It seems like everywhere you go you hear the same thing. “20 years ago, this was all farmland.”

It’s not a stretch to suggest that most urban areas, even the older ones, have at least some places where this is true. 

The long-term valuational life cycle of farmland is based on numerous factors, but urban expansion is perhaps the biggest. As areas develop and evolve, property values rise and land that was once rural becomes something else: industrial, commercial, residential, etc.

It’s a simple concept, but it’s very true: the closer land gets to an urban centre, the more the land value increases. Numerous studies, such as this one from Department of Agricultural and Consumer Economics at the University of Illinois, have identified several reasons for this phenomenon, most notably: 

• Many cities were originally built on fertile soil, so the surrounding rural land tends to be highly productive. 
• Farms near cities tend to produce higher-value commodities than more rural locations.
• Lower transportation costs for producers/market availability and proximity.
• Future zoning and land use regulation changes that allow for new types of usage and higher value.

This positive correlation between urban proximity and rural land value is such an established fact  that many investors and developers will buy land just to sit on. As city boundaries expand, the owners can sell at huge profits.  

Let’s look at how this has happened in three prominent places around the world.

1.    Orange County – California

Orange County, California is known around the world as a major producer of agricultural products, not only citrus but berries, vegetables, ornamental plants, and more. At the same time, Orange County is considered the “ultimate suburb” and is one of the most population-dense areas in North America.

Statistics from 2017 show that while farmland area has decreased due to urban expansion, the area still produces over $82 million each year from agriculture. The average farm size decreased by 13% since 2012, and most of them are under 10 acres, yet these smaller parcel sizes open the doors for new farmers to get their foot in the door and start farming.

On top of producing a vast amount of food and other products, Orange County’s urbanization has had a huge impact on the value of local farmland. As of 2023, the average listing of agricultural land in Orange County listed at over $3 million, and some of the  land reached a whopping $680,000 per acre (which is considerably more than the average price of California farm real estate of $10,900/acre in 2021).  

2.    Alberta Corridor – Western Canada

The Alberta Corridor is a strip of land that runs between two of Canada’s major cities, Edmonton and Calgary. The area also encompasses smaller cities and towns and is rich with some of the most fertile farmland in the country.

The value of the farmland has skyrocketed thanks to the expansion of these urban centres. One study shows that farmland within 5 km of a populated centre (at least 100,000 people) sells at a sale price 83.9% higher than similar land that is 100 km away.

This exemplifies the fact that the value of the farmland has a lot to do with its zoning. When farmland has the potential for commercial or residential development due to its proximity to an urban center, the value of the land sees significant hikes. On the Alberta Corridor, a 532 acre of agricultural land with urban development potential sold for $57 million in 2021, during a time when the average price per acre sat near $4,000.  

In fact, Canadian farmland was such a solid investment (before it hit a ceiling) that investors at the time suggested purchasing land without the intention of ever farming it! 

3.    Valle de Elqui – Chile  

Valle de Elqui (or the Elqui Valley) is part of a small province in Chile being 16,895.1 km² (6,523 sq mi) in size with a population of 442,999 (as of 2012). While this is hardly considered an urban area, the presence of people improves the value of farmland for another reason: tourism.

Since the Spanish conquest of the area in the 1500s, grapes have been cultivated to create some of the most sought-after wine in the world. Coupled with exceptionally pleasant weather, the wine growing region of Valle de Elqui has melded together with tourist areas to create added value to its land.

Over 3 million international tourists visit Chile every year, bringing in a revenue of over $4 billion annually. The number of visitors to Valle de Elqui has grown steadily over the years and the small towns thrive on the agriculture-tourism connection.

There are several reasons why tourism has such a positive impact on land value:

·         Improved Infrastructure: tourism (especially in rural areas) creates airports, hotels, improved transportation, restaurants, tourist attractions, new business opportunities, and more which all add value to the land.

·         Regional Improvements: Not only does the added infrastructure benefit local areas, but they improve the quality of entire regions and the country as a whole.

·         Domestic and Foreign Investment: As business and infrastructure thrives, investors are attracted to the increasing value of the areas.

·         Land Conversion: As the tourism industry spreads, land that previously was used strictly for agriculture takes on new potential, and makes the land far more valuable.  

As tourists continue to flock to these areas, land prices in Valle de Elqui (and much of Chile) continue to rise.

Conclusion

It’s easy to see how this process benefits farmowners. What’s a bit more difficult to predict is where these expansions and valuational home-runs will take place. 

At Farmfolio, we’ve built the local presence required to understand farmland real estate on a highly granular level. Our in-house land assessment department has surveyed over 10,000 acres of farmland across Colombia, selecting properties with superior agronomic quality and, of course, close proximity to expanding urban centers. 

If you’re interested in learning more about the valuational cycle of farmland and how you can benefit from it, don’t hesitate to reach out. We’ll help you gain a deeper level of understanding into how farmland can fit into your portfolio.