairy, cherry and nursery producers1. We find that agricultural overtime will negatively affect farm profitability and, perhaps surprisingly, will decrease the weekly earnings of some farm workers. This analysis is valuable in large part because it is based on individual records of (anonymous) employee hours and wages that are not usually available to researchers.

    How will labor costs change for farms?

    Farm businesses face seasonal fluctuations in their labor needs, and these fluctuations differ by  commodity group. Using the provided payroll records from 2022 to 2024, we calculate the total number of hours for which each operation would have paid overtime under each of the three overtime thresholds (i.e. 55, 48, and 40 hours) had they been in place. Figure 1 shows the number of overtime hours by week for one of the cherry producers (Panel A), one of the dairy producers (Panel B), and one of the nursery producers (panel C). The seasonal fluctuation in labor demand that is apparent in the figure will be largely similar across operations in the same sector. The figure shows that cherry producers have a large spike in their labor needs during the harvest in June and July, but will have relatively few overtime hours the rest of the year. The dairy and nursery businesses, on the other hand, both have peak seasons (summer for dairy, early spring for nursery) but have employees working more than 40 hours per week in all seasons. Employees at dairy farms in particular tend to have a high average number of hours per week. As a result of these sector-specific patterns, the impact of new agricultural overtime laws will land differently on each farm type.

    Figure 1. Overtime Hours by Week Under Different Overtime Thresholds (Jan. 2022 – Nov. 2024)

    To estimate the financial cost of ag overtime to farms and the impact to the wages of individual workers, we use each employee’s actual wage rates and hours worked by week from 2022 to 2024. We calculate the gross wages that they would have earned during the period under a no-overtime scenario, as well as each of the three overtime thresholds outlined in Oregon House Bill 4002. Wages under the three overtime thresholds are calculated for all employees in all weeks and then converted to percentage increases relative to the no-overtime baseline wage. For example, an employee working 50 hours in a particular week and earning a base wage of $18 per hour would see a 0% increase in wages at the 55-hour threshold, a 2% increase in wages at the 48-hour threshold, and a 10% increase in wages at the 40-hour threshold.

    The estimated percentage increases in labor costs are averaged across farms in each commodity group and are presented in table 1. Of the three agricultural sectors, the dairy employees work the highest number of hours per week over the course of the year and have the highest anticipated overtime costs at each threshold level, with total wages increasing approximately 7% and 12% under the 48 hour and 40-hour thresholds, respectively.

    The cherry producers see a smaller increase in labor costs than the dairy farms, but a slightly larger increase than nursery crop producers. On average, the nursery crop producers included in this analysis would see an estimated increase in labor costs of slightly more than 4% under the 40-hour overtime threshold. It is important to note that all farming operations are unique, and differences in crop mix, farm size, and production factors such as weather may result in fluctuations in overtime hours from year to year and from one farm to the next.  

    Table 1. Estimated percentage increase in labor costs at each overtime threshold, by sector

    SectorNo. of Farms55 hours48 hours40 hours
    Nursery30.10.74.2
    Dairy53.66.811.9
    Cherry21.953.36.3

    The estimated percentage increases in labor expense that we estimate for each overtime threshold should not be confused with the percentage impact to net farm income. Since crop and livestock enterprises vary in terms of labor intensity and net profit margins, an equal percentage increase in labor costs will impact some farms more substantially than others. For example, based on a 2022 Oregon State University crop budget for sweet cherry production, a 10% increase in costs associated with pruning and harvest labor would amount to an additional cost of $380 per acre, representing a 30% reduction in net income to cherry production (Thompson and Seavert, 2022). That is, a small percentage increase in labor costs can have a large impact on the profitability (and financial sustainability) of farm businesses.

    How will overtime legislation impact the pay of individual workers?

    Increasing earnings for workers is a key goal of agricultural overtime legislation. Although workers that receive overtime pay of 1.5 times their base wage rate are likely to see an increase in their average hourly wage, it does not necessarily follow that the total earnings will be higher for individual workers under the new rules. With agricultural overtime laws in place, farm managers have a strong incentive to organize work schedules in a way that minimizes overtime costs, and this may include reducing the hours per week that an employee works. In fact, data on farm worker employment from the Bureau of Labor Statistics (BLS) show that the average number of hours worked per week per employee has fallen in California relative to the nationwide averages, just as their ag overtime policy phased in (USDA-NASS, 2024; Figure 2).

    Figure 2. Average Hours Worked Per Week by Farm Workers

    Among the Oregon farms that have provided both 2022 and 2023 payroll data for use in our analysis, some have shifted work schedules to reduce overtime pay. Table 2 shows the impact of the 55-hour overtime threshold on employees of one of the Oregon dairy farms that provided data. This table shows five employees that: 1) averaged more than 55 hours of work per week in 2022, 2) were paid hourly in each year, and 3) were employed by the farm for the full two-year period. Each of these employees worked fewer hours in 2023 and earned less in total wages in 2023 than in 2022, despite the higher average hourly wage earned as a result of overtime pay. This result is consistent with the conclusions of Hill (2023) and Hill and Tanabe (2023), which used the National Agricultural Workers Survey to show that average weekly earnings fell for many employees following implementation of agricultural overtime in California.

    Table 2. Average Weekly Wages and Hours Worked for Five Individual Employees in 2022 and 2023

    Employee2022 Avg. Weekly Wages (no overtime)2023 Avg. Weekly Wages (OT at 55-hours)Avg. Weekly Hours (2022)Avg. Weekly Hours (2023)
    Employee A$1,192$1,11071.262.5
    Employee B$1,088$1,08255.453.2
    Employee C$1,153$1,14459.155.7
    Employee D$1,096$95460.951.5
    Employee E$1,024$88955.847.7

    Not all farm managers that contributed data for this analysis reduced the number of overtime hours that their staff worked in 2023 and 2024, though the pressure to minimize costs has led them to take other steps. Some operations have reduced year-end bonuses, or report feeling less pressure to increase the base-wage rates of employees that now earn overtime pay. Some operations have few workers that exceed 55-hour work weeks and have not yet made adjustments, but anticipate the need to make substantial changes to comply with the 48-hour threshold that started on January 1, 2025.

    Farms will face strong pressure to minimize labor costs for their own financial survival, while also feeling pressure to provide enough work to retain their skilled, and often long-term employees. Producers of dairy and nursery crops face significant competition from low-cost states without agricultural overtime laws and will be unable to pass on cost increases to consumers. The cherry industry is concentrated in states that also have ag overtime laws, which presents a more level playing field, but the industry as a whole is already struggling with profitability challenges. On the employee side, we should expect some farm workers to seek second jobs, which may be with other farms, or outside of agriculture. In any case, this is likely to be a period of disruption in Oregon agriculture.

    1. We thank the farm owners that generously shared data with us for this analysis. Funding for this work was provided by Columbia Gorge Fruit Growers, the Oregon Association of Nurseries, the Oregon Dairy Farmers Association, the Oregon Farm Bureau, and the Agricultural Experiment Station of Oregon State University. ↩︎

    References:

    Hill, A. and T. Tanabe. 2023. Potential Impacts of Overtime Laws for US Crop Workers. Choices, 38(2).

    Hill, A. 2023. California’s Overtime Law for Agricultural Workers: What Happened to Worker Hours and Pay? ARE Update. Vol. 27, No. 1.

    Thompson, A, and C. Seavert. 2022. Enterprise Budget: Cherries, Sweet, Fresh Market. Oregon State University. AEB 0069.

    USDA-NASS. 2024. Farm Labor. Available at: https://usda.library.cornell.edu/concern/ publications/x920fw89s?locale=en

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    How does Oregon’s tiered minimum wage policy affect restaurant survival?

    Posted on October 15, 2024 by Richard Acquah-Sarpong

    Oregon’s minimum wage changes have historically been tied to the Consumer Price Index. However, in 2016, the State of Oregon implemented an innovative tiered minimum wage policy that allows the minimum wage to vary by geographic region. Under this policy, the highest minimum wage tier is set for the Portland Metropolitan Area, followed by a lower tier for other urban counties and the lowest for rural counties (Figure 1). The regulatory drive behind this tiered policy was a recognition of the regional economic differences in wages, unemployment, and cost of living within the state. Living in the Portland metro area tends to be more expensive than living in the rest of the state, and it is generally less expensive to live in non-urban counties compared to those near urban centers. The policy was designed to be less burdensome for employers outside the Portland Metro area, as it could be more difficult for them to pass higher wage costs on to consumers in the form of higher prices.

    Figure 1: Oregon minimum wage tiers

    Figure 2 shows the growth of Oregon’s minimum wage for its three tiers before and after the introduction of the tiered minimum wage policy in July 2016. The policy implemented uneven annual wage increases over a six-year period, taking into account the differing living costs across the state, with the goal of reaching the 2022 – 2023 scheduled target (see Table 1 below). Starting in 2023, the minimum wage will be adjusted annually based on inflation, as measured by the State’s Consumer Price Index for All Urban Consumers (CPI-U), while keeping the tiered wage system in place. Under this system, rural employers will pay $1 less than urban employers, and those in the Portland metro area will pay $1.25 more than other urban employers. As a result, the minimum wage in the Portland metro area will be $2.25 higher than in the state’s rural counties with the lowest population densities.

    Figure 2:Oregon Minimum Wage Trend

    Establishments, particularly small businesses, may struggle to absorb wage increases depending on their location and industry.  For example, certain industries, such as food services, retail, hospitality, and agriculture, traditionally operate with thin profit margins and are heavily reliant on low-wage labor. For these businesses, a significant portion of their expenses is tied to wages, and any increase in labor costs over time can erode their profitability quickly. Businesses in these industries may find it more challenging to absorb minimum wage increases compared to industries with higher profit margins or those that rely less on low-wage workers. As a result, the chances of businesses to continue operation while enduring the pressures from rising minimum wages, can vary depending on how labor is used intensively in the industry.

    In recent research, we explore the impact of the three-tier minimum wage policy on restaurant survival in Oregon. We do this by comparing restaurant survival in Oregon to that of similar restaurants in Idaho, where the minimum wage has remained fairly constant over time. Idaho’s adherence to the federal minimum wage (see Figure 1), which has remained constant at $7.25 per hour since 2009, contrasts with Oregon’s dynamic and tiered approach. Since it’s not possible to conduct a real-world experiment with minimum wage policies, we use Idaho as a proxy to estimate how restaurant survival rates in Oregon might have evolved if the tiered minimum wage policy had not been implemented. Our analysis focuses exclusively on urban and rural counties, intentionally excluding the Portland Metro area as there are no cities as large as Portland in Idaho.

    Drawing on data from the National Establishments Time Series (NETS) Database, the analysis focuses specifically on establishments that were operational in 2011 and track their survival through 2021. We analyze the survival of 1,803 restaurants located in urban areas of Oregon, comparing them to an equal number of similar restaurants in urban Idaho. Similarly, we assess the survival of 1,224 restaurants in rural Oregon and compare them to an equivalent number of similar establishments in rural Idaho. Figure 3 shows the survival of these restaurants in both urban and rural areas of Oregon and Idaho. In the left panel, we compare the survival of urban restaurants in Oregon to those of similar establishments in urban Idaho. The right panel offers a parallel comparison for rural areas, examining the survival of rural Oregon restaurants against their counterparts in rural Idaho.

    Figure 3: Urban and Rural Trends in Survival of Restaurants.

    The survival of restaurants in urban Idaho shows a steady decline over time, starting at around 1.0 (full survival) in 2011 and gradually decreasing until 2021, when the survival rate dropped to around 0.65. Prior to 2016, the survival rate in urban Oregon followed a downward trend similar to that of urban Idaho. However, it appears to have declined faster than urban Idaho after 2016 (indicated by the dashed line). By 2021, urban Oregon has a marginally lower survival rate than urban Idaho. The survival rate of rural Idaho restaurants declines similarly to urban Idaho, with a slow but steady decrease from 2011 through 2019, reaching approximately 0.63 by the end of the period. The observed trend suggests that establishments in urban Oregon faced more significant challenges in absorbing the effects of wage increases than their Idaho counterparts. These urban businesses, which already tend to have higher operating costs (such as rent and utilities), were more susceptible to the pressures of rising wages.

    In our research paper, which uses a statistical model to estimate the impacts of Oregon’s minimum wage policy, we estimate that the implementation of the tiered minimum wage policy has led to an average decline of about 3.3% in the cumulative likelihood of survival among urban restaurants. In contrast, the policy showed no significant impact on the survival rates of rural establishments. Furthermore,  our analysis shows no statistically significant effect on urban chain restaurants. However, we find a much stronger and statistically significant impact—around 3%—on non-chain restaurants. This suggests that fast-food chains, which typically operate with more excess labor, can downsize while maintaining operations, or perhaps they have the financial flexibility to invest in labor-saving technologies, making them more resilient to wage increases.

    While tiered minimum wage policies are intended to reduce regional disparities and promote economic equity, it is essential for policymakers to carefully consider the associated trade-offs. These policies can inadvertently create significant challenges for businesses, impacting their ability to sustain operations. The notable decline in restaurant survival rates in urban Oregon illustrates the unintended consequences that can emerge when wage increases are implemented without supportive measures for affected establishments. This scenario highlights the need for Oregon policymakers to balance the objective of raising workers’ wages with the imperative of ensuring business viability in both urban and rural areas. To address these challenges, Oregon policymakers should contemplate accompanying wage increases with targeted support programs for businesses. Such measures could include tax incentives, grants, or access to low-interest financing specifically designed to alleviate liquidity constraints faced by establishments adjusting to higher payroll expenses. By providing this support, businesses can better manage the financial impact of increased wages, reducing the risk of closures and job losses.

    Posted in Economic policy | Tagged , , , , | Leave a comment

    Stable statewide cash rents for Oregon mask large changes across counties in 2024

    Posted on September 16, 2024 by Dan Bigelow

    Agricultural producers can gain access to the land they need through two general channels. Some own their land, after purchasing it from another landowner, bidding on it in an auction, or inheriting it from a family member. The alternative to ownership is renting land from another producer or a non-operating landowner (a person who owns land but is not actively involved in agricultural production). Per the most recent data published in the 2022 Census of Agriculture, rented farmland in Oregon accounts for 29% of all farmland in the state. This is relatively low compared to the national figure, which stands at 39%, but still accounts for roughly 4.5 million acres of land in the state.

    The comparatively low rental percentage in Oregon likely can be chalked up to a few things. One is the large amount of grazing (pasture and range) land in the state. If it is not owned by the federal government, grazing land is generally more likely to be owned by the producer using it. There is also a large amount of irrigated cropland in Oregon – roughly 46% of all harvested cropland in the state was irrigated in 2022 – which is also less commonly rented out due to the capital and maintenance costs associated with irrigation infrastructure. For example, of Oregon’s farms where all of the harvested cropland was irrigated, only 24% of the land was rented. These farms account for 39% of all farmland in the state, but only 10% of all farmland in the US.

    Each year, the US Department of Agriculture’s National Agricultural Statistics Service (USDA-NASS) publishes cash rental rates at the state and county levels. The county-level data come from a cash rental rate survey conducted every summer to collect information on the cash rents paid for non-irrigated cropland, irrigated cropland, and pastureland. A unique aspect of this survey is that it provides county-level data on an annual basis. Additionally, at just one and a half pages in length, the survey is shorter and less complicated than other USDA surveys, and as a result, the response rate tends to be relatively high. In 2024, 55% of the 3,349 surveyed producers responded to the USDA-NASS cash rent survey in Oregon. This is actually down from the 70% response rate in the 2023 survey, so the latest numbers should be interpreted with that in mind. The state-level cash rent data come from the same June Area Survey that USDA-NASS uses as the basis for its annual farmland value estimates (see my recent blog post here).

    Note: Values in the figure are adjusted for inflation to the year 2024 using the Bureau of Economic Analysis’s Gross Domestic Product Implicit Price Deflator.

    Over the past year, the statewide cash rent for irrigated cropland increased by 0.8% in inflation-adjusted terms, bouncing back from declines in the previous two years. Irrigated cropland tends to be rented for much more than non-irrigated cropland, due to the higher returns associated with irrigated production and the costs of maintaining irrigation-related equipment and water conveyance infrastructure. In 2024, irrigated cropland was rented for an average of $266/acre, which is in line with the average rent over the previous five years (2019-2023). Looking across the state, irrigated rents tend to be highest in the northern Willamette Valley and other counties along the Columbia River (Hood River, Morrow, and Umatilla). With a couple of exceptions (Klamath and Malheur), counties in the eastern, central, and southern parts of the state tend to see lower irrigated cash rents. The largest percentage gains over the previous year occurred in Clackamas and Morrow, while Deschutes, Baker, and Klamath saw the largest declines.

    Note: The color shading corresponds to the cash rental rate reported for 2024. Where present, the numeric value on the map corresponds to the 2023-24 real percentage change in cash rent. Shaded counties without a numeric label did not report a rental rate in 2023. 

    In contrast to irrigated cropland, non-irrigated cropland rent, at $107/acre, was down by 1.85% over the past year. Note that the nominal 2024 rental rate of $107/acre is identical to the one reported in 2023, so the decline is entirely due to the inflation adjustment. Compared to the inflation-adjusted average over the previous five years, the 2024 rate is down by about $5/acre. Counties in the northern and mid-Willamette Valley, along with Tillamook County, tend to have the highest rents. Given its dry climate, Eastern Oregon tends to have lower non-irrigated cash rents. Over the past year, the largest annual percentage gains were in Umatilla and Clackamas, whereas Union, Tillamook, and Wasco had relatively large percentage decreases.

    Note: The color shading corresponds to the cash rental rate reported for 2024. Where present, the numeric value on the map corresponds to the 2023-24 real percentage change in cash rent. Shaded counties without a numeric label did not report a rental rate in 2023. 

    The average 2024 pasture cash rent was $11.50/acre. Like the non-irrigated cropland rent, this value is unchanged in nominal terms compared to the previous year but represents a 1.85% annual decrease after accounting for inflation, and continues a general downward trend since USDA-NASS started their current rental rate reporting program. Although the dollar values involved tend to be lower on a per-acre basis, pasture operations tend to be much larger, so small deviations in rental rates can add up quickly. Pasture rents have generally declined continuously since 2009, with the 2024 rent being about $2.50 (or 18%) lower than the 2019-2023 average of $14/acre. Western Oregon tends to have the highest pasture rents, while eastern Oregon, where farms tend to be larger, have lower per-acre rents. Lower average pasture rents give way to large percentage changes from year to year. For example, Gilliam and Harney had 85 and 45% respective gains, while Polk (-30%) and Columbia (-22%) had large declines.

    As I’ve mentioned before, it bears emphasizing that the USDA-NASS pasture rent figures paint an incomplete picture of the rental market for this type of land. This is because the USDA survey only reports on land rented for cash, but most private grazing land is rented on a per-animal unit month (AUM) or per-head basis. In addition, a considerable fraction of land in grazing operations comes from public land owned by the Bureau of Land Management or U.S. Forest Service, with those lands also rented on a per-AUM basis.

    Note: The color shading corresponds to the cash rental rate reported for 2024. Where present, the numeric value on the map corresponds to the 2023-24 real percentage change in cash rent. Shaded counties without a numeric label did not report a rental rate in 2023. 

    Cash rents can be a useful snapshot of the overall health of the farm economy, as they are heavily influenced by the net returns to agricultural production. Nationwide, cash rents reached a record level this past year, which may squeeze farm profits for renters when other input costs remain high amid falling commodity prices.

    Rents also tend to be a lagging indicator. Leases for the upcoming year tend to be negotiated following harvest in the late fall, winter, or early spring, so the values reported by NASS for 2024 are more reflective of what landowners and renters expected the year to bring, not what actually happened. In addition, some leases, particularly for irrigated farmland, tend to be renewed on a multi-year basis. Thus, for example, a three-year fixed-cash lease covering the 2022-2024 production years could also be included in the 2024 NASS values, which makes it further removed from current production conditions.

    Because purchasing land outright typically requires extensive financial capital (e.g., money for a down payment and other land currently owned as collateral), renting is often seen as a way for new and beginning producers, or producers who are otherwise financially disadvantaged, to build and grow an operation. Land rental, however, is far from being limited to smaller producers, as discussed in this 2016 USDA report that I coauthored. Most commercial farms in the US contain a mix of owned and rented land. In addition, it can be difficult for beginning producers to find land to rent, as landlord-tenant relationships tend to be fairly long-lasting, despite the fact that most contracts for farmland are renewed annually, and about one-third of land is rented between family members.

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    Food Price Inflation and the Farm Share of the Food Dollar

    Posted on August 27, 2024 by Tim Delbridge

    Rising food prices seem to be on everyone’s mind these days. Consumers are frustrated that prices have not come down from pandemic levels, even after the reasons for those cost increases seem to have abated. Food price inflation has slowed this year according to official CPI numbers, but consumers still perceive prices to be increasing quickly. The proposed merger between Kroger and Albertsons highlights the growing concentration in the food retail sector, and the proposal has generated concern among the public as well as federal regulators. Here in Oregon, the merger would result in the sale of 60 Kroger stores to C&S Wholesale Grocers. In the last week, the issue was further elevated when food prices were brought up by the Kamala Harris campaign and the idea of a federal ban on price gouging was floated.

    Since I spend most of my time working on issues related to farm production and profitability in Oregon, for me, the discussion of food prices always leads back to the relationship between the prices that consumers face at the grocery store and the prices that Oregon farmers and ranchers receive for their products. The ‘price spread’ is the difference between what consumers pay at the store and what farmers receive. This gap covers the costs of processing, shipping, marketing, and any profits made along the way. An increase in the price spread could be caused by an increase in the cost of shipping, increased labor costs among processors, increased cost of regulatory compliance, or an increase in the profits generated by processors and retailers.

    The degree to which retail prices filter down to the farm sector also depends on market power and concentration at the processing and retail levels. For example, if a competitive meat processing market became a monopoly overnight, we would expect the price spread for meat to increase because the processor would be able to charge higher prices while passing relatively little on to beef producers.

    This blog post will use historical beef price data to discuss the changes in the retail-farmgate price spreads and farm share of the retail food dollar over time. Beef is a good example because cattle production is spread across many small beef producers, processing is concentrated largely in the hands of four very large firms, and recent increases in meat prices are often a source of consumer complaint. While this type of simple analysis cannot identify the specific reason for a change in the farm-retail price spread in a given quarter or year, it can reveal the degree to which food expenditures are captured by supply chain steps downstream from the farm. It can also be helpful when thinking about the impact that further consolidation might have on the food prices and farm profitability.

    These figures, based on USDA-ERS meat price data, show the price spreads and farm share of the food dollar for beef. Price spreads for other commodities are available here. For the beef industry in particular, the value captured by processing, distribution, and retail has increased by a factor of 15 over the past 5 decades. The farm share of the retail beef dollar has fallen from 65% to about 45%, dipping below 35% during the pandemic. Although it is difficult to generalize, these charts can help us put the current discussion about market power and food prices into perspective.

    I think there are three main conclusions to make.

    1. The Covid years were very difficult for some sectors. Meat processing provides a perfect example of a Covid-related capacity constraint that temporarily changed the relationship between producers and processors and led to high retail prices (see Lusk et al., 2021 for more detail). As meat processing facilities reduced throughput because workers were sick or to comply with health and safety protocol, the volume of meat being processed fell, driving down average farmgate prices. In other agricultural sectors, shipping costs, input prices, and labor costs increased rapidly, and the processors/distributors share of the food dollar increased.
    2. In the case of beef at least, the farm share of the food dollar has recovered in the last year or two as the pandemic has faded and supply chains have normalized. Cattle inventories are currently at historically low levels and many beef processors are struggling to maintain their desired production volumes. This should not be taken as a conclusion that there is not significant market power in meat processing, but the market dynamics currently give beef producers a stronger hand in the market. We may see price spreads adjust downward again as cattle inventories return to more typical levels.
    3. The farm share of the food dollar will look different for commodities like beef, milk, and potatoes than it will for highly processed foods. Intuitively, the supply chain costs for highly processed foods are much higher than for “whole” foods. As diets have incorporated more highly processed foods, farm revenues have increased at a slower rate than food sales. It remains an open question whether or not the farm share of the overall food dollar will shrink further, or if we have reached a point of stabilization.

    Further Reading: This is a huge topic and there is a lot of academic literature that has addressed food prices, market power, and the consolidation in the modern food system. A few interesting academic works and other resources are below:

    • Ma et al., 2017: An article about market power in grocery, which reminds us that market power can also exist at the neighborhood level.
    • Howard, P. H. 2016. Phil Howards book “Concentration and Power in the Food System: Who Controls What We Eat?” is not an economic approach to this topic, but he presents an interesting viewpoint and does rigorous work. There are some excellent figures.
    • Raw data on retail food prices, rather than agricultural commodities are managed by the Bureau of Labor Statistics. They can be found here.

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    Latest USDA estimates point to continued strong growth in Oregon’s farmland values

    Posted on August 22, 2024 by Dan Bigelow

    The US Department of Agriculture (USDA) recently released its latest state-level data on farmland values. The data come from the USDA’s June Area Survey, which asks a rotating panel of producers to estimate the market value of their land. Responses from surveyed farmers are then weighted and extrapolated to generate estimates for entire states. The survey-based estimates are broken down into four categories of per-acre land values: (1) farm real estate, measuring the value of all land and buildings on the farm, (2) non-irrigated cropland, (3) irrigated cropland, and (4) pastureland.

    In Oregon, the per-acre value of farm real estate is $3,720 in the most recent data, representing a $220 (6.3%) increase in nominal terms over the past year (see Figure 1 and Table 1). Note that this is in nominal terms, meaning that it is not adjusted for inflation. In addition, this is based on a revision to the previous five years of land value data. After the release of the five-year Census of Agriculture data, the previous five years of annual land values are subject to revision. Because the 2022 Census pointed to higher land values than revealed by the annual survey, this resulted in an upward revision for Oregon’s 2019-2023 values. For example, the 2023 nominal value that was previously reported as $3,180/acre is now $3,500/acre.  

    Figure 1: Per-acre farm real estate (land and buildings) value, Oregon, 1999-2024

    It is often informative to examine trends in farmland values over time using real (or inflation-adjusted) values, which account for shifts in values relative to incomes and the prices of other goods. After adjusting for inflation using the Bureau of Economic Analysis’s Gross Domestic Product Implicit Price Deflator, the change in farm real estate value amounts to a $154 (4.3%) increase in 2024 dollars. When compared to its most recent 5-year average, real farm real estate values are up $281 (8.2%). The value of Oregon’s farm real estate continues to outpace inflation, with 2013 being the last time an annual reduction in the statewide real value was observed. In nominal terms, farm real estate values have not decreased since 2009 during the Great Recession.

    Table 1: 2024 USDA farmland value estimates for Oregon

    After decreasing over 2022-2023, non-irrigated cropland value rebounded in 2024, increasing by $96 (3.3%) in real terms to $3,010/acre. The value of irrigated cropland continued its upward trend over the past year, increasing to $7,650/acre, a $253 inflation-adjusted gain of 3.4%. Pastureland value, at $1,050/acre, increased by a more modest 1% over the past year. Relative to their 5-year rolling averages over 2020-2024, all classes of land values point to strong growth in 2024. With few exceptions, the values for all categories of Oregon’s farmland have generally more than kept up with inflation in recent history (see Figure 2).

    Figure 2: Inflation-adjusted farmland values for different land uses, Oregon, 1999-2024

    With aggregated state-level data, it is difficult to tease out any direct cause of the observed trends or year-to-year changes. The strong growth across the board in Oregon stands out compared to other states in the Pacific Northwest (Table 2). For all farmland value categories, Oregon’s growth in 2024 was more than double the growth observed in Washington. With the exception of pastureland in Idaho, Oregon’s growth rates were also higher than those of California and Idaho. In level terms, however, land values in Oregon generally remain below these other states.   

    Table 2: 2024 farmland values in Oregon, Washington, California, and Idaho

    Using a proprietary database of sales transactions, recent analysis by AgWest Farm Credit points to several factors that have affected land values in Oregon, including low inventories of land available for sale, strong interest in purchasing land from institutional investors (and buyers from Idaho), and a positive outlook on current-year water availability. The AgWest report also notes the weak relationship between farm profits and land values in recent years, suggesting that investment activity and other factors not directly related to farming are playing an increased role in farmland markets. These factors have bolstered land values despite the relatively high interest rates seen over the previous few years. When interest rates are higher, land values are generally expected to go down, as debt payments for land purchases go up and landowners put a greater discount on the net income they expect to receive from the land in future years. Interest rates are now are expected to go down in the near term, suggesting that any downward pressure current rates are exerting on land values will subside.  In addition, it is worth keeping in mind that the June survey used to construct the USDA estimates took place prior to the large wildfires that have affected producers in eastern Oregon.  

    Of course, the fact that Oregon’s agricultural land has continued to appreciate in value has both pros and cons. Investors tend to be attracted to farmland because it generally keeps pace with inflation, which makes it an attractive and relatively safe asset class. Having access to affordable farmland is key for producers, as real estate is the most common source of collateral in farm-related loans. In addition to investment interest, the AgWest report also notes stronger demand from large operators, suggesting that small producers are increasingly at a disadvantage when it comes to accessing both the land and financial capital needed to grow their operations.

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