In many ways, it was a good deal for both sides.
But over the years it's become a much better deal for the ranchers, because the rent hasn't gone up in more than 20 years and because there is oil and natural gas under the prairie grassland.
The ranchers have been charging energy companies to access the public land that they care for, but don't own.
It has been a long-simmering but politically impossible problem for Alberta.
Now the province's auditor general has triggered a review of the grazing lease program. The fight isn't going to be pretty.
"The auditor general has really dropped a bombshell into the discussion," said Cliff Wallis, a board member with the Alberta Wildness Association.
"We have a real variation of people out on the land, from really good stewards who know what they're doing, who look after the resource, to others who see it as a private fiefdom."
Critics call it cowboy welfare.
The original leaseholders were granted the grazing rights free. They pay very reasonable rent to the province and taxes to the municipality. Ranchers are responsible for fencing and other upkeep.
The real conflict is around energy development. Ranchers are able to charge energy companies and utilities for access to the public land.
Under current law, if you want to drill a well or put up a power line or lay pipeline, you pay the leaseholder for access to the land.
Therefore grazing leases have become very valuable. Something that was granted free is now sold on the private real estate market, sometimes for hundreds of dollar per acre.
The lease for the public land in this picture is for sale. There are 1,134 acres of rangeland, which can support 166 grazing cattle per month. The leaseholder must maintain the land, fence it, control the weeds and pay the municipal taxes.
The annual lease amount is less than $600, the taxes are less than $700. The asking price for the lease is $265,000. When the lease is sold, the proceeds will go to the selling leaseholder, not the province.
"In my grandfather's time, he only paid the lease fees and taxes and took over the leases," said Pat Rutledge, a leaseholder in southeastern Alberta.
Rutledge has 20,000 acres of land, about half of which is leased and half is owned, or deeded.
"We happen to have two sections that are adjacent to our pasture that the neighbour would like to sell," said Rutledge.
"My daughter made him an offer last winter of $600 an acre for the deeded land and $300 an acre for the leased land, and it wasn't high enough."
Rutledge says he supports an increase in the lease rates paid to the province.
"The Grazing Leaseholders Association has been proposing a different formula that would see lease fees go up over time," said Rutledge, adding that if lease rates are too low, American cattle producers might perceive them as a subsidy.
Ranchers and the energy sector
Auditor General Merwan Saher did say that annual rents are too low, but he was more focused on compensation from the energy industry.
His report states the province doesn't know how many of its leases have oil and gas activity on them, nor how much was paid for that access. Saher was forced to cobble together an estimate through extrapolation.
He obtained public information on 54 grazing associations with around 600,000 acres of public land under lease. According to the report, those associations paid nearly $60,000 in annual rent to the province and collected nearly $350,000 in payments from industry for access to the land.
From that example, Saher estimated the province was forgoing more than $25 million each year that was paid to ranchers for access to public land.
Larry Sears, chairman of the Alberta Grazing Leaseholders Association, points out that the government still collects royalties on the oil or natural gas being produced. But in the case of leased public land, it doesn't collect the fees paid to access the land to drill in the first place.
"The government gets compensated," said Sears, a rancher in southern Alberta who has no oil and gas activity on his leases. "They are the owner of the resource and get royalties; they get more than half of what the grazing leaseholder gets."
Sears questions whether Saher understands the issues ranchers face.
"I don't think there's any understanding by either himself, or the politicians, or the general public about the what the leaseholder has to put up with in the way of adverse affects (from oil and gas)."
"There's lots of potential damage to fences, livestock health, livestock death, fire, dust, noise, all of these things that can affect your operation."
Sears also disputes the $25 million figure, saying the auditor general is simply making a guess.
Access to the land
Money is not the only issue with grazing leases. Recreational users like hunters, as well as First Nations people and environmentalists, have long bemoaned their lack of access to public lands held under grazing leases.
The leaseholders have to allow reasonable access to the land, but can also deny permission. Online hunting forums are full of discussions about who owns what grazing leases, how likely they are to grant access and where the fences can be found.
"We've been doing some work for government and have been disallowed to get on the land to do biological surveys," said Wallis, of the wilderness association.
"We hear those same statements, that we don't understand. I don't think they understand the value of those public lands and how much frustration there is when it comes to getting access."
In 1999 the Progressive Conservative government of Premier Ralph Klein passed a bill that fundamentally changed the way leaseholders were compensated for energy drilling on the Crown land, which would have brought Alberta's law closer to those in Saskatchewan and B.C.
In news stories from that time, the ranchers estimated that they would be giving up $40 million per year.
The day after the bill passed, Klein was set to attend a Western Premiers' Conference at the Royal Tyrrell Museum in Drumheller, Alta.
The ranching community came out on horseback to send a message to Klein. They lined the entrance to the museum, holding placards that said Klein was biting the hand that fed him.
Klein didn't turn up, and the protest dispersed. However, the message was received and the law was never proclaimed, or implemented.
Whether that political heft will hold with Alberta's current NDP government remains to be seen.
The government has promised only to review the program. It hasn't committed to change it.