Although many people assume farmers own their land, the USDA’s Economic Research Service estimates that about 39 percent of farm acreage in the continental U.S. is leased by the land operators. The actual owner is often an investment firm or mutual fund that specializes in financing landholdings. While only about 28 percent of pasture land is leased, 54 percent of crop farmers work on rented land.
So who are the owners of this farmland? One answer might surprise you: While trying to track down who recently purchased 14,500 acres of choice farmland in Washington state’s Columbia River Basin, researchers at The Land Report discovered the new owner was Microsoft co-founder Bill Gates.
More surprising, however, was the fact that Bill and Melinda Gates own more private farmland than anyone else in the United States—to the tune of 242,000 acres. That’s a lot of land for this re-invented Farmer Bill, and it begs the question: Why do Bill and Melinda Gates own so much of the American agricultural sector?
There seem to be a few reasons behind the Gates farmland purchase and its massive investment in prime Washington state farmland. While few of us have the backing of an investment firm that bears our name, we can still glean important lessons about the benefits of a farmland portfolio from the decisions of one of the richest men in the world.
Diversifying the Gates Investment Portfolio
In March 2022, Investopedia reported that Bill Gates is the fourth-richest person in the world, with a net worth of $127 billion. While Elon Musk and Jeff Bezos kept their respective first and second spots on the list, Bernard Arnault rose above Bill Gates on the most recent list as the owner of the top-tier LVMH luxury goods company. His current net worth is $155 billion.
While these billionaires certainly spend a portion of their wealth, they also invest plenty of money in the stock market and in addition to alternative investments. The latter category includes both global and American farmland as a strategy to build diversified investment portfolios that can stand the test of time (along with equity market ups and downs).
Starting in the mid-1990s, Bill and Melinda Gates wanted to diversify their investment group to place less emphasis on their Microsoft holdings. Over the past decades, the Gates estate has been buying more farmland, as well as a range of other asset classes. Often, as part of their overall philanthropic vision, their farms employ advanced techniques designed to improve sustainability and support future food needs worldwide.
This isn’t unusual in and of itself. Prime farmland has long been considered a solid investment opportunity that can provide steady, non-correlated returns, diversification, multiple revenue-generating opportunities, and built-in scarcity, plus provide a hedge against inflation. This is perhaps the main reason why a large portion of private farmland is owned by leading investment firms, including pension plans and life insurance companies like John Hancock.
But what is Bill Gates really up to with all these farmland purchases? And how can you take a lesson in agricultural economics from his farmland portfolio?
Encouraging Sustainable Practices in Agriculture
Besides enjoying the steady, long-term returns from their investments in private farmland, part of what the Gateses are doing is furthering their philanthropic aims to make the world a safer, healthier place for everyone.
The Bill and Melinda Gates Foundation has put billions of dollars into anti-poverty efforts and better healthcare and well-being for people everywhere. The foundation has been deeply involved in fighting polio, malaria, Ebola, and, more recently, the coronavirus. But it’s also safe to say sustainable agriculture is becoming increasingly important to Bill Gates.
On the philanthropic side of the equation, the Bill and Melinda Gates Foundation has a new initiative called Gates Ag One, which “…aims to speed up efforts to provide smallholder farmers in developing countries, many of whom are women, with access to the affordable tools and innovations they need to sustainably improve crop productivity and adapt to the effects of climate change.”
On the investment side of the equation, much of the Gates fortune is invested through a company called Cascade Investment LLC, which is the parent entity that now owns all of that farmland. One of the many entities within those investments is Cottonwood Ag Management.
This subsidiary is an inaugural member of the 13-member Sustainable Agriculture Working Group of Leading Harvest, a sustainable agriculture organization.
It has launched a new Farmland Management Standard “…created by and for all stakeholders across the agricultural value chain—from farmland owners to companies to communities” to sustainably advance agriculture from the ground up.
Sustainability may well be a sincere concern for Gates. He’s certainly dedicated an immense sum of money to it in other areas. And with farmland, the longer your farm assets can sustainably produce, the more overall return you’re going to realize.
As a result, anyone with exposure to agriculture over a long time should show a serious interest in how the land is managed to maximize productivity and life span.
Why Does Sustainable Farming Matter?
According to a report from IBM, we need to amplify existing agricultural productivity by nearly 70 percent by 2050 to accommodate the projected global population of 9 billion people.
As the nation’s largest private farmland owner, Bill Gates is in a unique position to sustainably improve crop productivity and help other farmland owners adapt to the planet’s environmental challenges.
Scientists have called for institutional investors interested in sustainable farming to focus on these key global needs:
- Reducing pollution and conserving the environment to protect waning resources and acres of farmland, decrease the use of harmful chemicals, and increase access to renewable energy sources for small farmers
- Decreasing the environmental impact of delivering food from small farmers to the local community and supporting the increased global demand for food
- Innovating within worldwide and American agriculture sectors to gather data that can inform smart planning for row crop farmland, including sensors within spreaders, seeders, and even soil, as well as the use of satellite drone imagery
- Scaling food production while maintaining responsible stewardship of existing farm acreage
According to the American Farmland Trust, more than 2,000 acres of agricultural land become commercial or residential real estate every day in the U.S. alone. What’s more, Modern Farmer reports that about 31 million acres of farmland succumbed to development in the two decades from 1992 to 2012.
It’s no wonder that the National Young Farmers Coalition says that land access is the biggest barrier for young people who want to become farmers. Despite this scarcity, however, some farmland is fluid.
The USDA estimates that 93 million acres, representing 10 percent of all American farmland, changed hands from 2015 to 2019 alone. A focus on sustainable farming will help protect the remaining acres and ensure sufficient food production for projected global population growth.
What Can We Learn From the Land Report?
If you’re interested in learning more about land ownership, agricultural land, farming investments, and proponents of these types of alternative investments such as Bill Gates, The Land Report magazine provides a wealth of information of interest to local farmers as well as those who invest in the agricultural sector of the stock market.
The magazine also issues the annual Land Report 100, which ranks investors, entrepreneurs, forest owners, ranchers, farmers, and others who own at least 243.75 square miles of domestic land. According to the 2021 list, the nation’s largest farmland owner is still Bill Gates, but the Gates Foundation ranks lower when it comes to overall land ownership of any type.
Elsewhere on the list, the Emmerson family of California owns the publicly-traded company Sierra Pacific Industries. With an acquisition of Seneca Jones Timber last year, they became the owners of the most American land, with more than 2.2 million total acres of timberland.
The most recent version of the Land Report also profiled the intensive industrial farming techniques of Florida Crystals. The Fanjul Family has been building a reputation as superior agricultural managers for more than five decades, supporting environmental innovation with features like bird boxes and laser leveling techniques.
What Land Ownership Lessons Should You Learn From Bill Gates?
Savvy investors can learn from the Gates Foundation even if you are not looking to buy farmland in the state of Washington. These are some of the top takeaways when you consider Bill Gates’ investments in the agriculture sector.
Take advantage of tax breaks
If you want to invest like a billionaire, you need to use your land purchases to offset your tax burden. Before purchasing large tracts of land, think about how these investments can provide April 15th advantages.
Most U.S. states offer specific incentives for farmland owners, including property and sales tax exemptions, land depreciation credits, land conservation trust easements, and the ability to defer capital gains tax with a 1031 exchange.
Tax advantages differ for passive vs. active farmland owners. For example, purchasing farmland through a self-directed retirement account is an attractive diversification option for many, and you can do so even in under-the-radar countries with strong agricultural potential. But these tax savings in retirement accounts are only available to those who do not farm the land themselves. The IRS specifies that the account holder cannot work on the farm in any capacity or the entire IRA or 401(k) may become subject to tax.
However, if you plan to operate a working farm on the land you own, you can still deduct the cost of supplies, equipment, and other needs. Talk to an experienced tax accountant to understand the IRS impact of adding farmland to your portfolio.
Bill and Melinda Gates decided to shift some of their private investments in Microsoft to farmland as a diversification strategy. Even without a huge fortune, you can use this technique to help your own investments thrive, even during economic downturns.
Farmland and crops are a very effective hedge against inflation, which means their value remains steady or even rises as stock market holdings and other investments decrease in value. As a result, farmland helps reduce risk in your portfolio.
Furthermore, emerging agricultural powerhouses abroad can provide powerful diversification with relatively low risk and high rewards. For example, farmland in Colombia delivers high returns with multiple geographic and trade advantages, low capital requirements, and tax incentives.
Create multiple streams of income
Farmland is far from a one-size-fits-all investment. You don’t have to understand how to run a business in the agriculture sector to benefit from agricultural economics. Other potential income streams you can derive from farmland include:
- Building equity from land ownership as the value of farmland rises over time
- Saving money on your taxes by establishing a conservation easement
- Buying shares in a real estate investment trust that focuses on farmland and pays regular dividends
- Selling crops to the local community
- Hosting events such as weddings, food tastings, and community fairs
- Consulting about farm operations and farmland investments
- Renting out all or part of the land
- Leasing farm equipment to other local landowners
- Teaching lessons, workshops, and demonstrations
Should We Be Concerned That Bill Gates Owns So Much Farmland?
The answer to this question is both yes and no. When critical assets such as farmland become increasingly controlled by fewer and fewer people, there is always a cause for concern and vigilance. Will the farmland be managed well over the longest term possible?
Given the facts about what Farmer Bill appears to be interested in as far as advancing sustainable agriculture, there doesn’t seem to be much cause for concern. The phrase “doing well by doing good” comes to mind, and for all intents and purposes, that’s what Bill and Melinda Gates appear to be doing.
However, there is still reason to pause and consider another angle. If all the private farmland gets snatched up by the billionaires of the world, where does that leave everyone else who wants to own farmland? Not everyone can deploy capital on the scale that Gates can, but there are ways to invest in farmland with less upfront capital.
Fill out the form below to learn how the world’s most valuable asset class, and one Bill Gates finds highly rewarding, can be added to your portfolio.