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Farmland Rental Rate and Marginal Return to Land: A French FADN Perspective

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  • Dupraz, Pierre
  • Temesgen, Chalachew

Abstract

The paper examines the relationship between the cash rent and the shadow value of farmland to understand the French farmland market. The empirical analysis is restricted to French main grain crops, namely wheat, oil crops and other grain crops. The sample is an unbalanced panel of 35,089 observations, that includes 6,089 crop farms which are observed about 5 years each, during the period 1990 -2007. The shadow values of all quasi-fixed assets have been derived from a restricted variable profit function. The profit function was successively estimated and tested by three estimation strategies: pooled OLS, one-way fixed effect and random panel model. However, concluding remarks are based on the results of the fixed effect model because of its statistical significance. The result indicates that the shadow prices of land and labour were persistently diverging from there observed price. The average shadow value of farmland was estimated about 550€/ha/year which is five times higher than the average rental price of 112€/ha/year over the studied period. Implication for the behaviours of French farmland market has been drawn from this analysis.

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Bibliographic Info

Paper provided by Agricultural Economics Society in its series 86th Annual Conference, April 16-18, 2012, Warwick University, Coventry, UK with number 134954.

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Date of creation: Apr 2012
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Handle: RePEc:ags:aesc12:134954

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Keywords: Shadow values; cash rent; farmland price; NPV; restricted profit; fixed effect; Land Economics/Use; Q12; Q15;

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  1. Miranowski, John, 1993. "Understanding Farmland Price Changes," Staff General Research Papers 10696, Iowa State University, Department of Economics.
  2. Maligaya, Arlyn R. & White, Fred C., 1989. "Agricultural Output Supply And Input Demand Relationships With Endogenous Land Rents," Southern Journal of Agricultural Economics, Southern Agricultural Economics Association, vol. 21(02), December.
  3. Gao, Zhifeng & Featherstone, Allen M., 2008. "Estimating economies of scope using the profit function: A dual approach for the normalized quadratic profit function," Economics Letters, Elsevier, vol. 100(3), pages 418-421, September.
  4. Andrew J. Plantinga & Douglas J. Miller, 2001. "Agricultural Land Values and the Value of Rights to Future Land Development," Land Economics, University of Wisconsin Press, vol. 77(1), pages 56-67.
  5. 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.
  6. Lau, Lawrence J & Yotopoulos, Pan A, 1971. "A Test for Relative Efficiency and Application to Indian Agriculture," American Economic Review, American Economic Association, vol. 61(1), pages 94-109, March.
  7. Mishra, Ashok K. & Erickson, Kenneth W. & Moss, Charles B., 2001. "Valuing Farmland With Multiple Quasifixed Inputs," Proceedings: 2001 Regional Committee NC-221, October 1-2, 2001, McLean, Virginia 132397, Regional Research Committee NC-1014: Agricultural and Rural Finance Markets in Transition.
  8. Diewert, Walter E & Wales, Terence J, 1987. "Flexible Functional Forms and Global Curvature Conditions," Econometrica, Econometric Society, vol. 55(1), pages 43-68, January.
  9. Falk, Barry L., 1991. "Formally Testing the Present Value Model of Farmland Prices," Staff General Research Papers 11093, Iowa State University, Department of Economics.
  10. Andersen, Trude B. & Roll, Kristin H. & Tveteras, Sigbjorn, 2008. "The Price Responsiveness of Salmon Supply in the Short and Long Run," Marine Resource Economics, Marine Resources Foundation, vol. 23(4).
  11. Jean-Paul Chavas & Alban Thomas, 1999. "A Dynamic Analysis of Land Prices," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 81(4), pages 772-784.
  12. Lloyd, T A & Rayner, A J & Orme, C D, 1991. "Present-Value Models of Land Prices in England and Wales," European Review of Agricultural Economics, Foundation for the European Review of Agricultural Economics, vol. 18(2), pages 141-66.
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