Agriculture: Higher Land Costs Make Profits More Difficult in Some Areas
Good news for local farmers: Prices for agricultural land in San Diego County are increasing.
Bad news for local farmers: Prices for agricultural land in San Diego County are increasing.
A recent study showed that agricultural land in North County is rising in value. But what it means varies, said Eric Larson, executive director of the San Diego County Farm Bureau.
Larson cited a study by the California chapter of the American Society of Farm Managers and Rural Appraisers, which reported that local avocado land has increased in value between 1997 and 1999. For both 1997 and 1998, avocado land was worth between $8,000 and $15,000 an acre, while in 1999, the range was between $8,000 and $17,000 an acre.
The difference is more noticeable for citrus, where land ranged in value from $7,200 to $18,000 an acre in 1997, from $7,200 to $20,000 in 1998, and from $9,000 to $22,000 in 1999, said James Wheyland, a Kearny Mesa-based agricultural consultant who wrote the study.
The cost of the land was increasing due in part to nearby urban encroachment, which raises the value of land throughout the area, Wheyland said.
The fact land prices are increasing should come as no surprise in San Diego. But its effects differ from farmer to farmer and from crop to crop, Larson said.
Farmers who are already established are not hurt by higher prices for land. They actually benefit slightly: Higher value for the land they already own means more equity, which in turn increases the amount of money they are able to borrow, he said.
This is especially important to family farms, Wheyland said.
“Most ‘pure’ farmers, or farmers who rely on most of their income from farming, look to the land as a storehouse of wealth for them. It’s a reserve that they can borrow against, it’s a retirement plan, and it’s their disability plan. And so, as land value increases, their wealth increases,” he said.
As their wealth goes up, so does their ability to invest in new equipment or improved irrigation, Wheyland said.
Meanwhile, the increased value of the land does not translate into substantially higher taxes. Unless a farmer improves the land, his property taxes remain fairly stable under Proposition 13, Larson said.
Possible Problems Loom
But the increased cost for land could spell trouble for farmers who are not already established. People looking to get into the business of farming often start out by leasing the land, and higher rents make it less viable, Larson said.
Among farmers who lease or who are looking to purchase new land, the local trend is to grow crops that produce more per acre and yield a higher rate of return , most notably nursery products, the No. 1 crop in the county. This gives farmers more leverage to later buy the higher priced land, he said.
Avocados and citrus, the No. 2 and No. 3 crops in the county, are not as viable. Unlike flowers, which bloom quickly for a rapid harvest and a quick return, tree crops don’t mature and produce a viable harvest for years, Larson said.
That makes it very difficult to grow these crops on leased land, or to purchase new land and grow these crops, he said.
“If the land is expensive, it’s more difficult to pencil it out and have it make sense to be a farming enterprise,” Larson said.At the bottom of the heap is milk production. There has been nobody new entering the business locally, and the trend among local dairy farmers is to move their business to the San Joaquin Valley, where they can produce more milk at less cost, he said.
Larson noted, however, that the increased cost for land may have a limited effect on farmers who lease. A landowner might be contemplating whether to sell the land to a developer, but until that sale goes through, the amount of money he can charge to lease is limited to what a farmer can afford, Larson said.
Wheyland pointed out that precisely because leasing land is less viable in San Diego County, that has actually pushed rents down.
“We long ago passed the point where there were a lot of competitors for leased land. And as a consequence, our rental rates are lower for comparable types of property than elsewhere in the state. And the reason is simply there aren’t that many guys willing to rent land,” he said.
Land speculators buying up agricultural land for eventual development often lease it to farmers for reasonable rates while waiting for interest from developers. This makes sure the land remains agricultural, and helps the landowner avoid potential land-use regulations, Wheyland said.