Impact of U. S. Agricultural Policies on Farmland rental rates

1. Impact of U. S. Agricultural Policies on Farmland rental rates Victor O. Agunbiade Department of Economics Faculty Mentor Dr. Ihsuan Li (Department of Economics) Impact of U.S.Agricultural Policies on Farmland rental rates

2. Introduction • The Federal Agricultural Improvement and Reform Act of 1996 • Emergency Subsidy Legislation of 1998 • The Farm Security and Rural Investment Act of 2002 • Food, Conservation, and Energy Act of 2008 Impact of U.S.Agricultural Policies on Farmland rental rates

3. Previous Research-1 • Dayton M. Lambert and Terry W. Griffin(2004): there are no changes or effect in cash rental rates as a result of government subsidies. However, cost structure of the farm is affected by the government roles. • Mary Clare Ahearn, Hisham El-Osta, and Joe Dewbre (2006): whether coupled or decoupled, government subsidies have a negative effect on off-farm labor participation. Impact of U.S.Agricultural Policies on Farmland rental rates

4. Previous Research -2 • Gardner and Summer (2007) : farm commodity programs imposed costs on taxpayers far in excess of the benefits they deliver to the nation. • Nathan Hendricks, Joseph Jansen, and Kevin Dhuyvetter (2010): government payments are capitalized into rental rates at about the same rate as revenue and costs in the short run. • Kirwan (2010): farm land owners receive about one-fifth of the marginal subsidy dollar through higher rental rates. Impact of U.S.Agricultural Policies on Farmland rental rates

5. Theoretical Model • The standard model of agricultural subsidy predicts that due to extremely inelastic supply of agricultural land, landowners receive the most benefit of the subsidy (Shultze, 1971; Schmitz and Just, 2002) • Kirwan(2009):Rental rates= f (government subsidy, sales revenue, variable production expenses, proportion of acres used, and proportion of acres in pasture) Impact of U.S.Agricultural Policies on Farmland rental rates

6. Empirical Model • Empirical Model (Equation) • Rental rates =ß0+ß1changes in government subsidy +ß2sales revenue+ß3 variable production expensesß4 unobserved heterogeneity on the farms+ß5 fixed effects+ß6Dummy for the year 1996+ß7 Dummy for the year 1998+ß8 Dummy for the year 2002+ß9 Dummy for the year 2008+ß10Dummy for the Federal Agricultural Improvement and Reform Act+ß11Dummy for the Emergency subsidy legislation+ß12 Dummy for the Farm security and rural Investment Act+ ß13Dummy for the food, Conservation, and Energy Act+(ß14+…+ß62)Dummies for the 50 states Impact of U.S.Agricultural Policies on Farmland rental rates

7. Data • Variable Description Mean Std. Dev. Min. Max. • Rent paid ($/ac) 13.219 14.245 0.002 83.562 • Gov't payments ($/ac) 20.43 13.486 0 73.306 • Sales revenue ($/ac) 160.675 83.646 0 472.810 • Variable cost ($/ac) 116.379 58.113 0 330.782 • Pro. of acres planted 0.055 0.154 0 1 • Pro. of acres in pasture 0.268 0 .283 0 0.972 • N 1100 Source of data is Economic Research Service of the US Department of Agriculture. Impact of U.S.Agricultural Policies on Farmland rental rates

8. Regression Results • Variables Coefficients t-statistics Constant 8.466 6.38 Changes in govt. subsidy 0.215* 4.91 Sales Revenue 0.044 1.51 Variable production Costs 0.051 -1.69 Proportion Planted 4.203 0.442 Proportion pasture 2.441* -16.572 Observation: 1100 • P value significant at 5% Impact of U.S.Agricultural Policies on Farmland rental rates

9. Conclusion $1 change in govt. subsidy will increase the rental rate of farmland by 21cents. Therefore for every dollar of taxpayer money spent on farm programs/subsidy, it transfer 21cents to farm owners in terms of rent. Suggestions for future research. Questions? Impact of U.S.Agricultural Policies on Farmland rental rates

10. References • Brenna D. Ellison, Jayson L. Lusk, and Brian C. Briggeman (2010) Taxpayer Beliefs About Farm Income and Preferences For Farm Policy. Applied Economic Perspectives and Policy, 32(2), 338-354 • Dayton M. Lambert and Terry W. Griffin (2004) Analysis of Government Farm Subsidies on Farmland Cash Rental Rates Using a Fixed Effect Spatial Distributed Lag Model and a Translog Cost Model. American Journal of Agricultural Economics, 74(1), 38-49 • Gardner Bruce and Sumner Daniel (2007) U.S. Agricultural Policy Reform in 2007 and Beyond • Giovanni Anannia, Mary Bohman, and Colin A. Carter (1992) United States Export Subsidies in Wheat: Strategic Trade Policy or Expensive Beggar-Thy-Neighbor Tactic? American Journal of Agricultural Economics, 74(3), 534-545 • Julian M. Alson and Brian H. Hurd (1990) Some Neglected Social Costs of Government Spending in Farm Programs. American Journal of Agricultural Economics, 72(1), 149-156 • Kirwan Barrett (2009) The Incidence of U.S. Agricultural Subsidies on Farmland Rental Rates. Journal of Political Economy, 117(1), 138-164 • Mary Clare Ahearn, Hisham El-Osta, and Joe Dewbre (2006) The Impact of Coupled and Decoupled Government Subsidies on Off-Farm Labor Participation of U.S. Farm Operators. American Journal of Agricultural Economics, 88(2), 393-408 • Nathan Hendricks, Joseph Jansen, and Kevin Dhuyvetter (2010) The Incidence of Agricultural Subsidies On Farmland Rental Rates: Overcoming Bias From Inertia, Expectations, and Tenancy Arrangements.. Impact of U.S.Agricultural Policies on Farmland rental rates