IS THE PROFIT MOTIVE AN IMPORTANT DETERMINANT OF GRAZING LAND USE AND RANCHER MOTIVE?

We build our economic models and estimate grazing policy impacts based on the standard economic model of profit maximization. Yet, over 30 years of research and observation has shown that, for many, consumptive and quality of life values are the most important reasons for the purchase of western ranches. Ranch buyers want an investment they can touch, feel and enjoy, and they have historically been willing to accept low returns from the livestock operation. Profit maximization appears to be an inadequate model for explaining rancher behavior; in estimating what impacts altered public land policies will have; and in de-scribing grazing land use and value. In this study, only 27% of the value of New Mexico ranches in the most productive rangeland areas was explained by livestock production potential. Economists and policy-makers must take the influences of both traditional livestock production and quality of life values into ac-count when determining appropriate policies for western rangelands.Land Economics/Use, Livestock Production/Industries,

MODELING NONNEGATIVITY VIA TRUNCATED LOGISTIC AND NORMAL DISTRIBUTIONS: AN APPLICATION TO RANCH LAND PRICE ANALYSIS

This study presents an empirical method of modeling the nonnegativity of dependent variables using truncated logistic and normal disturbance distributions. The method is applied in estimating a ranch land hedonic price function. Results show that the degree of truncation is significant.Land Economics/Use,

THE LACK OF A PROFIT MOTIVE FOR RANCHING: IMPLICATIONS FOR POLICY ANALYSIS

The economic impact of changing land-use policies has traditionally been estimated using the standard economic model of profit maximization. Ranchers are assumed to maximize profit and to adjust production strategies so as to continue maximizing profit with altered policies. Yet, nearly 30 years of research and observation have shown that family, tradition, and the desirable way of life are the most important factors in the ranch purchase decision - not profit. Ranch buyers want an investment they can touch, feel, and enjoy, and they historically have been willing to accept relatively low returns from the livestock production. Profit maximization appears to be an inadequate model for explaining rancher behavior, describing grazing land use, and estimating the impacts of altered public land policies. In this paper, we investigate the relative importance of livestock production income and desirable lifestyle attributes in determining the market value of western ranches, and we explore what this means for economic models and policy analysis.Agricultural and Food Policy, Land Economics/Use,

Income Earning Potential versus Consumptive Amenities in Determining Ranchland Values

The relative importance of income earning potential versus consumptive values in setting ranchland prices is examined using a truncated hedonic model. The market value of New Mexico ranches is related to annual income earning potential and other ranch characteristics including ranch size, location, elevation, terrain, and the amount of deeded, public, and state trust land on the ranch. We found ranch income to be a statistically important determinant of land value, but yet a relatively small percentage of ranch value was explained by income earnings. Ranch location, scenic view, and the desirable lifestyle influenced ranch value more than ranch income.consumptive value, grazing fees, grazing permit value, hedonic model, land value, lifestyle agriculture, public land grazing, voluntary grazing permit buyout, Land Economics/Use,

AN EVALUATION OF THE PRIA GRAZING FEE FORMULA

The federal grazing fee is currently set using the Public Rangeland Improvement Act (PRIA) fee formula established in 1978 and modified in 1986. The formula is adjusted annually using indices of private land grazing lease rates (Forage Value Index, FVI), prices received for beef cattle (Beef Cattle Price Index, BCPI), and costs of beef production (Prices Paid Index, PPI). The FVI tracks price movement in the private forage market and was the only index originally proposed to be included in the fee formula. Public land ranchers and an Interdepartmental Grazing Fee Technical Committee assigned to study grazing fee alternatives in the 1960s questioned the ability of the FVI to account for short-term demand, supply, and price equilibrium, and, for this reason, the BCPI and PPI were added to the fee formula. Over 30 years of data are now available to evaluate whether adding the BCPI and PPI did, in fact, help explain short-term market fluctuations. This analysis shows, as earlier studies did, that, if tracking the private forage market is the primary objective, then the fee formula should have included only the FVI. Including the BCPI and, especially, the PPI has caused calculated grazing fees to fall further and further behind private land lease rates. Had the $1.23 base fee in the PRIA formula been indexed by only the FVI, the federal grazing fee would have been$3.84/AUM instead of $1.35/AUM in 2000. It is time to consider the feasibility of a competitive bid system for public lands, or, at the very least, adopt a new fee formula that generates more equitable grazing fees.Land Economics/Use,