The value of social capital in farmland leasing relationships

The purpose of this paper is to investigate the impacts of social capital on the rate at which agricultural land is rented between landowners and tenants using data from the state of Kansas.

A survey of tenants provides data on the rental rate of farmland as well as characteristics of the lease, the land, and the landowner.

Results support the hypothesis of a negative impact on rental rates from longer-term leasing relationships. The model estimates a 10.0 percent discount relative to market rates when the leasing relationship increases from 11 to 22 years. At the sample average of $64 per acre, this is a $10 per acre discount.

Increased levels of social capital, as measured by the length of the leasing relationship between landowner and tenant, reduce the rental rate. A 10 percent increase in the number of years a parcel of land is leased to the same tenant will decrease the annual rental rate by 1 percent.

Research adds to the understanding of informal relationships underlying farmland leases. A large number of farmland tracts may turnover in the coming years. This turnover may affect the rental rates for tenants who have had long-term leasing relationships over time.