1932

Abstract

We review the recent theoretical and empirical literature on the capitalization of agricultural subsidies into land prices. The theoretical literature predicts that agricultural subsidies are capitalized into land prices when land supply is inelastic and land markets function well. The share of capitalized subsidies significantly depends on the implementation of farm subsidies, local land-market institutions, rural market imperfections, and spatial effects. Most empirical studies have shown that agricultural subsidies are only partially capitalized into land prices, estimating that decoupled payments and land-based subsidies exhibit higher capitalization than coupled payments and nonland-based subsidies, respectively. However, estimated capitalization rates vary widely across studies largely because of data availability and identification challenges.

Loading

Article metrics loading...

/content/journals/10.1146/annurev-resource-102020-100625
2021-10-05
2024-10-03
Loading full text...

Full text loading...

/deliver/fulltext/resource/13/1/annurev-resource-102020-100625.html?itemId=/content/journals/10.1146/annurev-resource-102020-100625&mimeType=html&fmt=ahah

Literature Cited

  1. Abler D. 2001. Elasticities of substitution and factor supply elasticities in Canadian, Mexican and United States agriculture: a review of past studies. OECD Market Effects of Crop Support Measures57–88 Paris: OECD
    [Google Scholar]
  2. Adenäuer M, Britz W, Zimmermann A. 2016. Spatial heterogeneity of the agricultural sector in economic models SUSFANS Work. Pap. Metrics Models Foresight Eur. Sustain. Food Nutr. Secur. The Hague, Neth: https://susfans.eu/system/files/public_files/Publications/working_paper/spatial_heterogeneity_of_the_agricultural_sector_in_economic_models_susfans.pdf
    [Google Scholar]
  3. Alston JM. 2007. Benefits and beneficiaries from U.S. farm subsidies Work. Pap. Univ. Calif., Davis.: https://aic.ucdavis.edu/publications/AlstonAEI%204_Benefits%20Beneficiaries%20from%20Subsidies%20reformat2017.pdf
    [Google Scholar]
  4. Alston JM 2010. The incidence of U.S. farm programs. The Economic Impact of Public Support to Agriculture V Ball, R Fanfani, L Gutierrez 81–105 New York: Springer
    [Google Scholar]
  5. Alston JM, James JS 2002. The incidence of agricultural policy. Handbook of Agricultural Economics, Vol. 2 BL Gardner, GC Rausser 1689–749 Amsterdam: Elsevier
    [Google Scholar]
  6. Anderson K, Rausser G, Swinnen J. 2013. Political economy of public policies: insights from distortions to agricultural and food markets. J. Econ. Lit. 51:2423–77
    [Google Scholar]
  7. Anselin L 2001. Spatial econometrics. A Companion to Theoretical Econometrics BH Baltagi 310–30 Oxford, UK: Blackwell
    [Google Scholar]
  8. Baldoni E, Ciaian P. 2021. The capitalisation of CAP subsidies in land rents and land values in the EU: an econometric analysis JRC Tech. Rep., Publ. Off. Eur. Union Luxemburg:
    [Google Scholar]
  9. Baldoni E, Kancs D, Ciaian P, Drabik D. 2021. The capitalization of agricultural subsidies into farmland prices: a meta-analysis of the empirical literature JRC Tech. Rep., Publ. Off. Eur. Union Luxemburg:
    [Google Scholar]
  10. Becker G. 1983. A theory of competition among pressure groups for political influence. Q. J. Econ. 8:3371–400
    [Google Scholar]
  11. Bigelow D, Borchers A, Hubbs T. 2016. U.S. farmland ownership, tenure, and transfer Econ. Inf. Bull. 161 US Dep. Agric., Econ. Res. Serv. Washington, DC:
    [Google Scholar]
  12. Bonhomme S, Manresa E. 2015. Grouped patterns of heterogeneity in panel data. Econometrica 83:31147–84
    [Google Scholar]
  13. Borchers A, Rifft J, Kuethe T. 2014. Linking the price of agricultural land to use values and amenities. Am. J. Agric. Econ. 96:51307–20
    [Google Scholar]
  14. Brandsma A, Kancs D, Ciaian P. 2013. The role of additionality in the EU cohesion policies: an example of firm-level investment support. Eur. Plan. Stud. 21:838–53
    [Google Scholar]
  15. Breustedt G, Habermann H. 2011. The incidence of EU per-hectare payments on farmland rental rates: a spatial econometric analysis of German farm-level data. J. Agric. Econ. 62:1225–43
    [Google Scholar]
  16. Bronzini R, de Blasio G. 2006. Evaluating the impact of investment incentives: the case of Italy's Law 488/1992. J. Urban Econ. 60:327–49
    [Google Scholar]
  17. Bullock DS, Salhofer K, Kola J. 1999. The normative analysis of agricultural policy: a general framework and review. J. Agric. Econ. 54:3512–35
    [Google Scholar]
  18. Cabrales A, Charness G, Villeval MC. 2011. Hidden information, bargaining power, and efficiency: an experiment. Exp. Econ. 14:2133–59
    [Google Scholar]
  19. Chambers RG, Voica DC. 2017. ‘Decoupled’ farm program payments are really decoupled: the theory. Am. J. Agric. Econ. 99:3773–82
    [Google Scholar]
  20. Ciaian P, Drabik D, Falkowski J, Kancs D. 2017. New regulations governing land sales in Central and Eastern Europe: imposing restrictions via particularised institutions Rep. EUR 28088 Publ. Off. Eur. Union Luxemburg:
    [Google Scholar]
  21. Ciaian P, Kancs D. 2012. The capitalisation of area payments into farmland rents: theory and evidence from the new EU member states. Can. J. Agric. Econ. 60:517–40
    [Google Scholar]
  22. Ciaian P, Kancs D, Espinosa M. 2018. The impact of the 2013 CAP reform on the decoupled payments’ capitalisation into land values. J. Agric. Econ. 69:306–37
    [Google Scholar]
  23. Ciaian P, Kancs D, Swinnen JFM. 2008. Static and dynamic distributional effects of decoupled payments. J. Econ. Econom. 51:20–47
    [Google Scholar]
  24. Ciaian P, Kancs D, Swinnen JFM. 2010. EU Land Markets and the Common Agricultural Policy Brussels: Cent. Eur. Policy Stud.
    [Google Scholar]
  25. Ciaian P, Kancs D, Swinnen JFM. 2014. The impact of the 2013 reform of the Common Agricultural Policy on land capitalisation in the European Union. Appl. Econ. Perspect. Policy 36:643–73
    [Google Scholar]
  26. Ciaian P, Swinnen JFM. 2006. Land market imperfections and agricultural policy impacts in the new EU member states: a partial equilibrium analysis. Am. J. Agric. Econ. 88:799–815
    [Google Scholar]
  27. Ciaian P, Swinnen JFM. 2009. Credit market imperfections and the distribution of policy rents. Am. J. Agric. Econ. 91:1124–39
    [Google Scholar]
  28. Clark JS, Fulton M, Scott JT 1993. The inconsistency of land values, land rents, and capitalization formulas. Am. J. Agric. Econ. 75:147–55
    [Google Scholar]
  29. Courleux F, Guyomard H, Levert F, Piet L 2008. How the EU single farm payment should be modelled: lump-sum transfers, area payments or…what else? Work. Pap. SMART–LERECO 08-01 Inst. Natl. Rech. Agron. Rennes, Fr: https://hal.archives-ouvertes.fr/hal-01462631/
    [Google Scholar]
  30. Davies L, Mortensen K, Patton D. 2007. Leasing land—calculating a rental PrimeFact 338 NSW Dep. Prim. Ind Aust: http://ncmc-co.com.au/wp-content/uploads/2018/04/leasing-land-calculating-a-rental1.pdf
    [Google Scholar]
  31. Delbecq BA, Todd HK, Allison MB. 2014. Identifying the extent of the urban fringe and its impact on agricultural land values. Land Econ 90:4587–600
    [Google Scholar]
  32. Dewbre J, Anton J, Thompson W 2001. The transfer efficiency and trade effects of direct payments. Am. J. Agric. Econ. 83:51204–14
    [Google Scholar]
  33. Duvivier D, Gaspart F, de Frahan BH. 2005. A panel data analysis of the determinants of farmland price: an application to the effects of the 1992 CAP reform in Belgium. Presented at the 99th EAAE Congress on The Future of Rural Europe in the Global Agri-Food System Copenhagen: August 24–27
    [Google Scholar]
  34. Eur. Court Audit 2012. The effectiveness of the single area payment scheme as a transitional system for supporting farmers in the new member states Special Rep. 16 Eur. Court Audit. Luxemburg: https://op.europa.eu/en/publication-detail/-/publication/176bca6a-47e4-4798-9aca-1a9d59e98c06
    [Google Scholar]
  35. Feichtinger P, Salhofer K. 2013. What do we know about the influence of agricultural support on agricultural land prices?. Ger. J. Agric. Econ. 62:271–83
    [Google Scholar]
  36. Feichtinger P, Salhofer K. 2016. Decoupled single farm payments of the CAP and land rental prices Discuss. Pap. DP-65-2016 Inst. Nachhalt. Wirtsch., Univ. Bodenkult. Wien:
    [Google Scholar]
  37. Ferguson S, Furtan H, Carlberg J. 2006. The political economy of farmland ownership regulations and land prices. Agric. Econ. 35:59–65
    [Google Scholar]
  38. Floyd JE. 1965. The effects of farm price supports on returns to land and labour in agriculture. J. Political Econ. 73:148–58
    [Google Scholar]
  39. Forbord M, Bjørkhaug H, Burton RJF. 2014. Drivers of change in Norwegian agricultural land control and the emergence of rental farming. J. Rural Stud. 33:9–19
    [Google Scholar]
  40. Gardner BL. 1987. The Economics of Agricultural Policies New York: Macmillan
    [Google Scholar]
  41. Gocht A, Britz W, Ciaian P, Gomez y Paloma S. 2013. Farm type effects of an EU-wide direct payment harmonisation. J. Agric. Econ. 64:11–32
    [Google Scholar]
  42. Goodwin BK, Mishra AK, Ortalo-Magné FM. 2003. What's wrong with our models of agricultural land values?. Am. J. Agric. Econ. 85:3744–52
    [Google Scholar]
  43. Goodwin BK, Mishra AK, Ortalo-Magné FM. 2011. The buck stops where? The distribution of agricultural subsidies. The Intended and Unintended Effects of U.S. Agricultural and Biotechnology Policies15–50 Cambridge, MA: NBER
    [Google Scholar]
  44. Goodwin BK, Ortalo-Magné FN. 1992. The capitalisation of wheat subsidies into agricultural land value. Can. J. Agric. Econ. 40:37–54
    [Google Scholar]
  45. Graubner M. 2018. Lost in space? The effect of direct payments on land rental prices. Eur. Rev. Agric. Econ 45:2143–71
    [Google Scholar]
  46. Guastella G, Moro D, Sckokai P, Veneziani M. 2014. The capitalisation of fixed per hectare payment into land rental prices: a spatial econometric analysis of regions in EU. Presented at 3rd AIEAA Conference Feeding the Planet and Greening Agriculture: Challenges and Opportunities for the Bio-Economy June 25–27 Alghero, It.:
    [Google Scholar]
  47. Guastella G, Moro D, Sckokai P, Veneziani M. 2018. The capitalisation of CAP payments into land rental prices: a panel sample selection approach. J. Agric. Econ. 69:3688–704
    [Google Scholar]
  48. Guyomard H, Le Mouël C, Gohin A 2004. Impacts of alternative agricultural income support schemes on multiple policy goals. Eur. Rev. Agric. Econ. 31:2125–48
    [Google Scholar]
  49. Harris R, Trainor M. 2005. Capital subsidies and their impact on total factor productivity: firm-level evidence from Northern Ireland. J. Reg. Sci. 45:49–74
    [Google Scholar]
  50. Hedrick JL. 1962. The effects of the price-support program for peanuts on the sale value of farms. Am. J. Agric. Econ. 44:51749–53
    [Google Scholar]
  51. Hendricks NP, Janzen JP, Dhuyvetter KC 2012. Subsidy incidence and inertia in farmland rental markets: estimates from a dynamic panel. J. Agric. Resour. Econ. 37:3361–78
    [Google Scholar]
  52. Hennessy DA. 1998. The production effects of agricultural income support polices under uncertainty. Am. J. Agric. Econ. 80:46–57
    [Google Scholar]
  53. Hertel TW. 1991. Factor market incidence of agricultural trade liberalization: some additional results. Aust. J. Agric. Econ. 35:191–107
    [Google Scholar]
  54. Innes R, Rausser GC. 1989. Incomplete markets and government agricultural policy. Am. J. Agric. Econ. 71:915–93
    [Google Scholar]
  55. Karlsson J, Nilsson P. 2014. Capitalisation of Single Farm Payment on farm price: an analysis of Swedish farm prices using farm-level data. Eur. Rev. Agric. Econ. 41:4279–300
    [Google Scholar]
  56. Kilian S, Antón J, Salhofer K, Röder N. 2012. Impacts of the 2003 CAP reform on land rental prices and capitalization. Land Use Policy 29:789–97
    [Google Scholar]
  57. Kilian S, Salhofer K. 2008. Single payments of the CAP: Where do the rents go?. Agric. Econ. Rev. 9:296–106
    [Google Scholar]
  58. Kirwan BE. 2009. The incidence of U.S. agricultural subsidies on farmland rental rates. J. Political Econ. 117:1138–64
    [Google Scholar]
  59. Kirwan BE, Roberts MJ. 2016. Who really benefits from agricultural subsidies? Evidence from field-level data. Am. J. Agric. Econ 98:41095–113
    [Google Scholar]
  60. Kropp J, Peckham JG. 2015. US agricultural support programs and ethanol policies effects on farmland values and rental rates. Agric. Financ. Rev. 75:2169–93
    [Google Scholar]
  61. Latruffe L, Doucha T, Le Mouël C, Medonos T, Voltr V 2008. Capitalisation of government support in agricultural land prices in the Czech Republic. Agric. Econ. 54:10451–60
    [Google Scholar]
  62. Latruffe L, Le Mouël C 2009. Capitalization of government support in agricultural land prices: What do we know?. J. Econ. Surv. 23:659–91
    [Google Scholar]
  63. Leathers HD. 1992. The market for land and the impact of farm programs on farm numbers. Am. J. Agric. Econ. 74:2291–98
    [Google Scholar]
  64. Livanis G, Moss CB, Breneman VE, Nehring RF. 2006. Urban sprawl and farmland prices. Am. J. Agric. Econ. 88:4915–29
    [Google Scholar]
  65. McCorriston S, Sheldon IM. 1991. Government intervention in imperfectly competitive agricultural input markets. Am. J. Agric. Econ. 73:621–32
    [Google Scholar]
  66. Melendez-Ortiz R, Bellmann C, Hepburn J. 2009. Agricultural Subsidies in the WTO Green Box: Ensuring Coherence with Sustainable Development Goals Cambridge, MA: Cambridge Univ. Press
    [Google Scholar]
  67. Michalek J, Ciaian P, Kancs D. 2014. Capitalization of the single payment scheme into land value: generalized propensity score evidence from EU. Land Econ 90:2260–89
    [Google Scholar]
  68. Michalek J, Ciaian P, Kancs D. 2015. Investment crowding out: firm-level evidence from northern Germany. Reg. Stud. 50:91579–94
    [Google Scholar]
  69. Moschini G. 1984. Quota values and price uncertainty. Can. J. Agric. Econ. 32:231–34
    [Google Scholar]
  70. Neuenfeldt S, Gocht A, Heckelei T, Ciaian P. 2018. Explaining farm structural change in the European agriculture: a novel analytical framework. Eur. Rev. Agric. Econ. 46:5713–68
    [Google Scholar]
  71. OECD (Organ. Econ. Co-op. Dev.) 2009. Evaluation of Agricultural Policy Reforms in Japan Paris: OECD
    [Google Scholar]
  72. OECD (Organ. Econ. Co-op. Dev.) 2018. 2018—Monitoring and evaluation: reference tables: Producer Support Estimate (PSE) Data set from OECD.Stat https://stats.oecd.org/viewhtml.aspx?QueryId=84841&vh=0000&vf=0&l&il=&lang=en
    [Google Scholar]
  73. O'Neill S, Hanrahan K. 2016. The capitalization of coupled and decoupled CAP payments into land rental rates. Agric. Econ. 47:3285–94
    [Google Scholar]
  74. Patterson B, Hanson SD, Robison LJ. 1998. Characteristics of farmland leasing in the north central United States Staff Pap. 98-31 Dep. Agric. Food Resour. Econ., Mich. State. Univ East Lansing: https://ageconsearch.umn.edu/record/11610/files/sp98-31.pdf
    [Google Scholar]
  75. Patton M, Kostov P, McErlean S, Moss J. 2008. Assessing the influence of direct payments on the rental value of agricultural land. Food Policy 33:397–405
    [Google Scholar]
  76. Patton M, McErlean S. 2003. Spatial effects within the agricultural land market in Northern Ireland. J. Agric. Econ. 54:135–54
    [Google Scholar]
  77. Plantinga A, Miller D. 2001. Agricultural land value and the value of rights to future land development. Land Econ 77:156–67
    [Google Scholar]
  78. Pyykkönen P. 2005. Spatial analysis of factors affecting Finnish farmland prices. Presented at the 99th EAAE Congress on The Future of Rural Europe in the Global Agri-Food System Copenhagen: Aug 24–27 http://purl.umn.edu/24541
    [Google Scholar]
  79. Rainey RL, Dixon BL, Ahrendsen BL, Parsch LD, Bierlen RW. 2005. Arkansas landlord selection of land leasing contract type and terms. Int. Food Agribus. Manag. Rev. 8:11–19
    [Google Scholar]
  80. Roberts MJ, Kirwan B, Hopkins J. 2003. The incidence of government program payments on agricultural land rents: the challenges of identification. Am. J. Agric. Econ. 85:3762–69
    [Google Scholar]
  81. Robison L, Myers RJ, Siles ME. 2002. Social capital and the terms of trade for farmland. Rev. Agric. Econ. 24:144–58
    [Google Scholar]
  82. Roche M, McQuinn K. 2004. Riskier product portfolio under direct payments. Eur. Rev. Agric. Econ. 31:111–23
    [Google Scholar]
  83. Salhofer K. 2001. Elasticities of substitution and factor supply elasticities in European agriculture: a review of past studies. OECD Market Effects of Crop Support Measures89–119 Paris: OECD
    [Google Scholar]
  84. Salhofer K, Schmid E. 2004. Distributive leakages of agricultural support: some empirical evidence. Agric. Econ. 30:51–63
    [Google Scholar]
  85. Satterthwaite M, Shneyerov A. 2008. Convergence to perfect competition of a dynamic matching and bargaining market with two-sided incomplete information and exogenous exit rate. Games Econ. Behav. 63:2435–67
    [Google Scholar]
  86. Schmitz A, Just RE 2002. The economics and politics of farmland values. Government Policy and Farmland Markets: Maintenance of Landowner Wealth C Moss, A Schmitz 51–79 Ames: Iowa State Press
    [Google Scholar]
  87. Sckokai P, Moro D. 2009. Modelling the impact of the CAP Single Farm Payment on farm investment and output. Eur. Rev. Agric. Econ. 36:395–423
    [Google Scholar]
  88. Seagraves JA. 1969. Capitalized values of tobacco allotments and the rate of return to allotment owners. Am. J. Agric. Econ. 51:2320–34
    [Google Scholar]
  89. Shalit H, Schmitz A. 1982. Farmland accumulation and prices. Am. J. Agric. Econ. 64:4710–19
    [Google Scholar]
  90. Siles M, Robison L, Johnson B, Lynne G, Beveridge MD 2000. Farmland exchanges: selection of trading partners, terms of trade and social capital. J. ASFMRA 63:1127–40
    [Google Scholar]
  91. Sumner DA, Alston JM, Glauber JW 2010. Evolution of the economics of agricultural policy. Am. J. Agric. Econ. 92:2403–23
    [Google Scholar]
  92. Swinnen JFM. 1994. A positive theory of agricultural protection. Am. J. Agric. Econ. 76:11–14
    [Google Scholar]
  93. Swinnen JFM. 2002. Political reforms, rural crises, and land tenure in Western Europe. Food Policy 27:4371–94
    [Google Scholar]
  94. Swinnen JFM 2015. The Political Economy of the 2014–2020 Common Agricultural Policy: An Imperfect Storm Brussels: Cent. Eur. Policy Stud.
    [Google Scholar]
  95. Swinnen JFM, Banerjee AN, de Gorter H. 2001. Economic development, institutional change, and the political economy of agricultural protection: an econometric study on Belgium since the 19th century. Agric. Econ. 26:125–43
    [Google Scholar]
  96. Swinnen JFM, Van Herck K, Vranken L. 2014a. Land market regulations in Europe LICOS Discuss. Pap. 354 LICOS Cent. Inst. Econ. Perform. Leuven, Belg.:
    [Google Scholar]
  97. Swinnen JFM, Van Herck K, Vranken L. 2014b. The diversity of land institutions in Europe LICOS Discuss. Pap. 355 LICOS Cent. Inst. Econ. Perform. Leuven, Belg.:
    [Google Scholar]
  98. Tsoodle LJ, Golden BB, Featherstone AM. 2006. Factors influencing Kansas agricultural farm land values. Land Econ 82:1124–39
    [Google Scholar]
  99. Vollink WJ. 1978. Analysis of factors related to per acre prices of bare land: North Carolina 1975–1976. South. J. Agric. Econ. 10:2143150
    [Google Scholar]
  100. Weersink A, Clark S, Turvey C, Sarker R. 1999. The effect of agricultural policy on farmland values. Land Econ 75:3425–39
    [Google Scholar]
  101. Westcott PC, Young CE 2004. Farm program effects on agricultural production: coupled and decoupled programs. Decoupled Payments in a Changing Policy Setting ME Burfisher, J Hopkins 7–17 Agric. Econ. Rep. AER838 US Dep. Agric. Washington, DC:
    [Google Scholar]
  102. World Bank 2003. Domestic Support for Agriculture: Agricultural Policy Reform and Developing Countries Trade Note 7. Washington DC: World Bank
    [Google Scholar]
  103. Zhang J, Mishra AK, Hirsch S, Li X. 2020. Factors affecting farmland rental in rural China: evidence of capitalization of grain subsidy payments. Land Use Policy 90:104275
    [Google Scholar]
/content/journals/10.1146/annurev-resource-102020-100625
Loading
/content/journals/10.1146/annurev-resource-102020-100625
Loading

Data & Media loading...

Supplementary Data

  • Article Type: Review Article
This is a required field
Please enter a valid email address
Approval was a Success
Invalid data
An Error Occurred
Approval was partially successful, following selected items could not be processed due to error