Minnesota foundation gets into cropland rental business

A childhood friend who has been farming his whole life told me not long ago he was worried about losing most of his land.

He’s a successful corn and soybeans farmer in southern Minnesota who has done very well for himself and his family over the decades. He’s not the victim of a scam or some bad financial moves, and he’ll be fine, no matter what happens.

But he rents most of the 1,000 or so acres he farms, and the owners are getting quite old. When they die, there’s no telling what the heirs might do with the land. My friend assumes they would sell, but he figures he’s too old to take on the debt involved. It could easily pass into the hands of an absentee owner with other plans. He in turn might be forced into retirement before he’s ready.

The Southwest Initiative Foundation is trying to step into situations like my friend’s in an effort to keep renters on their land and generate income for itself. Through a new program it calls Farmland Retention, the foundation has gotten into the land rental business and stands to generate substantial income in coming decades that it could then spend on other programs in the 18-county area it serves in southwestern Minnesota.

The foundation, based in Hutchinson, has started soliciting gifts of farmland so that it can continue to rent to existing tenant farmers. The donors get a considerable tax break, tenants stay on the land and money stays in the community.

Sherry Ristau, president and chief executive officer of the Southwest Initiative Foundation, says that between now and 2030, $4.5 billion of wealth will be transferred from one generation to the next in southwestern Minnesota.

Here’s a breakdown of that money by county:

swif transfer.JPG

Much of that value is in farm land, and many owners will pass it on to heirs who live elsewhere. Often the end result — whether it’s via corporate ownership or another outcome — is that farmers who have rented for years will no longer be able to continue to do so, and money leaves the area.

According to the U.S. Department of Agriculture, a third of the farms in Minnesota include at least some rented land. Landowners often have close and long-term relationships with their tenants, and for many it’s important to preserve that even after the land changes hands, Ristau said.

So far, the foundation has received two parcels, both in Cottonwood County near Windom, totaling 350 acres. It’s working on a third deal that would almost double the holdings.

“Usually when a foundation gets a piece of land, they sell it,” Ristau said. Her foundation is apparently the first in Minnesota to want to hang on to the land and make money by renting it out as active farmland. The foundation can’t promise in writing that it will keep the current tenant on the land, but keeping it in farm production with the same tenant is the goal.

So far this year, the foundation’s land is growing corn and beans and, in an area where cropland brings from $200 to $250 a year per acre in rent, is generating about $58,000 to use for other purposes. The foundation rents at market value and pays the normal property taxes.

“We want to make sure the wealth stays here.”

Ristau says the project could become a critical tool for rural philanthropy and thinks other foundations will follow suit, particularly as the wealth transfer numbers accelerate. She talks about attracting 5 percent of the total transfer, which theoretically would amass more than $200 million for the foundation in the coming decades.

Lakefield attorney Pat Costello has been an architect behind the effort. He said a key legal shift a few years ago in Minnesota created an exemption to the state’s anti-corporate farming law, making it clear charitable organizations can own farmland.

He thinks the idea is beginning to take hold nationally, too, as it becomes clearer that foundations and other charitable organizations can own farmland to generate revenue.

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