1. Farmland Rental Contracts:
Why Do Some Contracts
Stipulate Production
Practices in Ontario and
Manitoba?
Qin Luo
Brady Deaton
Food, Agricultural & Resource Economics
University of Guelph

3. Introduction
 2011 Canada: 41 million ON: 4 million MB: 5
million
 Some contracts specify production
practices to be adopted on the land –
stipulation clauses
 Production practices influence soil fertility,
environmental quality and wildlife habitat

4. Beneficial Management
Practices (BMPs):
 “practical, affordable approaches to
conserve a farm's soil and water
resources without sacrificing
productivity” (OMAFRA 2014)
 long-term investment vs. short-term
contracts

5. Farmland rental contracts
 Simple and informal (Allen and Lueck
1992)
“Hand-shake” deals
Over half of the contracts are oral (63% in
Ontario and Manitoba)
Not common to stipulate specific
practices (17%)
Stipulation provisions significantly increase
the probability of some BMP adoptions
(van Vuuren et al. 1995)

6. Research question
 What are the characteristics of these
provisions?
 What factors contribute to the inclusion
of these stipulation clauses?
 Landowners: farmland protection
 Government: policy evaluation

7. Methods
 Characterize stipulation clauses by the
telephone interview data
 Empirically assess the impact of
identified key factors on the stipulation
decision.
 Qualitatively extend knowledge on the
nature of stipulation by in-depth
personal interviews in the Lake Simcoe
Watershed.

8. Key literature
 van Vuuren et al. (1995)
Stipulation clauses are highly significant for
adopting erosion control and compaction
correction practices
 Allen and Lueck (1992)
contract type and adjustment clauses in
cash-rent contracts (irrigation, hay crop,
row crop, urbanization, kinship, acres)
 Huffman and Fukunaga (2008)
contract type (regions, tenant’s farm type,
other tenant’s attributes, landlord’s
attributes, other factors)

9. Economic theory
 Hypothesis 1: If tenant and landowner
are related, stipulation is less likely to
happen
Family members internalize the cost
carried by landowner – social capital
No need to stipulate

10. MC/MV
P
Tillage
intensity
MC/MV
P
Tillage intensity
MVP
MCt
MVP
MC’t
X X*
Unrelated Related
X*
MCl
MCt
MCl +MCt
MCl
Differences in tillage intensity

11. Hypothesis 2
 If the landowner lives on the farm, a
stipulation clause is more likely to be
included
Externality that farmer’s activity has on
landowner’s utility – environmental effects
If the landowner lives off the farm, no
externality
The on-farm landowner is incentivized to
negotiate a stipulation clause

12. Counter-argument
 Stipulation is less likely with on-farm
landlords
On-farm landowner faces lower
monitoring cost (Allen and Lueck 1993)
Easier to intervene on site than to
negotiate the clause

13. Data
 Southwestern Ontario and Manitoba,
April 2013
 Phone interview (Ipsos)
 810 farmers
 45.5% response
 Farmer and farm operation, largest
rented parcel, largest owned parcel

16. Empirical model
 P STIP = 1|X = Φ(α0 + α1FAM + α2HOME +
TENANT′α3 + OWNER′α4 + LAND′α5 +
CONTRACT′α6)
where P STIP = 1|X is the probability that a
stipulation clause is present in the rental
contract;
STIP equals 1 when a stipulation provision is
included in the contract, and 0 otherwise;
𝑋 is a vector of explanatory variables included
in the analysis.

18. Follow up study in the Lake
Simcoe Watershed

19. Background
 6th largest lake in Ontario
 Lake Simcoe has been exposed to
pollution problems, mainly phosphorus
loads, since the last century
 Farmland runoffs from fertilizer
application
 Over half of the land surrounding the
lake is farmland
 Efforts to restore ecological health

20. Survey
 Snowball sampling
 7 Undergraduate
Research Assistants
 Simcoe, Durham,
Kawartha Lakes, York,
Peel
 In-person interview
 15-30 minutes

21. Interview results
 59 surveys
 24 York, 19 Durham, 10 Simcoe, 4
Kawartha Lakes, and 2 Peel
 41 stipulations received by 22 tenants
Crop Fertilizer/Manure Herbicide Tillage Drainage Pesticide Total
Selection
Cover
crop
Rotation Quantity Type Timing Quantity Type
Minimum
tillage
Tile
drainage
Type
19 4 1 3 2 1 3 2 3 2 1 41

22. Tenants’ Opinions of Why
Landlords Stipulate
0
2
4
6
8
10
12
Landlords require
tenants to avoid
planting hay, which
produces a habitat for
bobolink.

23. Category of Stipulating
Landlords
0
2
4
6
8
10
12
14
16
Active farmer Company or
corporation
Non-farming
investor
Retired farmer Government Spouse of
deceased
farmer

24. Comparison of the Findings
from the Two Surveys
Phone survey in ON and MB (2013)
Random sample, Quantitative analysis
Personal interview in Lake Simcoe
(2014)
Non-random sample, Qualitative analysis
Proportion with
stipulation
17% of contracts （on largest rented
parcel ）
37% of tenants （on multiple parcels）
Presence of landlord on
farm
No evidence
78% of landlords who stipulate live on
the farm
Non-farming landlord No evidence
37% of landlords who stipulate are non-
farmers
Rivers or wetlands
nearby
No evidence
72% of land under stipulation is
adjacent to rivers
Contract type No evidence
All stipulations are under cash rent
agreements

25. Motivation of stipulation
 Initial hypothesis
Landlords stipulate production practices
to protect agricultural land quality.
 Finding
Pursue future opportunities to convert
land into nonagricultural purposes
 In regions with high urbanization
pressure, this may result in consequences
conflicting with social objectives as set
forward by the government

26. Thank you
Happy to answer any questions