- Forty-four (44%) of farms in the United States are farmed by persons who do not own the farm, through lease arrangements between landowners and farmers
- Cash rents have escalated recently to more than $100/acre, yet many lease arrangements are share-crop arrangements where the land is leased for a percentage of the yield, rather than an up-front cash payment
- Landowners leasing their farms for a percentage of the yield are hurt in the same way farmers have been hurt by the drop in corn prices, and have a claim against Syngenta for their lost corn income in the form of reduced rental payments made with crop yield shares.
- Landowners leasing the farms on a cash payment were not hurt during the year of the price drop if they indeed received their cash rent payments; however, many landowners have been forced to reduce their cash rent payment rates due to the drop in corn prices. Those landowners have a claim against Syngenta for their lost corn income in the form of reduced cash rental payments.
According to a published statistical brief entitled, Who Owns America’s Farmland,? the Bureau of the Census reports that “[t]he U.S. has nearly 3 million owners of farmland. Half are operators that farm all the land they own and another 6 percent farm part of their land and lease part to other farmers. The remaining 1.3 million owners, or 44 percent, only rent land to other farmers; they do not operate farms on it.” Specifically, ”approximately 240,000 farms and ranches across the United States are contracted for their total acres operated and acres rented for cash for each land use category (irrigated cropland, non-irrigated cropland, and permanent pasture) for the current year.”
Companies exist that do nothing but help to facilitate leases between farmland owners and farmers. For example, U.S. Farm Lease Company’s website states that “US Farm Lease is a unique Farmland Lease company that specializes in providing land services to absentee and non-operating landowners. Our mission is to create and maintain long term relationships between owners and operators by developing fair and market-based lease agreements while providing our clients with the information, knowledge and tools they need in order to achieve all of their farmland goals.”
With respect to cash rents, unprecedented profitability in grain farming in the U.S. has led to an escalation in cash rental rates. USDA statistics show that average cropland cash rent by year in the United States has risen from about $70/acre in 2001 to over $100/acre in 2010. However, many in the industry prefer crop-share arrangements, whereby the land is “leased” to the farmer in exchange for a percentage of the crop grown on the land. Advantages of crop-share arrangements over cash rent, include: (1) requiring less capital to be tied up by the operator; (2) allowing management to be shared between an experienced landowner and operator, resulting in more effective decisions; (3) sales of crops can be timed for tax management; and purchases may be timed to shift expenses of tax purposes; (4) risks and profits due to price fluctuations are shared between the two parties; and (5) a share-crop leases, where the landlord is recognized as providing “material participation” provides tax advantages with respect to estate tax purposes, self-employment tax purposes, and increasing tax management options under I.R.S. Code, Section 179.
If falling farm prices reduce the price achieved for one’s corn crop, can only the farmer file suit against Syngenta for its role in the reduction of the corn prices achieved? Of course not. Landowners who lease their farmland to farmers oftentimes have sustained losses as well, and therefore, may file suit against Syngenta for those losses.
With respect to share-crop arrangements, the damages to be claimed are obvious. If 100,000 bushels is produced off the land, and the landowner and farmer have a 50-50 arrangement concerning the crop produced, the landowner has been harmed in an identical manner as the farmer when the price of corn dropped. With respect to cash rent arrangements, if the cash rent was received even though the price dropped, the landowner was not harmed during that crop year. However, anecdotal examples have been communicated throughout the corn belt of cash rental rates dropping precipitously along with the drop in corn prices. Thus, if a landowner has received $100,000 in cash rent for 10 years (2004-2013), but the farmer can no longer pay that rent due to the drop in corn prices in 2013, and consequently the rent paid is lowered for crop years 2014 and 2015, land owners may have a claim against Syngenta for the drop in cash rents achieved during years 11 and 12 (2014 and 2015), the years after Syngenta’s are alleged to have played a role in the drop in corn prices.
In the GMO Rice case settled for $750 million, farmers filed suit independently, and landowners did as well. A farmer may file suit for his or her losses, regardless of whether the landowner participates. Likewise, a landowner suffering lost rental income may file suit against Syngenta as well, regardless of whether the farmer participates.
Mikal C. Watts
WATTS GUERRA, LLP
Four Dominion Drive, Bldg. Three, Suite 100
San Antonio, Texas 78257
* This information is provided to supply relevant information concerning the GMO corn lawsuit, and should not be received as legal advice. Legal advice is only given to persons or entities with whom Watts Guerra LLP has established an attorney-client relationship. If you have another lawyer in the GMO Corn lawsuit, you should consult with your own attorney, and rely upon his or her advice, rather than the information contained herein.