Can direct seeding increase the value of land?

It is well documented that soil health practices such as no-till and cover crops can benefit the environment and farmers’ wallets, but can they also make farmland more valuable when sold?

Several institutions are currently addressing this issue, including a nonprofit organization in the Midwest and Cornell University.

The Delta Institute has launched a pilot project to test a method that would allow assessors to accurately evaluate farmland where various soil health measures are in place, while Cornell University is conducting complementary work examining economic and policy incentives that could encourage farmers to address long-term soil health.

William Schleizer, CEO of the Delta Institute, says current land valuations only use soil type to estimate the yield from the land and thus determine its value.

To determine the value of a property – even for agricultural land – comparative values ​​are largely used, says Schleizer.

“It’s a fairly simple and straightforward approach and allows an appraiser to adjust a value based on soil characteristics – sand, silt and clay content – location and market trends,” he says. “The problem is that soil health is not considered as a differentiator when determining the value of a property.”

“In some places there is little financial incentive for farmers to invest in measures that improve soil health,” he adds.

Consideration of soil health

The institute has launched a pilot program in two U.S. states – Illinois and Michigan – to test an alternative method that allows appraisers to take soil health into account when determining property value.

The aim, says Schleizer, is to optimise a system for assessors that is useful, accessible and fair.

Lucas Chamberlain, senior program associate at the Delta Institute, says there are still challenges to be overcome. For example, while tests for soil fertility and plant-available nutrients are widely available and affordable, this is less the case for tests for soil health indicators. This is where a bottleneck has been identified.

The bigger challenge, however, is that farmland prices – especially in Illinois – are still rising.

“We expected them to at least be flat, but even in the current quarter of January through March 2024, they’re still up despite tightening farm credit conditions and falling farm incomes – or at least projected falling incomes,” Chamberlain says. “So we’re seeing that the Illinois agricultural real estate market is still very, very strong and that there may be less incentive for producers to adopt conservation measures.

“It’s like putting the cart before the horse, because at the moment the incentive is still that I can only get the premium for my country based on the productivity index that is being institutionalised in this process. That could also be an obstacle,” he adds.

Overcoming “cultural stagnation”

The Institute has been working on this issue for several years and recently produced a report entitled “Land Value and Soil Health and Cropland Appraisals” which goes into the issue in more detail.

Schleizer says that appraisers are largely responding to demand from people conducting real estate transactions, and that the current settlement system is the easiest way to move a real estate transaction forward quickly.

“And what we found is this kind of cultural stalemate,” he says. “Simply because of the cultural norms that are in place now, that’s kind of the standard. But there are ways to change that if you coordinate with the people who are doing these transactions and ask the assessors to do that for them. So we’ve been focused on thinking about those strategies to make this a more standardized process that incorporates soil health and what those mechanisms might look like.”

Why it is important

The institute claims in its report that there are no market-based drivers to actually maintain the value of arable land when managed with a focus on soil health.

Valuers may even have difficulty accounting for land that immediately loses value when sold. For example, if an unplowed field is suddenly ploughed, how will that be accounted for?

Schleizer says the key is to implement a mechanism that takes this into account in the next assessment.

“So it’s really about the intention as to when the report should be used in the context of the property valuation and when not,” he says.

At Cornell, researchers are studying how soil health affects farmland prices, how farmland owners can better promote the soil health of their properties when selling them, and what policy solutions exist.

To understand the attitudes of buyers and tenants towards soil health when purchasing or leasing farmland, the University is conducting a survey of potential land buyers and tenants.

Anyone interested in participating in the soil health and farmland survey can use the following link: cornell.ca1.qualtrics.com.