Sales Market Regulations for Agricultural Land in EU Member States and Candidate Countries. Factor Markets Working Paper No. 14, February 2012

All agricultural markets are subjected to institutional regulations that – in one way or another –affect the functioning of these markets, and this is no different for the agricultural land market in the EU. In this paper, we describe the existing regulations in the sales markets for agricultural land in selected EU member states and candidate countries. The analysis focuses on three types of sales market regulations and institutions: quantity regulations, price regulations and transaction costs. The differences in the regulatory framework between land acquisition and ownership by domestic and foreign investors are analysed, as well as the taxes associated with land sales and ownership, zoning regulations and market imperfections.

Agricultural Land Markets and Land Leasing in the Former Yugoslav Republic of Macedonia. Factor Markets Working Paper No. 11, February 2012

The aim of this Factor Markets Working Paper is to identify the driving forces that shape agricultural land structures, land market and land leasing in the Former Yugoslav Republic of Macedonia (FYROM). Institutional developments and land reforms have so far been modest in the FYROM, and have not contributed to significant changes in agricultural ownership, operational structures, or land market and land leasing arrangements. Land ownership and land use are bimodal, consisting of several small-scale family farms and a few large-scale agricultural enterprises. The small family farms own and operate land on several small parcels, which is one of the major obstacles to the modernisation of family farm production. A considerable portion of the land is uncultivated, which affects land market and land leasing values. Due to underdeveloped institutional frameworks and market institutions in support of small-scale farms, a large proportion of state-owned land is rented by agricultural enterprises.

Institutional Factors Affecting Agricultural Land Markets. Factor Markets Working Paper No. 16, February 2012

This paper analyses the main institutional factors affecting the rental and sales markets for agricultural land. Particular attention is paid to the effects of the common agricultural policy on land markets, and more specifically the underlying mechanism through which agricultural subsidies are capitalised into land values and farmland rents. This paper also provides a broad overview of the empirical studies that estimate the impact of agricultural support policies on land rents and land prices. Various other fundamental factors that affect agricultural land markets are discussed, such as land market institutions and regulations, transaction costs, credit market constraints and levels of profitability, the legal means of contract enforcement and land use alternatives.

Simulation of Land Use and Investment Behaviour under Different Policy Scenarios: Results of the extended farm/household model. Factor Markets Working Paper No. 27, July 2012

Factor markets are a central issue in analyses of farm development and of agricultural sector vitality. Among the different production factors, land is one of the most studied. Several studies seek to estimate the effect of government policy payments on land value or land rental prices. The studies mostly agree that government payments and other types of policy support are significant in explaining land prices and account for a large share of them. In October 2011, the European Commission published a new policy proposal for the common agricultural policy (CAP) up to 2020. The proposed regulation includes a shift from historical to regional payments. The objective of this paper is to provide an ex ante analysis of the impact of the new CAP policy instruments on the land market. In particular, the effect of the regionalisation of payments in Italy is examined. The analysis is based on the use of a mathematical programming model to simulate the changes in land demand for a farm in Emilia Romagna. The results highlight the relevance of the new policy mechanism in determining a change in land demand. Yet the effect is highly dependent on initial ownership of entitlements under the historical payment scheme.

A Spatial Analysis of Agricultural Land Prices in Bavaria. Factor Markets Working Document No. 50, June 2013

This paper empirically analyses a dataset of more than 7,300 agricultural land sales transactions from 2001 and 2007 to identify the factors influencing agricultural land prices in Bavaria. We use a general spatial model, which combines a spatial lag and a spatial error model, and in addition account for endogeneity introduced by the spatially lagged dependent variable as well as other explanatory variables. Our findings confirm the strong influence of agricultural factors such as land productivity, of variables describing the regional land market structure, and of non-agricultural factors such as urban pressure on agricultural land prices. Moreover, the involvement of public authorities as a seller or buyer increases sales prices in Bavaria. We find a significant capitalisation of government support payments into agricultural land, where a decrease of direct payments by 1% would decrease land prices in 2007 and 2001 by 0.27% and 0.06%, respectively. In addition, we confirm strong spatial relationships in our dataset. Neglecting this leads to biased estimates, especially if aggregated data is used. We find that the price of a specific plot increases by 0.24% when sales prices in surrounding areas increase by 1%.

Does it matter how much land your neighbour owns? The functioning of land markets in Poland from a social comparison perspective. Factor Markets Working Document No. 59, August 2013

While many factors have been studied in relation to the functioning of land markets, the role of land distribution has received relatively little attention. In this paper, we ask to what extent farmers’ propensity to buy land is related to the difference between them and their neighbours in terms of land ownership. To this end, we employ the concept of relative deprivation. Drawing on micro-level data from the transition period in Poland and using both OLS and instrumental variables strategy, we find that interpersonal comparisons with others in one’s reference group may have motivated a farmer’s behaviour in the land market. In particular, the propensity to purchase land is positively associated with experiencing higher relative deprivation. In addition, this relationship waned over time in a predictable manner: late in the transition period it was weaker than at the beginning of the period.

Farm/Household-Level Simulation: Results of Testing Policy and Other Scenarios. Factor Markets Working Document No. 54, June 2013

Among the different production factors, land is the one that most often limits farm development and one of the most studied. The connection between policy and other context variables and land markets is at the core of the policy debate, including the present reform of the Common Agricultural Policy. The proposal of the latter has been published in October 2011 and in Italy it will include the switch of the payment regime from an historical to a regional basis. The authors’ objective is to simulate the impact of the proposed policy reform on the land market, particularly on land values and propensity to transaction. They combine insights and data from a farm household investment model revised and extended in order to simulate the demand curve for land in different policy scenarios and a survey of farmers stated intention carried out in the province of Bologna (Italy) in 2012. Based on these results, the authors calibrate a mathematical programming model of land market exchanges for the province of Bologna and use this model form simulation. The results of the model largely corroborate the results from the survey and both hint at a relevant reaction of the land demand and supply to the shift from the historical to the regionalised payments. As effect, the regionalisation would result in increased rental prices and in a tendency to the re-allocation of land.

Rental Market Regulations for Agricultural Land in EU Member States and Candidate Countries. Factor Markets Working Paper No. 15, February 2012

In this paper, we describe the regulations governing the rental markets for agricultural land in selected EU member states and candidate countries. The analysis focuses on various kinds of regulations and institutions connected with the land rental market, including price, tenancy duration, quantity and other regulations, as well as transaction costs. The diverse government regulations on price restrictions and tenancy duration are analysed, along with the social norms observed for rental payments and contracts. The paper also examines the type and registration of contracts, the contract enforcement rules, the regulations on the inheritability of contracts and the pre-emptive right of tenants to buy the land.

Land, Labour and Capital Markets in European Agriculture: Diversity under a Common Policy. CEPS Paperback. October 2013

Well-functioning factor markets are an essential condition for the competitiveness and sustainable development of agriculture and rural areas. At the same time, the functioning of the factor markets themselves is influenced by changes in agriculture and the rural economy. Such changes can be the result of progress in technology, globalisation and European market integration, changing consumer preferences and shifts in policy. Changes in the Common Agricultural Policy (CAP) over the last decade have particularly affected the rural factor markets. This book analyses the functioning of factor markets for agriculture in the EU-27 and several candidate countries. Written by leading academics and policy analysts from various European countries, these chapters compare the different markets, their institutional framework, their impact on agricultural development and structural change, and their interaction with the CAP. As the first comparative study to cover rural factor markets in Europe, highlighting their diversity − despite the Common Agricultural Policy and an integrated single market − Land, Labour & Capital Markets in European Agriculture provides a timely and valuable source of information at a time of further CAP reform and the continuing transformation of the EU's rural areas.

An Analysis of the Capitalisation of CAP Payments into Land Rental Rates in Ireland. Factor Markets Working Document No. 68, August 2013

EDITED VERSION SOON TO BE PUBLISHED In this paper the effect of decoupling on the capitalisation of agricultural subsidies into agricultural rents in Ireland are analysed using a dynamic rental equations estimated with a two step system GMM estimator that accounts for expectation error and endogenous regressors. The findings illustrate the importance of institutional details in determining the extent to which subsidies are capitalised. In the period prior to decoupling Pillar 1 subsidies were highly capitalised into Irish agricultural rents in both the short and the long run. Depending on the farm system considered between 58 to 80 cents per euro of subsidies were capitalised into agricultural rents. In the post decoupling period the rate at which Pillar 1 subsidies are capitalised into Irish agricultural rents is found to have declined. This change is likely due to short term character of the Irish agricultural land rental market, where 11 month rental periods predominate, and the freedom that the 2003 reform of the CAP offered farmers to consolidate entitlements established on rented land. The generally very short term nature of Irish agricultural rental contracts offered farmers an opportunity to consolidate entitlements that is unlikely to have arisen in other Member States with agricultural land rental markets characterised by long term contracts. The results in both the pre and post decoupling periods highlight the high degree of inertia of agricultural rents in Ireland, and the importance of accounting for dynamics when investigating the capitalisation of agricultural subsidies into land rents. The high degree of inertia in rents means that the impact of previously capitalised agricultural policy persists through time.