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The Expanding Ethanol Market and Farmland Values: Identifying the Changing Influence of Proximity to Agricultural Market Channels

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  • Zhang, Wendong
  • Irwin, Elena G.

Abstract

We investigate the spatial capitalization of the expanding biofuels market in farmland values using parcel-level farmland sales data from 2001 to 2010 for a 50-county area within Ohio’s Corn Belt region. We construct two instruments by exploiting the spatial competition among agricultural markets to address the non-random ethanol plant site selection process. Our results reveal a positive capitalization of $19 per acre for each mile closer a farmland parcel is to the nearest ethanol plant post-construction. This translates into a $380 ($570) per acre premium—roughly 7 (10) percent of the average sales price—for parcels 20 (30) miles closer to ethanol plants than comparable, but more distant, parcels. The effect of proximity to grain elevators became a positive and significant determinant after the ethanol market expansion, conveying an added value of $57 per acre with every mile closer to a grain elevator. In contrast, the effect of proximity to agricultural terminals diminished over 30 percent, from an average of $48 to $30 per acre per mile, providing evidence of changing spatial competition among local agricultural market channels.

Suggested Citation

  • Zhang, Wendong & Irwin, Elena G., 2017. "The Expanding Ethanol Market and Farmland Values: Identifying the Changing Influence of Proximity to Agricultural Market Channels," ISU General Staff Papers 201706010700001090, Iowa State University, Department of Economics.
    • Handle: RePEc:isu:genstf:201706010700001090
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    Cited by:

    1. Gardner, Grant & Sampson, Gabriel S., 2022. "Land Value Impacts of Ethanol Market Expansion by Irrigation Status," Journal of Agricultural and Resource Economics, Western Agricultural Economics Association, vol. 47(3), September.
    2. Sampson, Gabriel & Gardner, Grant, 2021. "Land Value Impacts of Ethanol Market Expansion Differ by Irrigation Status," 2021 Annual Meeting, August 1-3, Austin, Texas 313854, Agricultural and Applied Economics Association.

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