The Valuation of Agricultural Land and the Influence of Government Payments

Factor Markets Coordination: Centre for European Policy Studies (CEPS), Brussels, BelgiumAgricultural and Food Policy, Land Economics/Use,

The Valuation of Agricultural Land and the Influence of Government Payments

This study gives an overview of the theoretical foundations, empirical procedures and derived results of the literature identifying determinants of land prices. Special attention is given to the effects of different government support policies on land prices. Since almost all empirical studies on the determination of land prices refer either to the net present value method or the hedonic pricing approach as a theoretical basis, a short review of these models is provided. While the two approaches have different theoretical bases, their empirical implementation converges. Empirical studies use a broad range of variables to explain land values and we systematise those into six categories. In order to investigate the influence of different measures of government support on land prices, a meta-regression analysis is carried out. Our results reveal a significantly higher rate of capitalisation for decoupled direct payments and a significantly lower rate of capitalisation for agri-environmental payments, as compared to the rest of government support. Furthermore, the results show that taking theoretically consistent land rents (returns to land) and including non-agricultural variables like urban pressure in the regression implies lower elasticities of capitalisation. In addition, we find a significant influence of the land type, the data type and estimation techniques on the capitalisation rate.

Promoting Organic Food: Information Policy Versus Production Subsidy

In developed countries governments aim to increase the market share of organic products. Assuming that organic farming creates a positive externality, we address the question of how this environmental benefit can be internalized best. Using the concept of heterogeneous producers and consumers we compare two policy options to enhance organic supply and demand with respect to their efficiency and distributional effect: First, we analyze the effect of a supply-side oriented policy like a subsidy on organic production. Second, we compare this policy measure to a demand-side oriented information policy, which aims to enhance the acceptance and identification of an organic food label. Third, we assume a mix of both policy measures. The main findings of this paper are that conventional consumers and organic producers and consumers experience a gain in welfare. The efficiency of any policy measure considered strongly depends on the utility enhancement experienced by organic consumers due to an information policy and the costs of transferring the information to the consumer.organic food, labeling, production subsidy, information policy, welfare, Agricultural and Food Policy, D61, D62, L15, Q18,

Teaching sustainable resource management in uncertain environment

Dynamic evolutions of resource stocks with stochastic elements in the transition equation are in general very difficult to master. Their handling requires a deep understanding of control theory, probability theory and sometimes even of game theory due to strategic interaction of 'agents'. But without strong mathematical backgrounds, students from adjacent research fields have a hard time with control theory. The same is true for probability theory and game theory. One way to avoid this problem is to change the aim: instead of target function optimization, guarantee the continuance of the system within certain boundaries. The latter relates to Viability theory. Unfortunately, even Viability theory requires more mathematics than the 'average' student is prepared for. The paper at hand will demonstrate how Excel can help here. Excel is applied since it is a widespread tool and most students are familiar with its basic features. Therefore students can concentrate on how to implement a dynamic system in a spreadsheet and how to simulate probability distributions and approximate the distribution of the target function - given different control rules. This enables them to assess opportunities and risks associated with these control rules. One topic appropriate to demonstrate the idea is renewable resource management. As many studies state, there is a deficit in sustainable learning not only in economics (Salemi and Siegfried 1999; Walstad and Allgood 1999) , but particular in system dynamic models (Moxnes, E. 2000; Pala and Vennix 2005). This is due to the complexity associated with long run- and feedback effects, and the complexity becomes even harder when stochastic development is included. The purpose of this paper will be to inspire students and to encourage them to solve stochastic dynamic problems later on their own with the simple tools at hand presently.Resource /Energy Economics and Policy,

PROMOTING ORGANIC FOOD: INFORMATION POLICY VERSUS PRODUCTION SUBSIDY

Governments in developed countries aim to increase the market share of organic products as a possibility to improve the environment or animal welfare or as a reaction to food crises and changing consumer preferences. Assuming that organic farming creates a positive externality, we address the question of how this environmental benefit can be internalized best. We use the concepts of heterogeneous producers with different unit production costs and heterogeneous consumers with different preferences for conventional and organic food, and compare two policy options to enhance organic supply and demand with respect to their efficiency and distributional effect: Firstly, we analyze the effect of a supply-side oriented policy like a subsidy on organic production on equilibrium prices and quantities, and producer and consumer welfare. Secondly, we compare this policy measure with a demand-side oriented information policy, which aims to enhance the acceptance and identification of an organic label. The main findings of this paper are that in either case, producers and consumers of conventional food are worse off, organic producers and consumers experience a gain in welfare, but the change in welfare is identical under the two policy options.Marketing,

National Differences in the Uptake of EU Agri-environmental Schemes: An Explanation

The number of agri-environmental programs launched under EU Regulation 1257/99, as well as the share of agricultural land covered under these programs, varies significantly between EU member states. National differences in the uptake of agri-environmental schemes would be economically efficient if they accounted for differences in countries' natural capacity to assimilate pollution and reflected the social value attributed to environmental quality. However, political decisions are unlikely to be influenced only by efficiency consideration. This paper assesses the distributional, budgetary and welfare effects of agri-environmental programs and analyses how this may explain the pattern of agri-environmental policy in Europe. The study is based on an environmental externality model which accounts for a country's economic, environmental and political situation. The conceptual analysis is supplemented by a regression model. Theoretical results suggest that the extent of agri-environmental programs increases as 1) the importance attributed to farm income increases; 2) the costs for the implementation of agri-environmental programs are lowered; 3) environmental benefits are valued higher; 4) the national budgetary pressure decreases; 5) the share of EU co-funding for agri-environmental schemes is raised. Empirical results indicate that countries attributing a high weight to farm income are more likely to implement agri-environmental schemes than others. The uptake of agri-environmental programs is higher the more important the role of landscape features for the domestic tourist industry. On the other hand, the uptake of agri-environmental policy is negatively correlated to land productivity and depends also on countries' wealth and their relative contribution to the EU budget.Environmental Economics and Policy,

Output Effects of Agri-environmental Programs of the EU

By definition agri-environmental programs of the EU aim not only at improving environmental quality, but also at reducing overproduction while supporting farm income. The aim of the study is to empirically measure the success of agri-environmental programs in regard to the objective of reducing or stabilizing production levels.Environmental Economics and Policy,

Enlargement of Trade Blocs: National Welfare Effects If Trade Is Liberalized

Small countries may benefit from the formation of a trade bloc, since their combined market power will enable them to manipulate the terms of trade. The question of interest is whether countries will benefit from the enlargement of a trading bloc, if trade liberalization induces countries to substitute domestic support measures for conventional border protection. The paper deals with this question by analyzing the conditions for positive welfare effects resulting from the enlargement of a trade bloc. Based on a partial equilibrium trade model, we consider a game in production taxes/subsidies between two trade blocs. The tax/subsidy instrument may capture the production effect which can be induced by a combination of environmental, health or safety rules. The paper demonstrates that national welfare effects from the enlargement of a trading bloc depend crucially on a member country's net trade flow and the relative market power of the trade bloc. The theoretical analysis is supplemented by a numerical analysis estimating the potential welfare gains of EU enlargement on the major grain crop markets. Based on the scenarios that the EU operates either as a monopoly or competes with the rest of the world within a duopoly, upper and lower bounds of potential welfare effects resulting from enlargement are estimated. The results suggest that welfare effects on the major European grain markets are very small in proportion to the total production value. We thereby conclude that political reasons are likely to remain the main motivation for further EU enlargement.trade bloc, trade liberalization, game theory, European Union, International Relations/Trade, D6, F11, Q17, C7,

Production Effects of Agri-environmental "Green Box" Payments: Empirical Results from the EU

Agri-environmental programs are part of the green box of the GATT Uruguay Round and are supposed to "have no, or at most minimal trade distorting effects or effects on production." In addition, "the amount of payment shall be limited to the extra costs or loss of income involved in complying with the government programme." Utilizing farm accounting data we estimate the effects on yields for ten agri-environmental programs in Austria, which account for 12% of EU's budget expenditures for agri-environmental programs. Only three out of these ten programs have significant negative effects on yields, while one program has a significant positive impact and the rest has no significant impact. These results suggest that there are serious windfall profits associated with some of these programs.agri-environmental programs, Green box, WTO, Common Agricultural Policy, decoupling, Environmental Economics and Policy, F16, Q56,

Comparing productivity growth in conventional and grassland dairy farms

This paper analyzes technical efficiency and productivity growth of dairy farms in southern Germany. We compare the performance of farms operating on permanent grassland and conventional farms using fodder crops from arable land. Using a latent class stochastic frontier model, intensive and extensive production systems are identified for both types of farms. We estimate stochastic output distance functions to represent the production technology. TFP change is calculated and decomposed using a generalized Malmquist productivity index. Our results show that grassland farms can in general keep up with conventional farms. The productivity on intensive (extensive) grassland dairy farms grew by 1.15% (0.93%) per year, compared to 1.19% (intensive) and 1.0% (extensive) on conventional farms.productivity, dairy farming, stochastic frontier analysis, Livestock Production/Industries, Productivity Analysis,