Masters Theses

Date of Award

6-1982

Degree Type

Thesis

Degree Name

Master of Science

Major

Agricultural Economics

Major Professor

B.R. McManus

Committee Members

Charles M. Cuskaden, R.W. Todd

Abstract

In 1978, 46 percent of all Tennessee farm land was being leased by 30 percent of the total farm operators in the state. With such a large proportion of farm land being leased, the type and structure of leasing agreements in existence have immense economic implications. Leasing agreements affect the distribution of crop revenue between landowners and tenants as well as the allocation of resources among competing uses. The objectives of this study are: (1) to ascertain the nature of cash and crop-share leasing arrangements in Tennessee; (2) to show how the manner in which components of leases are employed affects the economic efficiency of agricultural production--hence the income of both landowners and tenants.

Data were obtained by using a pre-structured questionnaire and included 124 cash leases and 125 crop-share leases. Information concerning these leases was obtained from a total of 88 farm operators in three West Tennessee counties, Crockett, Fayette, and Lake.

An optimal crop-share lease will specify that the parties to the lease share in the same proportion variable expenses and crop revenue. Many of the crop-share leases examined did not allow for the proportionate sharing of variable costs and revenue. It was not unusual for tenants to pay 100 percent of certain variable costs of production. In addition to proportionate sharing of revenue and variable costs, each competitive crop should be shared in the same proportion. Landowners received equal shares of gross production for competitive crops grown on the same leased tracts in all but four leases examined. The form of the lease introduced additional uncertainty into the production process in the majority of the crop-share leases examined. Fifty-six percent of all crop-share leases studied were for one year, with no provisions for automatic renewal. Only 14 percent of the crop-share leases studied were written agreements. Fifteen percent of crop-share leases in the study contained reimbursement agreements.

None of the cash leases were adjusted by indices to account for changes in input costs, crop prices or yields. As such changes occur, one party to a lease may be receiving income from the productivity of the other's resources. Only a few leases in one county. Lake, adjusted cash rental payments in the event of flooding. Disaster clauses such as exist in Lake County will moderate the influence of crop failure on operator equity. Nonetheless, additional uncertainty seems to have been created by most cash leases examined. Forty-five percent of these leases were one year in duration and contained no provision for automatic renewal. Of all cash leases examined, only 45 percent were written. Sixteen percent of the cash leases in this study contained reimbursement agreements.

Results of a multiple regression model employed in this study indicated that the productivity of the cash leased tracts was significantly related to cash rental rates. There was a significant positive relationship between the percent of total acres that were tillable on cash leased tracts and the cash rental amounts. In addition, cash rent per tillable acre was positively related to the size of cash leased tracts measured in tillable acres.

Important components of an optimal lease were treated in less than efficient and/or equitable manners by many of the leases examined. Careful consideration of the leasing agreements by all parties should lead to improvements in the economic efficiency of crop production and result in a more equitable distribution of crop revenues.

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