Iowa, a state never much known for millionaires, is suddenly showing up in the media as a place where the very rich are hatched.
“Millionaire farmers” is a catch phrase used with growing frequency up to depict farmers whose personal wealth and incomes have risen with skyrocketing land values and improved farm incomes due to the renewable fuels boom.
The “millionaire farmer” phrase has been invoked across the political spectrum, from President Obama to the Heartland Institute, a conservative think tank.
A recent Bloomberg news service article lamented the widening “rich-poor gap” in Iowa due to millionaire farmers, and compared farmland auctions to art sales at Sotheby’s.
“The $89,434 average household income for farmers significantly exceeds the national average,” said a background paper by the Heartland Institute, arguing against crop subsidies. “Additionally crop land values soared another 14 percent last year, bringing them to double their 2000 levels.
“Farmers are now wealthier than ever.”
It’s enough to make Iowans wonder whether Saks Fifth Avenue, Cartier and Fendi will soon be opening shops in Grundy Center.
But a closer look suggests that even if Iowa’s wealth gap widens a bit, there’s little cause for worry.
In fact, Iowa ranks below more than 30 other states in the number of residents with $1 million or above net worth, the percentage of residents with $1 million and above net worth, or annual household income above $1 million, according to rankings published in recent years.
The top 10 states with millionaires, with the exception of Hawaii, are traditionally more urban, such as Connecticut and New Jersey, with many corporate headquarters.
Robert Bowman of DeWitt, who farms with his son Chris, certainly doesn’t feel like a millionaire farmer, even though rising property values would place the family’s 2,000-acre farming operation into the million-dollar-plus category.
Driving through the countryside, Bowman said it’s pretty near impossible to tell which farmers are millionaires because it’s all on the balance sheet.
“Some own the land free and clear, and a lot of us have a mortgage we’re paying on,” Bowman said.
Bowman said having a high net worth in a farming operation often doesn’t make for a high disposable income. He recalled one farmer friend who told him that, after a life of farming, he never felt as if he had any extra money to spend until the last few years, when he stopped reinvesting in his farm operation.
“I have an old saying that net worth is wonderful, but you can’t eat it,” Bowman said. “It makes your balance sheet look better, and if you need a loan maybe it will help you get it approved.”
Indeed, having a high net worth as a farmer isn’t likely to make you a high roller at the local casino, a high-profile philanthropist or a conspicuous consumer. That’s because farming takes expensive land, farming equipment and a fair amount of credit for things such as seed, fertilizer, pesticide and fuel to grow the next crop.
“It (the farmer millionaire) is pretty close to being an on-paper phenomenon,” said Professor Kevin Leicht, director of the University of Iowa Social Science Research Center and department chairman. He compared the situation to homeowners who became paper millionaires during the prime years of the real estate bubble in markets such as California.
“It’s more valuable, but it’s the same house,” Leicht said.
Farmers who want to continue farming are unlikely to liquidate their land just to enjoy their wealth, Leicht said, meaning that the only farmers whose lifestyles are likely to change much because of the boom in farmland values are those who sell out and move away.
A May 2011 study by Deloitte Center for Financial Services ranked Iowa fourth among Midwestern states in the number of millionaires, and projected the number of Iowa millionaires will grow 7 percent between 2010 and 2020 — slower than North Dakota, South Dakota and Nebraska.
Iowa had 78,000 millionaire households in 2010, a number Deloitte projected to grow to 170,000 households in 2020.
Leicht said that some of the issues that typically create social friction and distance due to wealth disparity are much less of a concern with farmers. That’s because farmers tend to avoid conspicuous consumption.
One reason for the conservative spending ways of farmers is that most older farmers have endured past boom-and-bust cycles in the value of agricultural commodities that have made them wary of overspending. They’ve also see cycles of drought and flood that have cut into income.
Leicht speculated that there’s also a deeper cultural element to it. Many of Iowa’s farmers are of Northern European ancestry, which have cultural bias against conspicuous displays of wealth.
Bowman agreed that farmers have been spending more in recent years on things such as updating their farm equipment, mainly because they need to take advantage of the opportunity when they can. He says it’s helped the overall economy.
Farmers are also getting a nicer ride.
“There’s a lot of us driving better pickup trucks than we’ve had in the past,” Bowman said. “That’s kind of neat. I’ve enjoyed that.”