Impacts of agricultural policies on crop land prices

Abstract

Abstract We develop a Ricardian model with heterogeneous land quality to analyze the effects of agricultural and agri-environmental policies on crop land prices. Four policy instruments are considered: a uniform area payment, a quality-dependent area payment, a mandatory buffer strip policy, and a voluntary buffer strip payment under the current single farm payment and the previous more coupled support system. We also examine how general tax and monetary policies affect crop land prices. An empirical model applied to Finnish agriculture shows that both types of area payments capitalize fully in land prices. The quality-dependent area payments lead to higher land prices but also to higher environmental quality. Voluntary environmental policies do not increase the average crop land prices. Finally, macroeconomic factors such as general tax and monetary policies may exert a greater impact on crop land prices than some relatively minor fine-tuning in agri-environmental policies.