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The use of land may be acquired in two ways: (1) by ownership; (2) by rental. The form of rental varies with localities and systems of farming, but may be either cash or share. Sometimes combination cash and share rental is followed. The question is always before the farmer as to whether it is best for him to own the land or rent it. If he rents the land, which system offers the greatest advantages? These questions cannot be answered to cover all conditions and localities. It has been generally assumed that ownership tended toward the best returns from the land. It is a fact, however, that the best farming in the world probably, is carried on under a rental system. Much of the high priced land of Great Britain and of France is tilled by renters. The farming is intensive and the returns are very high. The advantages to the tillers of the soil in these cases lie in their ability to rent at a low figure. The owners of the land are satisfied to take their returns in "added nobility," which comes from owning land in these countries and from receiving the speculative value accruing in the rise of land. Whether it is best to own or rent, can be determined approximately by careful calculations of the probable crops and products to be grown and comparing these figures with the probable cost of growing them, and with the receipts that may be obtained from the market at hand.
It has been generally assumed by the American farmer that he should own his land. Encouragement has been given to this idea by the fact that through the Homestead Act and others, looking toward the settlement of the land, he has been able to secure possession of the land at low cost. Land values
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have been rising rapidly and farmers have been anxious to gain the appreciation. Another reason why farmers have preferred to own their land in America lies in the difficulty of getting satisfactory leases for a long term of years. A five or ten year lease would encourage a tenant to grow crops which would nourish the soil and greater attention would be given to keeping out noxious weeds. Fertilizers and manures would be more freely used and the inclination to exploit the soil would be lessened. Short leases result in frequent moves on the part of the tenant, and moving is always attended by more or less loss. Under this system only the poorest farms have been available for renting, and returns have not been sufficient to attract good tenants. Abundance of free or cheap land has tended toward ownership rather than toward developing a satisfactory leasing system.
There are several advantages arising from the ownership of land. (1) Ownership assures long tenure or permanent possession. This stimulates an interest in building up the place and making improvements. Land is likely to be better tilled and the fertility of the soil better conserved. Systematic rotation of crops is more likely to be followed, and an effort made to build up a permanent and lasting business. This leads to the erection of good buildings and the maintenance of a permanent home. The owner feels that his interests all lie in the community and he becomes a better citizen from the fact that he owns the land. (2) Ownership gives to the owner the possibility of profits on the appreciation in land value. In this way the occupant of the land gains all of the value resulting from good tillage and the improvement of the land, and he secures the returns from any special forms of improvements that may be added to the property. (3) Ownership of the land obviates vexatious questions of leases and contracts in dealing with landlords. It offers freedom from annoying inspection by the owner, who to protect his property and prevent the depletion of
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the soil, must insist on certain forms of cultivation, care and cropping.
Against these advantages must be considered the risk incurred, which must be carried by the owner, in a large investment. This risk must be carried whether the crops are good or poor. In poor crop years the money invested in the farm may be made to bear only a very low rate of interest, or the farm may be run at a loss. Buildings depreciate to a certain extent and the owner of the land must bear the depreciation. Land poorly tilled also depreciates in value in certain communities, and if one buys in a poor location and pays too much for the land, he is likely to meet loss from depreciation in land value. The taxes and insurance must be paid and repairs on buildings must be made. These items all add to the annual cost of upkeep and must be counted among the disadvantages of land ownership.
The advantages of cash rental to the renter lie in the reduction of the investment and in shifting the payment of taxes, depreciation and upkeep to the landlord. Where good farms can be rented for cash, this system often brings better results to the renter than ownership, though he loses the possibility of securing the appreciated value of the land. The advantages of cash rental over share rental are as follows: (1) The renter gets all of the advantages of superior tillage and management. If a long lease can be secured, quite as much encouragement is given toward building up good systems of farming as where the land is owned. (2) The renter is not subject to close supervision and inspection by the landlord, which in some cases becomes very objectionable. (3) A greater latitude is allowed on the cropping system and in the management of the farm. It should be borne in mind, however, that in the case of cash rental, the renter bears all of the risk of crop failure, which in some localities is considerable, due to adverse climatic conditions or to a refractory soil.
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The advantages of cash rental over share rental to the owner are: (1) Freedom from responsibility in planting, cropping, and in the management of the farm; relief from the task of frequent supervision. (2) It lessens the risk to the owner from crop failure, provided the tenant is responsible. In cases where the tenant is not financially responsible and cannot meet the bills, the owner is forced to lose the rent.
Renting land on shares lightens the investment of the renter materially and makes it possible for men to secure farms who have not the capital to buy their farms or rent for cash. In most cases of share rental the renter furnishes the live stock for work purposes, the machinery, and household equipment. The landlord furnishes the other essentials for working the place. The crop is divided on a share basis which lightens the burden of the renter in case of crop failure.
The disadvantage to the renter from share renting lies in the fact that he gets only a share from the increase due to superior cultivation. Often the increase from this cultivation does not pay for the work he is required to do. To illustrate, it may be that a renter will put a dollar's worth of extra work on an acre of land in putting in a wheat crop and increase the yield two bushels. If wheat should sell at 84 cents, which is the average price for wheat for a ten-year period, and the crop is divided on a half and half basis, the operator would get only 84 per cent of the dollar's worth of work. The fact that the increase must be shared with the landlord and that there is a probability of getting only slightly larger returns on good tillage, results in share-rented farms being poorly tilled and unsystematically cropped.
It is possible to calculate approximately the returns from the land under each system of land tenure, as the following figures will illustrate. On a farm of 160 acres in the Central West where farm records were made the figures under the ownership system were as follows:
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In the land ... $12,000.00
In buildings ... 4,000.00
In live stock ... 1,162.00
In tools and machinery ... 389.00
Making a total investment of ... $17,551.00
This amount should bear at least 5 per cent interest. The expense of operating the farm under the ownership system was,
Interest on investment ... $877.55
Building repairs and depreciation ... 160.00
Machinery purchased ... 331.00
Taxes ... 85.00
Insurance ... 15.00
Seed ... 80.00
Stock purchased ... 256.00
Feed and supplies purchased ... 62.00
Labor ... 33.00
Cash for incidental expenses ... 50.00
Total ... $1,949.55
The receipts from the farm were,
From crops ... $1,278.00
From live stock products ... 105.00
From sales of live stock ... 290.00
Increase in inventory ... 800.00
Total ... $2,473.00
This would leave a net income for labor of $523.45, after 5 per cent interest has been paid on the investment.
Under the cash rental system the interest on the land, depreciation on buildings, taxes, and insurance would be shifted to the owner. The operator would have the following expense:
Interest on money invested in live stock,
tools and machinery, at 5% ... $77.55
Cash rent, 160 acres at $4.25 ... 680.00
Machinery purchased ... 331.00
Personal taxes and insurance ... 15.00
Seed ... 80.00
Labor ... 33.00
Feed and supplies ... 62.00
Stock purchased ... 256.00
Cash for operating ... 50.00
Total ... $1,584.55
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The receipts would be as before,
From crops ... $1,278.00
From live stock products ... 105.00
From live stock sales ... 290.00
Increased inventory ... 800.00
Total ... $2,473.00
This leaves a net balance or labor income to the renter of $888.45, a gain of $365.00 over the ownership system. It should be borne in mind, however, that this gain is offset by the fact that the renter does not gain the advantage of rise in land value. The land owner receives only $680.00 for the use of his farm which is only 2.5 per cent on its net value. It is the possible appreciation in land value that satisfies the owner with the low interest rate received. He is also free from the care and labor of managing the farm.
Under the share-renting system on a lease where the tenant owns all the live stock, feeding them with his own feed, and where the crops and hay are equally divided and the landlord furnishes the seed, the results to the renter would be as follows:
Interest on money invested in live
stock, tools, and machinery at 5% ... $77.55
Machinery purchased ... 331.00
Personal taxes and insurance ... 15.00
Labor ... 33.00
Feed and supplies ... 62.00
Stock purchased ... 256.00
Cash for operating ... 50.00
Total ... $824.55
One-half of crop sales ... $639.00
Live stock products sold ... 105.00
Live stock sold ... 290.00
Increased inventory ... 593.00
Total ... $1,627.00
Expense ... 824.55
Receipts less expense ... 802.45
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The tenant would receive a labor income of $802.45 which is $86.00 less than he would have received under the cash renting system, but $279.00 more than he would have made in owning the farm himself. The reward for the loss of the $86.00 is in the freedom from responsibility for a large cash indebtedness and lessened risk from poor crops. The immediate returns from share renting would be greater than from owning the farm, but the one who rents sacrifices the possibility of gain from rises in land values. In localities where depreciated values are likely to be met, a share rental system would be preferable for the farm operator.
The land owner would receive for his share $639.00 from sale of crops, less $80 for seed, or $559.00. He would also have one-half of the hay. To make as much under the share-renting system as under the cash renting, he would have to sell $121.00 worth of hay.
1. Have the pupils find out how many farmers in the school district are living on owned farms and how many on rented farms. Also have them learn the usual terms of leasing farms in the neighborhood.
2. Have them determine the probable labor income for the operator under each form of land tenure suggested in the text. In doing so use the figures or estimates made by the owner or operator of the land.
1. A renter on half shares employed an extra man and team for 5 days at $3.00 per day to plow corn, and got an increased yield on 24 acres of 3 bu. per acre. How much did the renter make by the transaction if corn sold for 50 cents? How much did the owner make? How much would the renter have made if he had paid cash rent?
2. Records for Clay County, Minnesota, show that it cost $23.37, exclusive of land rent, to produce an acre of potatoes in 1907. What yield should a renter secure in order to make a profit of $5.00 per acre, if land rental is $5.00 and the price of potatoes 40 cents a bushel?
3. A man has a farm of 100 acres in tillable land and agreed to rent it on shares, furnishing one-half of the feeding and breeding stock, amounting
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to $1000. He was to receive one-half of the increase in live stock. The threshing expense and purchases of seed grain are to be shared equally and the owner receives one-half of the proceeeds from the crops sold. The threshing bill will be $54.00, and the seed bill $50.00. The receipts from the increase in live stock will be $600.00, and the receipts from grains and other items $375.00. The land is valued at $85.00 per acre. How much will the owner receive and what per cent will he make on his investment?
4. How much will the above tenant make and what per cent on his investment of $3000 if he pays $100 for hired labor?
5. A farmer makes a labor income of $650 on a rented farm. He can buy a farm of 90 acres which will net $900 above expenses. To do so it would be necessary to draw $3000, which he has on deposit bearing 3 1/2 per cent and borrow $5000 at 6% interest. Would his labor income be increased or decreased by making the purchase?
6. If he bought the farm in the above problem and sold it at the end of a year at an advance of $5 an acre, how much would he gain by buying?
A Profitable Tenant Dairy Farm.--U.S. Department of Agriculture, Farmers' Bulletin 280.
A System of Tenant Farming and Its Results.--U.S. Department of Agriculture, Farmers' Bulletin 437.
Methods of Renting Farms in Wisconsin.--Wisconsin Station Bulletin 198.
Land Tenure.--Cards' Farm Management, Chapter V.
Principles of Rural Economics.--T.N. Carver, pages 224-236.
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