Land, Land Use and Competitiveness

Land costs account for a significant proportion of the total costs for many agricultural products that are traded internationally, especially for the major grain crops that the U.S. exports in competition with several other countries. For owner-operators, a common form of tenure in the U.S. and most other countries, most land costs are implicit and involve few cash outlays, i.e., are opportunity costs that are important in the long-run but that may not affect production decisions in the short-run. To the extent that land is rented or where the owner is making mortgage payments, however, larger explicit land costs are incurred and can be a very significant factor in the cost of production and competitiveness. U.S. cost of production data for most crops in recent years indicate that the returns on equity, including land and other owned resources are zero or negative, i.e., the prices of many farm products are too low to cover total costs when opportunity costs are included as part of the cost of production. Thus, land costs may not be a significant factor in competitiveness in the current policy framework where government payments are a significant part of the net returns of farm operators.