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Capitalized Values of Tobacco Allotments and the Rate of Return to Allotment Owners

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  • James A. Seagraves

Abstract

Tobacco allotments have been salable only along with the farms to which they are attached. Multiple regression allows one to isolate that part of total land value accounted for by allotments. Capitalized values of flue-cured tobacco allotments were estimated for the period 1934–62. The ratio of annual earnings to these capitalized values, or the rate of return, fell from about .75 in the years 1944–46, when the program was first really effective, to a level of .16 for the period 1957–62. This decline reflects a dramatic increase in investor confidence in the future of the tobacco program and places tobacco allotments, which are widely thought to be highly profitable as monopoly rights go, in a class of relatively riskless investments. Government programs that reduce the risk of farm ownership are bound to increase the value of the assets and thereby reduce the rate of return. The rate of return allows us to predict the fall in capitalized value that will accompany future changes in expected income.

Suggested Citation

  • James A. Seagraves, 1969. "Capitalized Values of Tobacco Allotments and the Rate of Return to Allotment Owners," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 51(2), pages 320-334.
    • Handle: RePEc:oup:ajagec:v:51:y:1969:i:2:p:320-334.
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    Cited by:

    1. Daniel A. Sumner & Norbert L. W. Wilson, 2005. "Capitalization of Farm Policy Benefits and the Rate of Return to Policy-Created Assets: Evidence from California Dairy Quota," Review of Agricultural Economics, Agricultural and Applied Economics Association, vol. 27(2), pages 245-258.
    2. Johnson, James D. & Baum, Kenneth & Clauson, Annette L., 0. "Income And Asset Valuation Effects Of Food And Agricultural Policy - A Perspective On Data And Analysis," Increasing Understanding of Public Problems and Policies, Farm Foundation.
    3. Vollink, William J., 1978. "Analysis Of Factors Related To Per Acre Prices Of Bare Land: North Carolina 1975-1976," Southern Journal of Agricultural Economics, Southern Agricultural Economics Association, vol. 10(2), pages 1-8, December.
    4. Brake, John R. & Melichar, Emanuel, 1977. "Agricultural Finance and Capital Markets," A Survey of Agricultural Economics Literature, Volume 1: Traditional Fields of Agricultural Economics 1940s to 1970s,, Agricultural and Applied Economics Association.
    5. Bryant, W. Keith & Bawden, D.L. & Saupe, W.E., 1981. "PART I. The Economics of Rural Poverty," AAEA Monographs, Agricultural and Applied Economics Association, number 337226, january.
    6. Feichtinger, Paul & Salhofer, Klaus, 2014. "The common agricultural policy of the EU and agricultural land prices - a spatial econometric approach for Bavaria," 2014 International Congress, August 26-29, 2014, Ljubljana, Slovenia 182751, European Association of Agricultural Economists.
    7. Foster, William E. & Babcock, Bruce A., 1993. "Commodity Policy, Price Incentives, and the Growth in Per-Acre Yields," Journal of Agricultural and Applied Economics, Cambridge University Press, vol. 25(1), pages 253-265, July.
    8. G. F. Ortmann, 1987. "Land Rents and Production Costs in the South African Sugar Industry," South African Journal of Economics, Economic Society of South Africa, vol. 55(3), pages 163-169, September.
    9. Rucker, Randal R & Thurman, Walter N & Sumner, Daniel A, 1995. "Restricting the Market for Quota: An Analysis of Tobacco Production Rights with Corroboration from Congressional Testimony," Journal of Political Economy, University of Chicago Press, vol. 103(1), pages 142-175, February.
    10. Wilson, Norbert L.W. & Sumner, Daniel A., 2004. "Explaining Variations in the Price of Dairy Quota: Flow Returns, Liquidity, Quota Characteristics, and Policy Risk," Journal of Agricultural and Resource Economics, Western Agricultural Economics Association, vol. 29(1), pages 1-16, April.
    11. Pavel Ciaian & Edoardo Baldoni & d'Artis Kancs & Dušan Drabik, 2021. "The Capitalization of Agricultural Subsidies into Land Prices," Annual Review of Resource Economics, Annual Reviews, vol. 13(1), pages 17-38, October.
    12. Sumner, Daniel A. & Wohlgenant, Michael K., 1983. "An Economic Analysis Of The 1983 Increase In The Federal Excise Tax On Cigarettes," Department of Economics and Business - Archive 259741, North Carolina State University, Department of Economics.
    13. Seagraves, J.A. & Williams, Fred E., 1981. "Returns To Investors In Flue-Cured Tobacco Allotments 1975-1980," Department of Economics and Business - Archive 259739, North Carolina State University, Department of Economics.
    14. Feichtinger, Paul & Salhofer, Klaus, 2013. "What Do We Know about the Influence of Agricultural Support on Agricultural Land Prices?," German Journal of Agricultural Economics, Humboldt-Universitaet zu Berlin, Department for Agricultural Economics, vol. 62(02), pages 1-15, May.
    15. Feichtinger, Paul & Salhofer, Klaus, 2013. "What Do We Know about the Influence of Agricultural Support on Agricultural Land Prices?," Journal of International Agricultural Trade and Development, Journal of International Agricultural Trade and Development, vol. 62(2).
    16. Brake, John R. & Melichar, Emanuel, 1977. "PART VI. Agricultural Finance and Capital Markets," AAEA Monographs, Agricultural and Applied Economics Association, number 337218, january.

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