The Evolution of Farm Programs and Their Contribution to Agricultural Land Values

Abstract

The economic environment of agricultural producers has been influenced by formal U.S. agricultural policy for more than seventy years. Among the first pieces of New Deal legislation proposed by incoming President Franklin D. Roosevelt, was a farm program designed to address declines in crop prices and net farm income. Key features of the Agriculture Act of 1933 included mandatory price support for specified commodities, direct subsidy payments to farmers, and supply controls. Farm programs, once viewed as temporary and supplementary to agricultural earnings, are increasingly viewed as permanent and of major proportion. Gardner examined the relationships between U.S. farm commodity programs and U.S. farm structure, while others (see Sumner for concept, evidence, and implications) have examined farm programs and specific crops. Gardner (2002), and Weersink et al. analyzed the effects of farm program programs upon land values. These studies examined various aspects of agricultural policy including whether farm program payments have enhanced land prices and landowner wealth rather than the welfare of producers. While it would seem logical that revenueenhancing farm programs would increase land values, reliably estimating the magnitudes of farm program effects upon land values is an empirically challenging task. Both statistical and budgeting-based methodologies have been used to estimate the share of land prices generated by farm program payments. Statistically based studies are complicated by the fact that both real per acre crop receipts Saleem Shaik is post-doctoral research associate,

Did the Federal Agriculture Improvement and Reform Act of 1996 Affect Farmland Values?

“…Shaik et al [11] cited problems with earlier studies caused by identification issues introduced by counter-cyclical farm program payments and farm returns. The issue results from the misuse of farm program payments as exogenous variables in land valuation models.…”

“…Much of the rise in farmland value is attributed to farm programs, under which farmers received government payments that are capitalized in the farmland [3][4][5][6][7][8][9][10][11]. The capitalization of government programs into land prices has also been discussed in the literature [12][13][14][15][16].…”

“…These include the income capitalization model [22][23][24] and hedonic models [25][26][27]. Analysis included empirical application to macro economic variables like interest rate and inflation [19], specific farm programs and crops [18,22,[28][29][30][31][32], farm program bases [6,29,33] and historical farm program payments [11,34] using historical data, . Falk [34] studied the plausibility of the constant expected returns version of the present value model as a tenable explanation of farmland prices.…”

Capitalisation of government support in agricultural land prices in the Czech Republic

“…in general, studies agree that the support accounts for around 15-30 percent of the land prices (e.g. Just and Miranowski, 1993;ErS USDA 2001;Shaik et al 2005), and that land prices are more responsive to the government-based returns than to the market-based returns (e.g. goodwin, ortalo-Magné 1992; Weersink et al 1999;Duvivier et al 2005).…”

“…ErS USDA 2001; Shaik et al 2005). in this case, the model reduces to the basic capitalisation formula as follows:…”