A Discussion of Agriculture in Southern Maryland

What would it be like to be a farm region without farmers?

Lindsey Lusher Shute

A friend of mine recently directed me to a Tedx YouTube video of this dynamic young farmer, Lindsey Lusher Shute, who happens to be the Executive Director of the National Young Farmers Coalition.  In her talk, Building a Future with Farmers, Lindsey compared the revenue from her 25 acre vegetable farm with a corn operation which used to occupy the farm before she and her husband bought the land. Today, her vegetable farm generates over $425,000 and provides full or part-time work to nine residents, who also help stimulate the local economy by spending their money on local goods and services.

Lindsey said that if her farm were still a corn farm, it would earn about $25,000 and would generate about $750 in labor costs. Her message is that farms that sell farm products back to their local communities give back a whole lot more.

We need both commodity farms and non-commodity farms. After all, most of us consume corn, soybean, and wheat products. Without commodity crops in the last decade, most fields in Southern Maryland would have been empty.  However, a farming region with only commodity crops cannot support as many farmers.

I liken it to our family farm during my youth. We grew many more acres of corn, wheat, and rye than tobacco. Tobacco required much more labor, but it was the money crop. Without it, my uncle and father could not have farmed full-time.

The push for farmers to “get big or get out” did not originate with family farms. It was a movement that started with major agricultural businesses and was supported by federal policies in the early 1970s. In an interview with Curt Arens in 2007, former USDA Secretary Bob Bergland noted that, ”For as long as I can remember, farm legislation highlighted as a stated goal, to save the family farms. We found out commodity programs had just the opposite effect. The fewer larger farms received most of the income and the much larger number of family-sized and smaller farmers had little or none.” Nearly all Maryland farms are family-sized farms.

Chesapeake’s Bounty

Federal farm policy continues to adversely impact family farms today. Maryland agriculture needs  commodity farmers. It also needs table-crop farmers (produce, beverage, and meat producers) who sell locally and tap into the $26 Billion food budget of the residents in our metropolitan region. Let’s hope that the buy-local food movement can help to revitalize the farm economy and build a Future with Farmers. And lets hope that the new farm bill supports both commodity and table crop producers.

It never has been easy to start a farm. Even those who were bequeathed a fully operational and successful farm had to know what they were doing, where to find the resources, which markets to pursue, etc. to survive the first few years of farm ownership. Today, many people are drawn to the farming profession out of a passion to grow things or a desire to escape the corporate world. And they are determined to do so, even if they didn’t grow up on a farm or inherit land.

I addressed the challenges of land leasing in a recent post, so today I will focus on the challenges of land purchases for beginning farmers who did not inherit land.

As of 2011, farmland in Maryland was valued at three times the average price of land in the nation according to the USDA. Maryland is part of a region where there is great competition for farmland, including residential development and commercial development. Even in ‘agricultural’ zoned areas, most counties still allow non-agricultural uses such as golf courses and parks, mega-churches, landfills, private residential estates, etc. In addition, open space purchased by governments to meet Bay water quality standards is often planted into forests and no longer usable for farming other than for timber production.

Size matters when it comes to land values. There is an inverse ratio between acreage and land value per acre. While there is a wide variation in land values per region, larger farms (300 acres +) tend to be worth $5,000 to $10,000 per acre, while small farms (<50 acres) tend to be worth $10,000 to $30,000+ per acre. Beginning farmers cannot benefit from the lower cost per acre of the larger tracts. The smaller tracts require annual mortgage payments of $15,000+ not counting the cost for buying an existing house or building a new one. Most beginning farmers make little or no profit the first few years and certainly cannot cover that type of mortgage expense.

Finally, there can be many hidden pitfalls when either leasing or purchasing a farm. For example, are the soils really suited to the type of operation that a new or beginning farmer wishes to pursue? Do county zoning regulations permit the type of farm operation? What about value-added sales of farm products or agri-tourism? And are there covenants, easements, or notes on recorded plats that limit the type of farm operation?

If beginning farmers are seeking to purchase land to start their enterprise, then they will need  a great deal of help for the reasons described above. To be seriously considered for a loan, a beginning farmer will need experience as a farm operator for a farm owner and business plan and resume. However, it is difficult to prove to lending organizations that a farm enterprise is viable and able to pay a mortgage unless the beginning farmer comes with strong financial resources or a good off-farm job.

SMADC is working with its partners in the Maryland Beginning Farmer Success Program to address all these issues. The goal is for beginning farmers to see a clear path to getting access to land.  We propose to do this by:

• Increasing the number of postings of farms for sale on Maryland FarmLINK by working  more with landowners and the real estate community
• Increasing posting of properties for lease by working with Extension, Soil Conservation Districts and the Maryland Farm Bureau to encourage farmers to post properties for lease
• Identifying potential incubator farms and working with governments or nonprofits to manage them as places where beginning farmers can learn their trade.

Much is at stake. Today in the U.S., there are six times as many farmers 65 years and older than those 34 years or younger. We are losing experienced farmers at a time when the demand for locally-sourced food is on the increase. Add to that the fears of food insecurity and of global food shortages as the world population increases and arable soils are decreasing.

It is time to combat this loss of farmers by smoothing the path to farm leasing or ownership.

I have a relative who has ‘leased’ the farm to the same farmer for decades. In fact, there is no written lease. The agreement was a result of a handshake. Over that time, the fee per acre has not changed and the verbal agreement has been renewed every fall when rent is paid. When asked why there has been no fee change and no written lease, my relative noted that “the farmer is a good steward of the land. He will pay, regardless of the success of the crop. He has been kind and helped out when issues arose on the farm.” I sense that the story is the same in much of Maryland where over 865,692 acres were leased in 2007 (Ag Census). Such annual verbal agreements are allowed by Maryland law. Any lease longer than a year must be in writing and signed by both parties to be valid.

Circumstances are changing, and farmers and landlords may want to put agreements in writing. With the rise in corn and soybean prices over the last few years, some landowners  think that the annual per acre rental rate should increase. The National Agriculture Statistics Services reported that the average Maryland cash rent per acre was $70 in 2011, up from $55.50 in 2002 and a 26% increase in nine years. I have heard stories that some landlords are garnering up to $180 per acre on the Eastern Shore. Of course, the higher the cost, the more both parties expect from the agreement.

Another change in circumstance is that more farmers are pursuing crops besides corn and

Irrigation (e.g. drip irrigation shown here) is necessary for most vegetable crops. Source: NCDA.

soybeans, and their infrastructure needs are more complex than commodity crops. Many beginning farmers are favoring vegetable and livestock production,  which require access to water and may require fencing to keep livestock in or wildlife out. However, only 10% of all Maryland farmland is currently irrigated. If the lessors have to pay for the infrastructure up-front, they will need a much longer lease to recoup expenses.

I am very pleased that the University of Maryland Extension has just published Agricultural Leasing in Maryland, a timely document which provides recommendations and examples for fixed cash rent farm leases, crop-share rent farm leases, flex cash leases and sample termination letters. It addresses improvements and fixtures, good husbandry practices, death of a landlord or tenant, right of reentry, third-party contractors, weed control, insurance, etc.

The hope is that by preparing a written document to resolve a landlord’s concerns about stewardship, safety, security, etc. and lessor’s concerns about access, infrastructure, and a reasonable opportunity to make a profit, we will see more land farmed and higher agricultural investments and returns.

Of course, lessors need to realize that many landlords turn to people they know because the farmland is usually at the landlords’ back door, either figuratively and/or literally. The landlords want to feel comfortable with the lessor; know that the lessor will be a good steward of the land and that neither they, nor their neighbors, will  be impacted by a lessor who is careless or rude. It pays to build good relationships in the farming community if you want to lease land!

Despite the fact that it has the fifth highest population density, Maryland is known nationally for its local and state land preservation programs. For its size, it has preserved the most land of any state. However, the rate of land preservation has slowed due to the recession and reduction of funding in most land preservation programs. Landowners who still have not preserved their land might want to consider donating an easement to the Maryland Environmental Trust.

Source: Maryland Dept. of Planning

The table on the right indicates that 806,985 acres of private land is held under easement via state programs, county programs or private conservation organizations.  Most of the easements were purchased via easement or transferable development right (TDR) sale. A noted exception is the land preserved by the Maryland Environmental Trust (MET), which accepts voluntary donated conservation easements. To date, MET holds 1,050 conservation easements protecting forever over 129,000 acres.

Here is how it works and why this is the year to donate an easement!

As per the MET website page Federal Tax Benefits, “the gift of an easement is a charitable donation that may be deducted from Federal income taxes. The value of the donation is determined by an appraisal.”  After a donation of an easement to MET, landowners can deduction up to 50% of adjusted gross income from their federal income tax and they can continue to take the deduction for another 15 years, or until they reach the value of the easement. They can deduct up to 100% of their adjusted gross income per year if the majority of their income came from farming, ranching, or forestry, until they reach the value of the easement.

Let’s say that you have a 100 acre farm worth $600,000. For this exercise, we will assume that the easement that you would be donating is appraised at 40% of market value, or $240,000. Dividing $240,000 by 16 (the maximum number of years), you would be eligible for up to a $15,000 federal tax credit per year. Of course, the value of your easement and your annual federal tax burden both play a role in the level of financial advantage you would get from the easement.

There may also be some benefits with regards to federal estate tax exclusions and state taxes benefits that you will want to discuss with the MET Planner.

As stated on the MET website, to determine the easement value, the land must be appraised at both its fair market value without the easement restrictions, and its fair market value with the easement restrictions. “The difference between these two appraisals is the easement value, from which the tax deductions are derived.”

Why is this the best year to preserve your land? It is expected that the percentage of adjust gross income for which you get the tax credit will be reduced after this year for all landowners. In years past, the maximum annual deduction has been 30% of adjusted gross income.To get a full understanding of the program, I recommend that you start by reading MET’s Frequently Asked Questions (FAQs). Then it will be time to contact your regional MET Planner!