I played a game with England last night, fighting the Incas (wow is it difficult to take their cities! I had to wait for artilerry before I could really do something) and their workers did not build a single terrace farm.
If you use a mod to allow everyone to build terrace farms you will quickly see the mechanic for the ai is broken. I've seen it sit in one place build a terrace farm then building a different improvement to replace it then rebuilding the farm... been that way since G&K.
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