May 21, 2015

By Dan Emerson

Throughout history, advances in technology have enabled farmers to steadily increase productivity. But as capital investment in both global agriculture and agricultural technology (agtech) gains momentum the question arises: what impact might technological innovation have on farmland values?

The relationship between technological advances and land values “is a little complicated to observe directly,” says Dr. BruceSherrick, who is the Marjorie and Jerry Fruin professor of land economics, and director of the TIAA-CREF Center for Farmland Research at the University of Illinois. “Normally, technical innovations aren’t necessarily meant to reduce costs. Some of them cost more but create more output. We can’t say a better planter can add $21 per acre to the value of a piece of land. It’s a very, very complex system.”

Sherrick says farmland values are largely determined by peoples’ expectations of future income, and those expectations evolve very slowly. “Even if you change farm income in one period, it takes a while for people to understand and change their perception of what can generate income.

“It’s very clear we are improving the way we do many, many (on-farm) operations and make input-selection decisions related to production, and technology is a big part of that,” Sherrick says.

He’s counted more than 10 companies currently working on developing high resolution, high frequency observational data to make decisions about farming that couldn’t have been made five years ago.Farmers’ increasing use of these technologies is leading to much more effective decision-making, Sherrick says. Over time, the ability to make better input decisions helps improve the reliability and level of farm income, he notes. “Then, people eventually adjust their expectations upwards. It’s an evolutionary, rather than quantum, change.”
Rather than helping to increase land values, farmland buyer Shonda Warner points out that, under certain circumstances, technology could have the opposite effect. While technology is important to agriculture, it must be understood and considered in combination with demand. A certain GPS technology might reduce overall labor costs, provide savings and lead to higher yields. But if there is not market demand for that increase in yield, technology can have a negative impact on price, says Warner, who is managing partner at Chess Ag Full Harvest Partners, LLC.

“Technology has to be considered along with all of the other factors, to assess its impact.”

A New Interface Between Technology and Farmland

Sherrick expects that technology will eventually impact farmland values in another way: by making farmland valuation information and electronic trading more easily accessible.

In spite of the impact of the internet and information technology in expediting the trading of stocks, bonds and other assets, farmland ownership still “turns over” very slowly – about one percent per year. But data vendors have been developing online databases of land price information –the ag equivalent of Zillow and Trulia –as tools for land buyers and sellers.

“As a sector, farmland investing has not been ‘financialized,’ but information technology has improved the chance of that eventually happening – even if we don’t know what the time line will be,” Sherrick says.

Warner agrees this probably won’t happen anytime soon. About half of the farmland that is bought and sold changes hands without broker involvement, Warner says. “I don’t think farmland will be widely traded as securitized assets are – although farmland REITs can provide daily liquidity to investors who want it.To expedite the flow of farmland price data, agriculture has a far more basic problem to solve: providing better access to Wi-Fi in rural areas. We don’t have that yet.”

To receive relevant news stories with summaries provided by GAI News, subscribe to daily or weekly service.