Saturday, November 03, 2007

Not quite as simple as it seems...

The last few rounds of a particularly nasty fight between the University of Illinois and the Illinois Farm Bureau are being slugged out.
After generations of reliance on the rain, the soil and the University of Illinois to guide their planting and harvesting decisions, the state's farmers are threatening to drop their support for the school over its decision to rent thousands of donated acres to the highest bidders instead of its longtime tenants.

The dispute pits the Illinois Farm Bureau and small-scale farmers who have lived for decades on university land against school officials who say they want a bigger and steadier income from their nearly 11,000 acres to pay for research, scholarships and other educational purposes. It comes amid boom times in Illinois agriculture, as soaring grain prices and land values raise the financial stakes across the Corn Belt. [More]
There is one telling quote in this article that encapsulates the key issue, I believe:
"This is taxpayer's property, but we've run it just as if we've owned it," he said. "I feel cheated. Actually, I feel worse than that."
[My emphasis]
While I am sure the tenant meant the level of stewardship he has shown the land, I suspect also in his heart he feels his long tenure had somehow earned him some level of ownership. This is an unjustified presumption, rooted in a past where the labor contribution to farming granted some leverage to good farmers in lease arrangements.

Farm Bureau is following its usual patten of protecting those who farm now - even at the expense of those who would like to farm. Testing farmers in a transparent market, and allowing better farmers to replace others is more egalitarian than most organizations can embrace, I admit. But it is certainly the correct path for fulfilling the fiduciary duties of the University Trustees.

What is also missing in the story are any words from those who are winning the cash rent wars. Suppose the loathsome person who displaces an outraged tenant is (gasp!) the charming son/daughter of a neighboring farmer who has been working and saving for years for a chance to return to join his parent's operation.

Maybe the competition is a partnership of brothers whose jaw-dropping yields and savvy marketing allow them to bid $40 more than others. Maybe it's an older established farmer who was not chosen to rent the ground 35 years ago, and has waited for his chance all these years. Regardless, these others producers are not to be summarily judged less deserving, and are likely FB members to boot. (Or were until now.)

This is Schumpeter's creative destruction at work, and while economists love the results, the reality looks like this - some winners, some losers.

Farm Bureau did not stand up for the "losers" decades ago when the current tenants were chosen. It is an error in judgment now to interfere in the rights of ownership. Moreover, their actions may trouble more than a few farmowner-members.

As for threatening the University that is a real gamble. IFB could discover to their dismay the actual power of their punch.


Anonymous said...

Very good points John and I hope as you say some of the winners will step up and present a glimpse of their side. Cash rent is a brutal warlike method of business. And don't forget in a market as unknowable as this one could be there is no saying whether the winning bid is a blessing or a coffin spike. Either way whining that years of being the favored tenant entitles anyone to possible generational rights is wrong.

Anonymous said...

I would say that the university has been remiss all along in not putting their land out for bids every so many years. We renegotiate our leases as they expire. Why did those tenants not do the same?

Anonymous said...

I am one of the tennants on 2 of these farms. I agree that the rent should be established by the free market. Whatever someone is willing to pay is the proper rent. However I hate to lose a farm I have farmed since 1967 because someone bid 1 penny more than I. I would like a right of first refusal if my bid is within 90% of the highest bid. Reggie Dowell

John Phipps said...


First, thank you for your civil response. I too lament our loss of leverage. Permit me a story.

The field where my mailbox sits; around which I farm on three sides (get the drift) goes up for blind, sealed bid by a small church with a congregation of neighbors. This happens every three years and I have rented it for about 90% of the last 20 years or so.

In order to appear fair, they choose to rent to the highest bidder. I hate to lose this farm as well, and often end up bidding pretty high.

I suppose I have become callous as a result, and do not look for much consideration anymore. Since they publish the results as well, this exercise ripples through the area as a data point for other negotiations. The one fact few ever consider is I do not bid outside my township, so am no "threat" to most.

Still this is the right of ownership. I defend their prerogative, but believe there are better ways.

This year is another jump ball. I'll let you know how my race goes. This is why I load up on debt to own ground.

Good luck. With your forthright attitude, I want to believe you'll be successful.