Farmland Investing Terms

June 8, 2020

There are many benefits to investing in farmland. Prior to now, investing in farmland was a difficult process. Since it has now become more accessible with crowdfunding and fractional ownership opportunities, more investors are taking advantage of this alternative investment. At FarmFundr, we are dedicated to not only provide high quality, carefully selected farmland investment opportunities for our members, but also to providing resources to educate and make analyzing and choosing opportunities a bit simpler. We've put together a library of important terms that we think are beneficial for investors to know while looking at farmland investment opportunities with the help of some fellow industry experts.

Water rights: The legal right of a landowner to utilize surface water adjacent to his or her property. California utilizes the appropriative rights model, wherein the rights to use and divert water are based on a hierarchical system that requires diverted water to be used in a “beneficial” manner. 

Surface Water: Any body of water that’s above the surface of the Earth, including lakes, rivers, streams, and oceans. Surface water can be permanent or semi-permanent (persisting for only a portion of the year). 

Aquifer: An underground layer of rock that holds a large amount of water. There are two types of aquifers: confined and unconfined. Water in a confined aquifer is trapped between underground layers of rock. Water in an unconfined aquifer reaches the surface. 

Irrigation: Man-made, artificial systems designed to transport and distribute water across farmland to aid in the production and growing of crops. Most irrigation systems utilize pipes and sprinklers to maximize water distribution efforts. 

Irrigation District: A clearly defined geographic subdivision managed by a self-governing corporation whose purpose is to create and facilitate the development of large-scale irrigation systems. Irrigation districts operate under the authority of the state’s legislature to disburse water throughout farmland within that district.  

Drought: An extended and unexpected period of unusually low or insignificant precipitation resulting in an inadequate amount of water to support and sustain typical vegetation and healthy crop growth. 

Soil Classes: The ground can be labeled and categorized into one of six distinct soil classes based on the type, size, texture, and mineral content of its grains and particulates. The different soil classes are: loamy, chalky, sandy, silty, peaty, and clay. Depending on the soil class of a given region, farmers must choose crops that thrive in the local soil type. 

Tillable: (Land that is) able to be plowed or otherwise cultivated in a manner that will facilitate future crop growth; arable. 

Acre: A U.S. imperial measurement of land equal to: 43,560 square feet; 4,840 square yards; 4,047 square meters; 0.405 hectare. There is no required or designated shape for a parcel of land to be considered an acre, so any area consisting of 43,560 square feet is an acre. 

Arable: (Land that is) capable of being converted or transformed into farmland which is able to be plowed, tilled, or otherwise cultivated in a manner that will facilitate future crop growth. 

Sustainable Agriculture: Farming practices utilizing environmentally friendly, non-destructive resources and methodology to cultivate farmland while remaining economically viable, socially supportive, and ecologically sound. Focus is on enhancing the quality of life for farmers, local communities, and future generations. 

Cultivation: Preparation of arable land for growing crops by loosening, breaking up, digging, or otherwise tilling the ground; the act of caring for crops or other plants throughout their life cycle from seeding to harvesting. 

Harvesting: Picking and/or collecting mature, ripened crops. 

Economic Life: The time period during which an asset or property continues to be fruitful and profitable. Economic life is not necessarily tied to or affected by an asset’s physical life. If or when the asset ceases to be profitable, it has reached the end of its economic life. 

Productive Life: Similar to economic life, productive life is the period during which an asset or property continues to be useful and productive. 

Crop growing cycle: The annual cycle of repeatable activities necessary to plant, grow, and harvest crops. Such activities involve land preparation and cultivation/tilling, planting, and seeding, watering, trimming, and culling, harvesting and sowing. 

Bloom: The officially designated time marking the start of the bloom in specific regions of California, during which there are significant restrictions and impositions on the use of certain sprays, chemicals, and pesticides. These restrictions are intended to protect the local bee population during one of their most active times of the year while their behavior patterns facilitate pollination of crop blossoms. 

Summer Irrigation: Generally speaking, the additional systems, facilities, hardware, and related processes put into place on top of existing irrigation networks during the hottest and driest months of the summer season. In California, summer irrigation is an essential part of ensuring crop yields, as available surface water sources become quickly depleted. 

Harvest: The process of picking and/or collecting mature, ripe crops. Or, the period during which harvesting takes place. 

This is far from a complete list of terms that are beneficial for agriculture investors to understand. We'll be updating this list periodically to help prospective investors better understand farmland as an asset class. If you have any questions, or if you would like to contribute to this list (we'll provide citation and links to all contributors), don't hesitate to reach out to hilary.mathias@farmfundr.com.