Capitalisation of government support in agricultural land prices: what do we know?
2007
Latruffe, Laure | Le Mouel, Chantal
The objective of this article is to provide an overview of existing literature, both theoretically and empirically, on the extent to which agricultural subsidies do translate into higher land values and rents and finally benefit landowners instead of agricultural producers. Our review shows that agricultural support policy instruments contribute to increase the rental price of farmland, and that the extent of this increase closely depends on the level of the supply price elasticity of farmland relative to those of other factors/inputs on the one hand, and on the range of the possibilities of factor/input substitution in agricultural production on the other hand. The empirical literature shows that land prices and rents have a significant positive response to government support, consistently less than 1. Such inelastic response is thought to reflect the uncertain future of the farm programs. And in general, studies have indicated that land prices are more responsive to government-based returns than to market-based returns.
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