Washington State loses about 23,000 acres of farmland per year – an area the size of Lake Washington.
But what if conditions are changing – perhaps improving, or perhaps growing even worse?
The threat of farmland loss traditionally has been measured by projecting past losses into the future. For many of us, it is already quite worrisome to know that, in Washington state, we lose farmland to development every year at a rate of about 23,000 acres. That’s an area the size of Lake Washington. This figure is based on USDA Census of Agriculture numbers from 1997 and 2002 (currently the most recent data).
But what if conditions are changing—perhaps improving or possibly growing even worse? What impact does this trend have on the profitability of today’s actual farm businesses? And how widespread are these impacts, across our state, right now?
American Farmland Trust (AFT) has argued for years that high land costs are driving good farmers out of business by forcing them to place their land on the market. For a farm business, land is not a luxury—it is an essential business asset whose value is determined by what it can produce in marketable food or fiber. Unfortunately, the actual market value of land is often driven instead by non-farm uses—by what that land can produce in the way of residential, commercial and industrial development value.
When that happens, new farmers cannot enter the business. Existing farmers cannot expand. And long-term investments in needed farm business infrastructure can become unrealistic. So, as the market value of farmland rises above its productive value as a farm business asset, its loss to development at some point in the future becomes almost inevitable.
But how much of our existing farmland is in that situation? How many of today’s farmers are already faced with such no-win investment decisions? How many are forgoing vital investments in the future of their farm businesses because they know that the future buyer of their land will almost certainly be a non-farmer who neither wants nor is willing to pay for the farm business “improvements” that those investments have purchased?
Even if no such investments are needed, and even beyond normal land ownership costs like taxes, maintenance and insurance, land also has an annual carrying cost measured by what the same money could earn in an alternative investment. A 100-acre farm parcel worth $300,000 for agriculture at, say, six percent interest might have an annual carrying cost of about $18,000. This cost will be shown as an expense on the farm’s annual income statement.
Suppose, however, that the actual fair market value of that 100-acre parcel is actually $2 million rather than the $300,000 that a viable farm business could afford to pay. Then that annual business expense, still at six percent, rises from $18,000 to $120,000, an increase that can easily push the business into the red.
So we at AFT asked ourselves, “Might there be a way to measure how many of today’s farmers are daily faced with these kinds of land-versus-business investment choices?” How much of our current farmland is vulnerable to future development because it has acquired a fair market value that exceeds its value for agriculture?
In the state of Washington, we are fortunate to have a fairly straightforward way to find the answer. Our state’s tax system allows a farmer to pay property taxes only on the “current use” or agricultural value of the land—not on the market value. To be eligible, a property must be in active, current agricultural use. When a landowner applies, the county assessor does a dual appraisal on the land, finding both its value for agriculture and also its possibly higher fair market value. The farmer then pays property taxes on the lower “current use” agricultural value. This can be a nice benefit over time—especially if the value differential is substantial. The purpose of this program, of course, is to encourage landowners to stay in agriculture and to prevent the tax system from being one of the forces that drives them out of it.
The counties report this information annually to the Washington State Department of Revenue. So there is a county-by-county and a statewide record of the total acreage in this program, and there is a record of the differences between the current use value and the fair market value of the lands enrolled.
Since enrolling in the program saves taxes, the vast majority of farmers who are eligible do enroll. And since there is no point to enrolling if the current use and fair market values are the same, these Department of Revenue figures provide at least a rough measure of how much of our farmland has a market value that exceeds its fair market value, and by how much.
The results of our analysis were staggering. We found that:
- Some 75 percent of Washington’s active farm and ranch land had a market value that exceeded its value for agriculture. (11,386,848 acres in current use program; 15,175,710 acres in active agriculture.)
- The average agricultural value of the lands in the current use system was less than 30 percent of their average total fair market value. (Total fair market value of lands in current use program: $10.04 billion. Total agricultural value of lands in current use program: $2.99 billion.)
Another surprise was that the problem was as common in eastern Washington as it was on the westside (although the average difference in value was less). One might speculate that agricultural values for the vast acreages of non-irrigated farm and rangeland in eastern Washington is sufficiently low that it is easily overbalanced by demand from recreational purchasers. It also may be significant that much of what remains of active agriculture in western Washington is in floodplains which are, of course, difficult to develop. But whatever the reason, the message was clear—there is no eastern Washington exemption from this problem. It exists everywhere in our state.
These data are, of course, imperfect. There are landowners in the current use program who probably shouldn’t be. And there are landowners who do not apply for the program who clearly could. In addition, the total agricultural lands figures came from USDA’s Census of Agriculture, obtained with a method that differs from that of the Washington current use program. So the numbers must be treated as rough approximations.
Nonetheless, if anything like the estimated 75 percent of Washington’s farmers is struggling to survive and prosper against the challenges of overvalued land, the threats to the future of our agriculture industry are enormous.
Farming is tied for first place with aerospace as the top industry in the state of Washington. Numbers like these highlight the importance of decisive action to assure that there will be an affordable land base to sustain this critically valuable industry in the years to come.