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Assessing the influence of direct payments on the rental value of agricultural land

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  • Patton, Myles
  • Kostov, Philip
  • McErlean, Seamus
  • Moss, Joan

Abstract

Economic theory suggests that coupled and decoupled direct payments have different impacts on agricultural rental values because of the different production responses associated with these payments. This study investigates the impact of both coupled and decoupled EU CAP direct payments on rental values in Northern Ireland, using panel data taken from the farm business survey for the period from 1994 to 2002. Theoretically, agricultural land rents are a function of expected market returns and expected associated direct payments. The unobservable nature of expected returns means that actual market returns must be used as a proxy for the former in the empirical specification. As a consequence, the problem of bias due to expectation error arises. Using a GMM technique to take account of this problem, the results of this study show that the impact of CAP direct payments on rental values depends on the type of payment and on the nature of the production characteristics of the associated agricultural commodity.

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Bibliographic Info

Article provided by Elsevier in its journal Food Policy.

Volume (Year): 33 (2008)
Issue (Month): 5 (October)
Pages: 397-405

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Handle: RePEc:eee:jfpoli:v:33:y:2008:i:5:p:397-405

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Web page: http://www.elsevier.com/locate/foodpol

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  1. Barry K. Goodwin & Ashok K. Mishra & Fran�ois N. Ortalo-Magné, 2003. "What's Wrong with Our Models of Agricultural Land Values?," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 85(3), pages 744-752.
  2. Arellano, Manuel & Bond, Stephen, 1991. "Some Tests of Specification for Panel Data: Monte Carlo Evidence and an Application to Employment Equations," Review of Economic Studies, Wiley Blackwell, vol. 58(2), pages 277-97, April.
  3. Sergio H. Lence & Ashok K. Mishra, 2003. "The Impacts of Different Farm Programs on Cash Rents," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 85(3), pages 753-761.
  4. Blundell, Richard & Bond, Stephen, 1998. "Initial conditions and moment restrictions in dynamic panel data models," Journal of Econometrics, Elsevier, vol. 87(1), pages 115-143, August.
  5. Janssen, Larry & Button, Brian, 2004. "Impacts Of Federal Farm Program Payments On Cropland Values And Rental Rates: Evidence From County-Level Data In South Dakota," 2004 Annual meeting, August 1-4, Denver, CO 20398, American Agricultural Economics Association (New Name 2008: Agricultural and Applied Economics Association).
  6. Fred Kuchler & Abebayehu Tegene, 1993. "Asset Fixity and the Distribution of Rents from Agricultural Policies," Land Economics, University of Wisconsin Press, vol. 69(4), pages 428-437.
  7. Seamus McErlean & Ziping Wu & Joan Moss & Jos Ijpelaar & Andrew Doherty, 2003. "Do EU direct payments to beef producers belong in the 'blue box'?," Australian Journal of Agricultural and Resource Economics, Australian Agricultural and Resource Economics Society, vol. 47(1), pages 55-73, 03.
  8. Bowsher, Clive G., 2002. "On testing overidentifying restrictions in dynamic panel data models," Economics Letters, Elsevier, vol. 77(2), pages 211-220, October.
  9. Happe, Kathrin & Balmann, Alfons, 2003. "Structural, Efficiency And Income Effects Of Direct Payments - An Agent-Based Analysis Of Alternative Payment Schemes For The German Region Of Hohenlohe," 2003 Annual Meeting, August 16-22, 2003, Durban, South Africa 25920, International Association of Agricultural Economists.
  10. Lloyd, Tim, 1994. "Testing a Present Value Model of Agricultural Land Values," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 56(2), pages 209-23, May.
  11. Koenker, Roger & Machado, Jose A. F., 1999. "GMM inference when the number of moment conditions is large," Journal of Econometrics, Elsevier, vol. 93(2), pages 327-344, December.
  12. Alfons Weersink & Steve Clark & Calum G. Turvey & Rakhal Sarker, 1999. "The Effect of Agricultural Policy on Farmland Values," Land Economics, University of Wisconsin Press, vol. 75(3), pages 425-439.
  13. Gary Adams & Patrick Westhoff & Brian Willott & Robert E. Young, 2001. "Do “Decoupled” Payments Affect U.S. Crop Area? Preliminary Evidence from 1997–2000," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 83(5), pages 1190-1195.
  14. Moss, Charles B. & Shonkwiler, John Scott & Reynolds, John E., 1989. "Government Payments To Farmers And Real Agricultural Asset Values In The 1980s," Southern Journal of Agricultural Economics, Southern Agricultural Economics Association, vol. 21(02), December.
  15. Michael J. Roberts & Barrett Kirwan & Jeffrey Hopkins, 2003. "The Incidence of Government Program Payments on Agricultural Land Rents: The Challenges of Identification," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 85(3), pages 762-769.
  16. Lambert, Dayton M. & Griffin, Terry W., 2004. "Analysis Of Government Farm Subsidies On Farmland Cash Rental Rates Using A Fixed Effect Spatial Distributed Lag Model And A Translog Cost Model," 2004 Annual meeting, August 1-4, Denver, CO 19977, American Agricultural Economics Association (New Name 2008: Agricultural and Applied Economics Association).
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