The impact of decoupled payments on U.S. cropland values

An extensive literature has shown that various farm programs may influence the value of farmland, but other studies have not examined the cropland price effects of direct, or decoupled, payments separate from countercyclical payments. This study uses nationally representative confidential field‐level panel data with farmer‐reported per‐acre land values. We analyze the impact of decoupled and other farm program payments on farmland values. Using a fixed effects model and controlling for various factors that influence farmland values, we find that an additional dollar of decoupled payments has a large and statistically significant impact on farmland values of about $18 per acre. These results are comparable with similar studies undertaken in Europe.     

On farmland prices and rents in Japan

Historically, the Japanese farmland market has been strongly regulated, although fundamental changes in policy were introduced in 1967 and 1980. This article examines the relationship between farmland prices and rents in Japan for 1955–2000 using the cointegration procedure of Johansen et al. (2000) , which admits structural breaks. Results show the presence of a cointegrating relationship with a significant break in 1980. There is Granger‐causality from prices to rents, which suggests that rents are determined within an institutional setting according to farmland prices. The rent–price elasticity is unity, which supports the notion of efficiency in the farmland market.     

Farmland prices, structural breaks and panel data

Previous time series evidence has indicated that farmland pricesand cash rents are not cointegrated, a finding at odds withthe present value model of farmland prices. We argue that thisfailure to find cointegration may be due to low power of testsand to the presence of structural change representing a shiftingrisk premium on farmland investments. To accommodate this possibility,we use panel unit root and cointegration methods that are morepowerful than conventional time series methods and allow forbreaks in the cointegration relationship. Our results, basedon a large panel covering 31 US states between 1960 and 2000,suggest that the present value model of farmland prices cannotbe rejected.     

Adopting bioenergy crops: Does farmers’ attitude toward loss matter?

We apply prospect theory to examining farmers’ economic incentives to divert a share of their land to bioenergy crops (miscanthus and switchgrass in this study). Numerical simulation is conducted for 1,919 rain‐fed U.S. counties to identify the impact of loss aversion on bioenergy crop adoption, and how this impact is influenced by biomass price, discount rate, credit constraint status, and policy instruments. Results show that ignoring farmer's loss aversion causes overestimation of miscanthus production but underestimation of switchgrass production, particularly when farmers are credit constrained and have a high discount rate. We find that establishment cost subsidy induces more miscanthus production whereas subsidized energy crop insurance induces more switchgrass production. The efficacy of these two policy instruments, measured by biomass production increased by per dollar of government outlay, depends on the magnitude of farmers’ loss aversion and discount rate.     

Cash crop liberalization and poverty alleviation in Africa: evidence from Malawi

This article uses the case of burley tobacco liberalization in Malawi to investigate the efficacy of cash crop liberalization as an instrument for poverty alleviation in sub‐Saharan Africa. The principal justification for cash crop liberalization is that markets allow farm households to increase their incomes by producing that which provides the highest return to their productive resources and use the cash to buy consumption goods. Using a latent welfare model, we find that households that selected to grow cash crops had higher incomes than those that did not grow cash crops. However, we also find that due to the lumpiness and seasonality of cash crop incomes, higher household incomes, while increasing food purchases did not significantly affect per capita food intake. Irrespective of participation in cash crops, for much of the cropping season rural households seem to rely more on nonfarm income for expenditure and consumption smoothing.     

The political economy of farmland ownership regulations and land prices

One of the most ubiquitous forms of agricultural regulation is a restriction on farmland ownership. One Canadian example of a farmland ownership restriction is The Saskatchewan Farm Security Act (FSA), passed in 1974. The purpose of this article is to explain, using a political economy framework, why the FSA was implemented and to estimate the effect of the FSA on Saskatchewan farmland values. A Present Value (PV) model is used to estimate the relationship between land values, rents, and the regulation. The Hausman endogeneity test reveals that the regulation variable is endogenous with the land price. The sign of the regulation variable is negative, which fits with the theory, i.e., the more stringent the regulation the lower the land value. We estimate that the regulation lowered Saskatchewan farmland prices by an average of 4 to 34 US$/acre, depending on whether ordinary least squares (OLS) or two‐stage least squares (TSLS) is employed in the estimation, over the period of 1974–2001.     

Are People Ashamed of Paying with Food Stamps?

We evaluate the claim that marginal ‘welfare stigma’causes a dollar of food to provide less utility if bought with food stamps rather than cash, and that this explains why, in the United States, the marginal propensity to consume food out of food stamps is larger than that out of income. This hypothesis has been advanced to explain the so‐called ‘cash‐out puzzle’: the empirical observation that the marginal propensity to consume food out of food stamps is much higher than that out of income, even for households who spend some cash income on food. We develop a theoretical model to identify the restrictions imposed by the hypothesis that the puzzle is indeed caused by such stigma. Using data from San Diego County, we find that two of the three predictions of the marginal stigma model are violated. These results cast serious doubt on the marginal stigma hypothesis.     

The National Economic Benefits of Food Imports: The Case of U.S. Imports of Hass Avocados From Mexico

Imports of food products are often seen primarily as a threat to domestic producers while the broader economic impacts are ignored. Research on rapidly growing U.S. avocado imports has focused on the consequences for the U.S. avocado industry. This study conducts an economic impact analysis to measure the level and industry distribution of any benefits of U.S. imports of avocados from Mexico that may accrue to the U.S. national economy. We find that the US$1.5 billion in U.S. imports of Mexican avocados in 2015 had a positive and statistically significant effect on the U.S. economy in that year. Every dollar of avocado imports from Mexico in 2015 generated US$2.31 in U.S. output, US$1.41 in U.S. GDP, and US$0.79 in U.S. labor income. About 12.3 jobs were generated per US$1 million of imports. A separate econometric analysis corroborates the result. We conclude that imports of Mexican avocados are pro-growth for the U.S. economy.     

Do Intra-Household Effects Generate the Food Stamp Cash-Out Puzzle?

Previous empirical studies have noted the higher marginal propensity to consume food out of food stamps in the United States, compared to that out of cash income. Analyzing data from U.S. Food Stamp Program participants, we find evidence that this discrepancy may be driven primarily by the behavior of multiple-adult households. Single-adult households show no evidence of any discrepancy. Thus, our results suggest that food stamp and cash income (welfare or market) may have very different impact on the intra-household allocation process, and that this is reflected empirically in the cash-out puzzle.     

How much of commodity price behavior can a rational expectations storage model explain?

A rational expectations competitive storage model was applied to the U.S. corn market, to assess the aptness of this framework in explaining monthly price behavior in an actual commodity market. Relative to previous models, extensive realism was added to the model, in terms of how production activities and storage costs are specified. By modeling convenience yield, “backwardation” in prices between crop years did not depend on the unrealistic assumption of zero ending stocks. Our model generated cash prices that were distributed with positive skewness and kurtosis, and mean and variance that increased over the storage season, comparable to the persistence and the occasional spikes observed in commodity prices. Futures prices were generated as conditional expectations of cash prices at contract maturity, and the variances of futures prices exhibited realistic time–to‐maturity and seasonal patterns. Model realizations of cash and futures prices over many “years” were used to demonstrate the wide variety of price behaviors that could be observed in an efficient market with a similar market structure, implying that economic and policy implications drawn from short, historical samples of prices could be misleading.     

The Amenity Value of Agricultural Landscape and Rural–Urban Land Allocation

We analyse rural–urban land allocation in the light of the increasing environmental role of agricultural landscapes. The landscape amenity value of farmland varies across crops and as a result affects the optimal crop mix in addition to its effect on rural–urban land allocation. Investigating the effects of population and income growth processes, we find that, contrary to market outcomes, the socially optimal allocation may call for more farmland preservation under both processes. In an empirical application to a region in Israel, we find that the extent of market under‐supply of farmland is substantial and that population growth calls for more farmland preservation at the expense of urban land.     

The producer welfare effects of trade liberalization when goods are perishable and habit‐forming: the case of asparagus

Asparagus is a perishable, highly seasonal crop. We find that out‐of‐season imports of asparagus caused habit formation that increased demand in the U.S. growing seasons. We find that habit effects offset about 64% of the welfare losses to U.S. asparagus producers from increased Mexican imports under NAFTA and all of the U.S. producer welfare losses from increased Peruvian imports under the Andean Trade Preference Act. We estimate that the U.S. producer welfare losses from NAFTA are less than the annualized value of market loss assistance provided them in the 2008 Farm Bill.     

How do informal farmland rental markets affect smallholders’ well‐being? Evidence from a matched tenant–landlord survey in Malawi

We estimate the efficiency and equity returns to farmland rental markets in Malawi using a matched tenant–landlord survey of smallholder farm households in four districts. Our sample allows us to more fully observe the landlord side of the rental market, which is almost always missing in previous studies. Our results suggest that land rental markets promote efficiency by facilitating a net transfer of land to more productive farmers. We also find that land rental markets promote equity as conventionally defined in the land markets literature, that is, by transferring land from land‐rich households to land‐poor households, and from labor‐poor to labor‐rich households. However, our study identifies some important challenges for land rental markets in this context. First, we find that tenants in our sample are wealthier than their landlord counterpart on average in all dimensions other than landholding. In addition, most landlords report the motive for renting out their land as either the need for immediate cash, or the lack of labor and/or capital to cultivate the plot that was rented out. These findings align with concerns about potential “stress renting” by poor landlords and suggest the value of defining equity along a broader set of dimensions other than simply equalizing the distribution of farmland and labor.     

Cattle sharing and rental contracts in an Agrarian economy: evidence from Ethiopia

Empirical evidence on the role of cattle sharing and rental contracts in agrarian economies is limited. This article is an investigation of different types of cattle sharing and rental contracts producers in rural Ethiopia adopt. It also investigates why households in rural Ethiopia rely on these contracts that are vulnerable and therefore subject to potential moral hazard problems described in earlier literature. We apply random effect probit and control function econometric methods to household panel data collected in 2005 and 2007 from two agro‐ecological zones in Ethiopia. Controlling for the endogeneity of access to livestock credit, we find that contracts are spatially fragmented and better developed where population density is high and credit and insurance markets are poorly developed. We also find that contracts help cash poor and credit constrained households to improve their herd dynamics, to get access to nonlivestock resources (land, labor and cash) and share risks that could have been difficult without the contract. We show that contracts are rational responses of residents in rural communities characterized by imperfect credit and insurance services, since households with better access to credit are less likely to rely on contracts.     

Land use and income diversification: comparing traditional and colonist populations in the Brazilian Amazon

This article compares and analyzes land use and income diversification among two distinct groups of farmers in the Brazilian Amazon: recent colonists in Ouro Preto do Oeste, Rondônia, and traditional long‐term residents along the Tapajós River, Pará. We investigate the hypothesis that farmers who diversify their cash income sources clear less forest on an annual basis, and we compare these livelihood choices across colonist and traditional populations. In particular, we develop a conceptual model based on the household production framework and use econometric models to identify determinants of diversification and forest clearing. We find that diversification of agricultural cash crops is negatively correlated with forest clearing by colonists, providing limited evidence for the hypothesis. Other significant covariates of diversification and forest clearing include cash income levels, stage in family life cycle, cattle ownership, and chemical inputs. Differences in these variables, and differences in household response to these variables, explain variation in diversification and forest clearing across the two populations.     

A Spatio‐temporal Model of Farmland Values

Despite the fact that data on farm sales are invariably collected over both time and space, previous papers have allowed for the presence of either temporal or spatial relationships in the data, but not both. Some papers have also inadvertently assumed that although farmland values are influenced by prices realised by nearby sales, these sales need not necessarily be comparable in terms of their attributes. Using data on sales of farmland obtained through public auctions in England and Wales, this paper examines the consequences of explicitly allowing for the presence of a spatio‐temporal lag in the estimation of hedonic models of farmland value. The results indicate that spatio‐temporally lagged values of the dependent and independent variables contribute significant additional explanatory power. Accounting for spatio‐temporal relationships appears moreover to somewhat alter the perceived size and statistical significance of key farmland attributes.     

Macroeconomic policy impacts on United States agriculture: A simulation analysis

United States monetary and fiscal policies influence the domestic agricultural economy directly and, through international linkages, indirectly. This study estimates the magnitude and statistical influence of coefficients relating U.S. macroeconomic policy to the U.S. agricultural economy through domestic and foreign markets. Specific objectives are to specify and estimate a general equilibrium quarterly econometric model of the U.S. macroeconomy and simulate the impact of federal deficit spending on real interest rates, real exchange rates, and net exports of agricultural products. Three hypotheses were tested. The first hypothesis that an increase in federal deficit spending increases the real interest rate could not be rejected; a $100 billion reduction in the U.S. deficit was estimated to reduce real interest rates by two percentage points or more. The second hypothesis that an increase in real interest rate increases the real value of the U.S. dollar in foreign exchange markets had strong support and could not be rejected. A third hypothesis that a rise in the real value of the dollar reduces net exports of U.S. farm products also could not be rejected. Results indicate that the U.S. agriculture would benefit from the lower exchange value associated with an ‘optimal’ macroeconomic policy. That policy initially made the overall U.S. economy perform less satisfactorily but that performance improves over time.     

Appraising agricultural greenhouse gas mitigation potentials: effects of alternative assumptions

There is interest in society in general and in the agricultural and forestry sectors concerning a land‐based role in greenhouse gas mitigation reduction. Numerous studies have estimated the potential supply schedules at which agriculture and forestry could produce greenhouse gas offsets. However, such studies vary widely in critical assumptions regarding economic market adjustments, allowed scope of mitigation alternatives, and region of focus. Here, we examine the effects of using different assumptions on the total emission mitigation supply curve from agriculture and forestry in the United States. To do this we employ the U.S.‐based Agricultural Sector and Mitigation of Greenhouse Gas Model and find that variations in such factors can have profound effects on the results. Differences between commonly employed methods shift economic mitigation potentials from –55 to + 85%. The bias is stronger at higher carbon prices due to afforestation and energy crop plantations that reduce supply of traditional commodities. Lower carbon prices promote management changes with smaller impacts on commodity supply.     

Exchange rate alignment and producer support estimates (PSEs) for India

This article examines the effects of exchange rate alignment during 1985–2002 on agricultural producer support estimates (PSEs) for India. Based on several time series techniques, the equilibrium exchange rate of the Indian rupee and the corresponding misalignment of the actual rate are estimated and applied to recent PSE calculations. Our results show that the exchange rate was substantially misaligned before a financial crisis and macroeconomic reform in the early 1990s, with subsequent indirect effects on the PSEs. We find a relatively high pass‐through of exchange rate movements to domestic agricultural prices, so that removal of the exchange rate misalignment would have improved incentives to Indian farmers during this period. More recently, this indirect exchange rate effect is smaller than the direct effect in the PSEs, indicating the dominance of sectoral‐specific policies over economy‐wide policies.     

Macroeconomic Policy Impacts on United States Agriculture: A Simulation Analysis

United States monetary and fiscal policies influence the domestic agricultural economy directly and, through international linkages, indirectly. This study estimates the magnitude and statistical influence of coefficients relating U.S. macroeconomic policy to the U.S. agricultural economy through domestic and foreign markets. Specific objectives are to specify and estimate a general equilibrium quarterly econometric model of the U.S. macroeconomy and simulate the impact of federal deficit spending on real interest rates, real exchange rates, and net exports of agricultural products. Three hypotheses were tested. The first hypothesis that an increase in federal deficit spending increases the real interest rate could not be rejected; a $100 billion reduction in the U.S. deficit was estimated to reduce real interest rates by two percentage points or more. The second hypothesis that an increase in real interest rate increases the real value of the U.S. dollar in foreign exchange markets had strong support and could not be rejected. A third hypothesis that a rise in the real value of the dollar reduces net exports of U.S. farm products also could not be rejected. Results indicate that the U.S. agriculture would benefit from the lower exchange value associated with an ‘optimal’ macroeconomic policy. That policy initially made the overall U.S. economy perform less satisfactorily but that performance improves over time.