California Farmland Valuation: A Hedonic Approach

Abstract

The determinants of regional farmland values are evolving over time and the farmland value growth varies by regions. As a result, the new regional farmland valuation models need to be dynamically updated with the changes in public policy, input and output markets and regional environmental amenities. This study used a Hedonic pricing model to examine the key determinants that influence the farmland values in 26 counties of California across the seven regions based on the different crop varieties and county-level economic characteristics. Specifically, we analyzed the relationship between variables that are deemed to influence demand, supply and the agricultural land values. The estimation results show that the farmland value in California is mostly determined by the production, productivities and dollar returns to the tree nuts, citrus and wine grapes. Specifically, higher productivity and net returns contribute to the increase in the farmland values. Urban influence factors have been playing a critical role in affecting the overall farmland value. For example, each additional acre of land converted to urban use raises the farmland value by $0.89 per acre. In addition, high real estate earnings might lead to rising farmland values. However, high farm earnings per capita could lower the farmland value, which suggests a tendency of witching from pursuing economies of scale to pursuing high value-added crop production that needs less farmland. Finally, high per-capita GDP and high population density can increase the farmland values.