Farm Land and the Free Market; K. Ross

Kelly Ross fA FARMIf .I:L ~JI~ I I LAND Ji. AND THE --..:FREE MARKET ONE OF THE ISSUES currently finding favor with the media is the fear that America's farm land is disappearing at a perilous rate due to urban sprawl. Sources as varied as U.S. News & World Report, Saturday Re view, and NBC News, are reporting in vivid detail that four to twelve square miles of the nation's prime agricultural land are being lost ev ery day. A booklet entitled Where Have the Farm Lands Gone? by the Federally funded National Agricul tural Lands Study tells in words and pictures how Florida will lose vir tually all of its unique and prime farm lands by the turn of the cen tury if present trends continue. Farmers in New Hampshire and Rhode Island should be alarmed to Mr. Ross, a former aide to Senator Mark Hatfield, was elected In 1980 as a member of the Curry County Oregon Board of Commissioners. learn that all of their farm land will also disappear in the next 20 years.

Those who are caught up in this panic argue strongly that the coun try's only salvation is a comprehen sive effort by local governments, aided by state and Federal agencies, to preserve resource lands through land use plans. R. Neil Sampson, Executive Vice President of the Na tional Association of Conservation Districts, goes even further to advo cate a new "land ethic" brought about by "education and social evolution to change the way Americans think about land." The discussion of a decreasing cropland inventory in particular and comprehensive land use planning in general often begins with a misun derstanding of economic principles and agricultural statistics. Land is a productive resource and as such is 629 630 THE FREEMAN October also a commodity, subject as any other to the same free market pres sures of supply and demand. Before delving further into the economics of land use, it is worth while to debunk some of the statis tics used· to make the claim that prime agricultural land is disap pearing ..The figure quoted most of ten is that three million acres of farm land each year (or 12 square miles each day) are being lost. This assertion is derived from a study published in 1977 by the U.S. De partment of Agriculture's Soil Con servation Service which found that during the eight years between 1967 and 1975, 25 million acres of rural land (not just farm land) had been converted to other uses. Only 700,000 acres of actual cropland, the agency concluded, went out of use annually.

It is interesting to note the compo sition of this yearly three-million acre conversion. Only 900,000 acres went into urban and transportation use; 800,000 acres were abandoned because of low soil fertility or a ter rain unsuited for efficient use of modern machinery; one million acres were converted into additional wil derness recreation areas and wild life refuges; and 300,000 acres were utilized for reservoirs and flood con trol. The Soil Conservation Service's results have not found universal ac ceptance by the scientific commu nity. The Regional Science Research Institute, for example, attempted to confirm the estimates by using in dependent estimates of rural land conversion. Their findings showed a substantially lower conversion rate since 1970 than that projected by SCS. In addition, there is the prob lem of the system by which SCS de fines agricultural land. The Land Capability System had its roots in the Midwest and Great Plains area following the "Dust Bowl" days of the 1930s. Developed to point out the hazards and limitations of using soil on a long term basis for culti vated crops, its main purpose was to help prevent soil losses which affect productivity. The system basically shows degree of hazard or limita tion, but does not meaningfully ad dress the productivity of different soils which is so important.

Creating Cropland Those who raise the alarm about the loss of farmland always seem to ignore the other side of the issue. There is a large amount of land con verted to agricultural use through irrigation or reclamation of previ ously unsuitable areas. In various parts of the United States cropland is being created at the rate of 1.25 million acres annually, resulting in an actual net gain. The increase can be seen in the latest Census of Ag riculture conducted by the U.S. De partment of Commerce showing that total cropland jumped from 441.9 1981 FARM LAND AND THE ·FREE MARKET 631 million acres in 1974 to 460.1 mil lion acres in 1978. Even the essen tially anti-growth Global 2000 Re port to the President expected this trend to continue into the next cen tury when 513.8 million acres of ar able land is projected to be in use. The statement by the National Ag ricultural Lands Study that Florida, New Hampshire, and Rhode Island will lose all their farm land in the next 20 years is contrasted with the fact as reported by the Census of Ag riculture that the total number of farms. have increased in Florida by 3.4% and by 5.6% for the entire New England region over the last four years.

The reasons for these gains bring the discussion back to economics. While many believe land to be a "special" resource requiring regula tion to be preserved, in reality it is no different from any other resource subject to the creative genius of man. A relevant point made by Julian Si mon, professor of economics and business administration at the Uni versity of Illinois, is that contrary to the popular conception, much of the valuable corn and soybean acreage of Illinois was once a "malarial, wa ter-logged, unproductive swamp." The labor of pioneer farmers, moti vated by a demand for their product, was responsible for transforming a useless bog into a fertile garden feeding not only America, but the world as well. Use Allocated by Price Very simply, in a free market sys tem of allocation, the use of land is determined by whatever brings the highest value. It would be contrary to rational thought to put any re source to a use other than that for which it is most desired. To do so would be as foolish as relegating a prize race horse to pull a plow.

Some may grumble about seeing condominiums occupy soil from which green rows of crops previ ously grew, but this is an indication that the land is or will be more valu able to the developer than to the farmer. If it were not, the farmer would not wish to sell and the devel oper could not afford to buy. A series of such exchanges will reduce the supply of available farm land and, in turn, activate other market mechanisms resulting in an in crease of its price. The higher price will enable the farmer to resist fu ture offers from developers, give in centive to take the necessary mea sures to put other land into production, and spur technological and scientific advances. There are statistics to confirm this chain of events. According to Stan ley Miles, agricultural economist at Oregon State University, between 1950 and 1980 production of food and feed grain nationally more than doubled while using less land. Par allel to this increase in yield is the fact that even adjusted for inflation, 632 THE FREEMAN October the price of farm land more than tri pled in many parts of the country from 1955 to 1977.

As a land use study group in Ore gon recently concluded, "far from being random in the establishment of land use patterns, the market has performed with unsurpassed excel lence by any standard of production or efficiency." This smoothly flowing efficiency can be quickly interrupted by the imposition of centralized planning and controls by govern ment. According to Ernest Eber in Urban Planning in Transition, cen tral planning is "based on the con cept that the utilization and alloca tion of all resources would benefit from the establishment of deliberate goals by public authority to be achieved through systematic control of development by governmental agencies." Paying for Mistakes Whereas the market is constantly changing to achieve the highest value for land, the basic feature of the centralized planning system is to rely on a group of "planners" to determine the greatest need now and into the future for an area and to fit that need so as to conform with other surrounding property. The underly ing assumption is that accurate in formation is available to produce a reliable land use plan which will be workable for many years to come.

Public sector planners, however, do not have the same incentives of the private investor to attain a high de gree of accuracy. If an entrepreneur makes a faulty judgment he will have to bear the full weight of his error, but the miscalculations of the plan ner are dispersed among all mem bers of society. These miscalcula tions are usually translated into costs, and a unique set of costs is generated by government interven tion in the free market allocation of land. The State of Oregon is generally recognized to have the most compre hensive land use planning laws in the nation. The costs of these regu lations, created by the state legisla ture in 1973, are now becoming evi dent. The Brookings Institution has projected a massive housing short age in the state due to planning re quirements that all future develop ment must be confined within urban growth boundaries. Anthony Downs, a senior fellow at the Institution, has stated that Oregon's style of planning creates a "quasi-monop oly" for those who hold vacant land inside such a boundary. The result is a reduction of competition in the housing market, producing an in crease in prices. "The only way to reduce cost is to increase the total body of housing units," observed Downs who predicted that the great demand for single-family suburban type dwellings would continue well into the 1980s as couples born dur1981 FARM LAND AND THE FREE MARKET 633 ing the baby boom of 1954-64 come of age. To corroborate this theory further, a recent comprehensive survey of literature on the impacts of government land use regulations by the Council of Planning Librari ans concluded that "increased land use and environmental regulations have contributed to the rapid esca lation of housing costs."

Consideringthe Costs of OptionsCurtailed By definition, any discussion of ways to stop the conversion of farm land must reduce the power of a farmer to determine the fate of his own property and this must also be considered a cost. Although many farmers want to remain on the land, they also want to be free to sell their property at a handsome profit. One authority close to the subject has been quoted as saying, "All too often a farmer's land is his hospitalization plan, insurance policy, child's col lege tuition, or personal retirement fund. Consequently, farmers are concerned about compensation when land use controls are established that they perceive as limiting their op tions, including sale or develop ment." Limitations imposed by the Cali fornia Coastal Commission, which also seeks to preserve agricultural land, have actually forced some farmers out of business. In the past when a bad crop made it difficult to repay debts, solvency could be main tained by selling a few acres of land.

Now, however, regulations forbid the parcelization of cropland and force the farmer to sell all his property or go bankrupt. A Supreme Court decision earlier this year serves notice to govern ment bodies that extreme care should be exercised when enacting land use regulations which limit a property owner's rights. The case of San Di ego Gas and Electric Company vs. City of San Diego, in which the util ity brought suit against the city for changing 39 acres from an indus trial zone to agricultural, saw the landowner claim that he had been deprived of the entire beneficial use of his property. A decision was with held because of the technical error of a lower court, but Justice Bren nan's dissenting opinion (joined in by Justices Stewart, Marshall, and Powell) concluded that downzoning or other forms of prohibitory regu lation which deprive an owner of all or most of the beneficial use of his property could constitute an illegal taking even if the deprivation was only temporary. In such cases, the four justices ruled, compensation must be made. The majority opinion itself indicates that there may be other members of the court who agree that excessive controls can consti tute taking when it ended by saying, "We are frank to say that the Fed eral Constitutional aspects of that 634 THE· FREEMAN issue (taking by regulation) are not to be cast aside lightly."

Several. northeastern states· have tried to solve the problem of com pensating landowners by purchas ing development rights (PDR). The purchase of development rights to a property is equivalent to acquiring an easement with the value being defined as the difference between the market value of the land and its value solely for agricultural pur poses. There are two basic ap proaches to PDR programs: to ac quire them directly through purchase or donation or to purchase the prop erty in full fee, impose restrictions on its development, then sell or lease the land to a new user, subject to those restrictions. The one draw back to PDR programs is their high cost, a serious obstacle in an era of budget constraints. New Jersey abandoned its efforts after it became clear that significant amounts of farm land could not be purchased within a $5 million budget. New York's Suffolk County has to date spent $10 million on development rights for 52 farms totaling 3,300 acres.

Those who advocate government intervention to stop the imagined loss of farm land threaten to throw into confusion the very system that has enabled American agriculture to attain its present degree of excel lence. Instead ofplacing the future of the nation's farm land in the hands of publicly employed planners, re sponsibility should be left with the individuals who know the land and its potential best. We have only to look to the Soviet Union for an ex ample of what happens when cen tral planning replaces farmers as stewards of the land. By law, no So viet citizen can farm a private plot larger than one acre, but because of the gross inefficiency of the large collectives, private farmers working only 1.4% of the country's arable land produce 61% of its potatoes, 34% of the eggs, and 29% of the meat, milk, and vegetable output. The theory expounded by Adam Smith over 200 years ago that the individual seeking his own eco nomic benefit will also benefit soci ety as a whole is just as applicable today to the farmer and the use of his land. ® IDEAS ON LIBERTY Sir William Blackstone EVERY wanton and causeless restraint of the will of the subject, whether practised by a monarch, a nobility, or a popular assembly, is a degree of tyranny.