The Los Angeles Times came out with a story this morning about a recent surge in farmland prices. According to the Times, more and more investors are swooping in and gobbling up California farmland– including in the Central Valley– Contributing to a spike in land prices. Coupled with increasing Chinese demand for American produce as well as meager returns on traditional investments such as stocks, bonds and housing, farming has become quite attractive to investors looking to park their money in more lucrative sectors. However, many are concerned that the current boom in farmland is not sustainable, and will eventually lead to a bust. Sound familiar?
Living at ground zero for the foreclosure crisis, Stocktonians should instantly recognize this pattern. While the housing crisis and the current run on farmland represent two different sectors, the dynamics are the same: skyrocketing land prices creating unsustainable and artificial prosperity.
The way I see it, there are two takeaways relevant to our region. In the short run, burgeoning farmland values may mean that farmers are less likely to sell their land to developers. With housing prices still largely depressed, purchasing expensive farmland for the development of subdivisions becomes less attractive. Even if farmland has already been purchased, rising commodities prices could keep this farmland in production since farming is so profitable at the moment. The longer development at Stockton’s edges stagnates, the more time the city has to come up with a plan to mitigate against another housing boom and encourage investment and development in existing neighborhoods.
However, once this bubble bursts, the region could be devastated, just as it was when the housing sector collapsed. A sharp fall in prices could have far reaching effects across the state, especially in our region where agriculture is the primary industry. Further, falling farmland prices may encourage a shift to a more lucrative use, such as the development of houses, which this site advocates against.
Hopefully, a recovery of drought-stricken farms as well as impending changes in federal farm policy will temper the unsustainable rise in farmland price, blunting the effects of a bubble.