If farming worked the way ordinary businesses work, starting a farm would be a matter of making a business plan, approaching a bank or an investor, and coming to an arrangement about how ownership and profits are split between the farmer and the financial backers. This is the general way that we imagine businesses are supposed to work, and it’s the way of capitalism. An enterprising young farmer with no money (capital) partners with a backer (a capitalist); the farmer invests time and labour, the capitalist invests money, and if all goes well, both farmer and capitalist split the profits.
But no farmer will ever appear on Dragon’s Den because capitalism applied to farming mostly doesn’t work. Why? Land. The way that farmers value land is completely different from the way that capitalism values land, and, from a capitalist point of view, farming is an extremely poor use of land. In other words, there’s no profit in it.
A farmer judges a piece of land by evaluating its capacity to support life. How rich is the soil? Is there access to clean water? What’s growing there already? A capitalist judges a piece of land by evaluating its capacity to support profit. How much does the land cost? How much revenue can it generate? What can I sell it for in five years?
Theoretically, the farmer and the capitalist should be able to make their respective judgments and agree on a piece of land that is valuable to both of them. But, in practice, they’ll rarely agree because too often, the profits that come from farming the land cannot pay for the cost of buying the land in the first place.
The cost of land is a big reason why the capitalist is necessary in the first place. In business terms, land is a capital cost: It’s a big, up-front cost that has to be paid out of the farm’s profits over time, but it only needs to be purchased once. Once it is paid for, the farmer does not have to keep spending money on land. Since most farmers don’t have enough money to purchase land outright before any crops have been grown to pay for it, the purpose of the capitalist is to front the money for the land (and, likely, other large infrastructure costs that are necessary for starting a farm).
In return, the capitalist somehow needs to be paid. This is how capitalists make their money: They invest their capital in businesses in exchange for an eventual return on their investment. What form that return takes may vary — interest from a loan, part ownership of the business, participating in the farm’s profits — but the return has to be there. That’s what makes it capitalism: Investing capital to generate more capital.
A capitalist system is supposed to lead to the most efficient use of resources, including land. This is where applying capitalism to farming starts to break down. Because, farms need a LOT of land. By nature, they’re just not very land-efficient. Measured on a revenue-per-acre basis, there’s very few businesses that are less efficient than farms.
You might think this wouldn’t matter. After all, farms are still businesses, and even if they aren’t especially land-efficient, with the right business model, there’s still a profit opportunity. Just because it might be more efficient to use a given piece of land for, say, a steel mill, doesn’t mean a capitalist has to turn down the opportunity to invest in a farm. Steel mills are much more expensive to build than farms, and besides, the capitalist doesn’t know anyone who wants to start a steel mill.
This is where the different ways that farmers and capitalists value land starts to matter. From a farmer’s perspective, the best land is located wherever it is located (usually near waterways), and the value is inherent in the quality of the land itself. But land isn’t priced according to how farmers value it. In our capitalist system, land prices reflect the way capitalists value land, which is to say, the price is based on how much revenue it can generate, regardless of how it is generated or whether the revenues have anything to do with the inherent properties of the land.
So, even if our friendly capitalist thinks it’s better to invest in a farm and not a steel mill, the land goes to the highest bidder, and if another capitalist is willing to spend more on the land to build a steel mill, the land will go to the steel business, not the farm business. In our capitalist system, people who buy land are in competition with each other, and the person willing to spend the most on the land is the person who will end up with it. Even with our friendly capitalist’s backing, our poor farmer has to drop out of the bidding early on, because the capitalist’s expected return from the land quickly disappears as the price of land goes up.
I’ve written about this before. Some places in B.C., you could put all of a farm’s revenues into paying for the land, and it would be decades or a century before the cost of the land was paid for. At current land prices, the return on investment from farming is well below the cost of interest, which means even a generous capitalist ends up losing money on the deal.
A farmer’s best hope is to buy land that nobody else wants — to be the only bidder, so the seller is forced to sell at a reasonable price. Or, to buy land in a non-capitalist way, from a seller who is willing to accept a price below (often well below) the highest bid if they know the land will be used for farming. Both of these hopes have obvious problems. Chances are, land that nobody wants isn’t land that farmers want either. And, counting on a seller to accept a below-market price because they want the land to be used for farming puts a lot of faith in the good will of the seller. That’s not to say these hopes are impossible — sometimes farmers can use unwanted land, and there are sellers who want to see farms survive. But neither hope solves the basic problem.
Thus, the thesis of this article: Capitalism for farming is broken. It’s not reasonable to expect capitalists to invest in farmers or farm businesses, because there’s no way for them to make a return on investment. Banks, those quintessential capitalists, are perfectly aware of this. With the exception of Farm Credit Canada, which is a crown corporation with a federal mandate to lend to farms (i.e. not a capitalist), banks don’t offer loans against the value of farm businesses. They will happily lend against the value of land — a mortgage — but the business itself is worthless as collateral. If we are going to invest in our farms, which we need to do, we can’t count on capitalism to do it.
It’s worth asking, what are the profitable uses of land? In the scenario above, what kinds of businesses are capitalists investing in that drive the price of land up so high? Turns out, it’s not steel mills we have to worry about. The answer here will be familiar to anyone who has followed the much better publicized real estate crises in Vancouver and Toronto. The most profitable use of farmland is … nothing at all. The best return on investment for land is to hold the land for a few years, and sell it to someone else at a higher price. In other words, land speculation is often the most “efficient” use of land from a capitalist point of view.
This is a problem. Land speculation may be the most efficient use of land, but it’s not … well … useful. And, as it pushes up the price of land, it makes all the other uses for the land — like farming — less viable.
We are in this situation because we are relying too much on capitalists and not enough on farmers in our system for pricing land. Our land prices reflect too much of the capitalist’s way of valuing land, and not enough of the farmer’s. This isn’t a new situation. Capitalists have been treating land as capital for centuries. In some ways, land is the original form of capital.
What’s changed is who the owners are. In times past, it was a fair assumption that the owner of the land was likely to live on or near the land that they owned — or at least in the same country. In our globalized world, this assumption is less true than it’s ever been. The removal of restrictions on moving capital across borders has made it easier for land titles to be traded as a global commodity. And, when the owner of a piece of land doesn’t live anywhere near it, they have very little reason to visit it or do anything useful with it.
Because it’s so easy to buy and sell foreign land, our friendly capitalist who wants to invest in a farm isn’t just competing with local interests who want to use the land. When the market for land is global, the competition for that land is also global. That makes the price of land global as well, and our poor farmer who previously only had to compete with steel mills, is now competing with capitalists whose only interest in the land is its monetary value.
The lesson here is that if we want our land to be useful to those of us who live on it and around it, we need our pricing system for land to reflect local priorities. We need the land price to represent more of the farmer’s value scheme, and less of the capitalist’s. We want the price of land to reflect things like soil health, biodiversity, and water quality, and right now, it doesn’t do that very well.
The only way I can think of to do this, is to make our system of land ownership less capitalist. Maybe we could restrict land ownership to locals. Maybe we could require that land be used (farmed?) or title would revert to the state. In some places, maybe we could make land ownership contingent on land stewardship: If the value of the land (farmer’s value) decreases, those who live near the land could hold the owner liable.
All of those are just ideas off the top of my head. Whatever changes we make would need to be considered thoroughly before they are made or there would certainly be unintended consequences. But, it’s clear that if we want capitalism to work for farmers — and capitalism can be a very useful tool — we need be less capitalistic in how we value land and incorporate other ways of valuing land in the way it is priced. To sum up with a cliché: Capitalism is a good servant but a poor master. Right now it is our master.