Can Agricultural Disaster Relief Programs Affect Farmland Prices? Empirical Evidence from Farmland Transaction Data

The literature on the capitalization of agricultural policies documents that government subsidies can increase farmland values with attesting empirical evidence found in a variety of agricultural programs. This study argues that the well-documented capitalization effect of agricultural subsidies on farmland prices may not be directly related to the agricultural disaster relief program (ADRP). On the one hand, disaster relief payments can positively capitalize into farmland prices. On the other hand, disaster shocks may result in farm income loss which can decrease farmland prices. This paper empirically examines the overall effect of the ADRP on farmland prices in Taiwan. A unique dataset on 97,864 parcels of farmland transacted in the farmland market is used. By estimating the fixed effect and instrumental variable fixed effect model, a negative overall effect of the incidence and the level of ADRP payments on farmland prices is evident. Moreover, the effect is more pronounced among farmland located in urban areas. This finding provides evidence that the negative stigmatized effect dominates the positive capitalization effect of the ADRP payments on farmland values, especially for farmland located in urban areas (JEL Q15, Q18, Q54).

Effect of drought and climate on agriculture in New Zealand

<p><b>Three manuscripts form the basis of this dissertation exploring the effect of drought and climate on agriculture in New Zealand. The first manuscript examines the effects of droughts on agricultural profitability and farms' business performance indicators across dairy and sheep/beef land-uses in New Zealand. This study applies a fixed effect panel regression model using financial and agricultural data at the firm level from Statistics New Zealand's Longitudinal Business Database (LBD) over 2007-2016. The analysis shows that, on average, a recent drought increases revenue and profit from dairy farming. </b></p><p>The second manuscript explores regional differences in the impacts of drought events in New Zealand between 2007-2016. Dramatically different climatic conditions across New Zealand regions motivated this work. The study finds that Waikato and Taranaki's dairy farms – the main dairy producers- positively affected by drought event. This effect is potentially associated with drought‐induced higher milk prices. The positive impacts of drought are no longer identifiable once the model control for milk prices. Whereas sheep/beef farms' gross income and profit were negatively affected by droughts across most sheep/beef farming regions. The analysis also reports that there is no relationship between the persistent impact of drought events and farms' income and profits, on average, over three years. </p><p>The third manuscript estimates the Ricardian approach to examine how climate differences affect farmland values in New Zealand. This study applies the spatial first differences (SFD) method that compares climate differences to land value differences between adjacent neighbours to eliminate the omitted variables bias. This work estimates the effect of climate on overall rural land-uses and various land-uses between 1993 and 2018. The SFD estimation shows that warmer conditions are associated with higher capital values. There is also a positive relationship between farmland values and dryer soils. These relationships are likely due to causal effects of factors tied to climate such as agricultural productivity, the value of land improvements (tied to climate), and amenity values associated with residential uses. </p>

Effect of drought and climate on agriculture in New Zealand

<p><b>Three manuscripts form the basis of this dissertation exploring the effect of drought and climate on agriculture in New Zealand. The first manuscript examines the effects of droughts on agricultural profitability and farms' business performance indicators across dairy and sheep/beef land-uses in New Zealand. This study applies a fixed effect panel regression model using financial and agricultural data at the firm level from Statistics New Zealand's Longitudinal Business Database (LBD) over 2007-2016. The analysis shows that, on average, a recent drought increases revenue and profit from dairy farming. </b></p><p>The second manuscript explores regional differences in the impacts of drought events in New Zealand between 2007-2016. Dramatically different climatic conditions across New Zealand regions motivated this work. The study finds that Waikato and Taranaki's dairy farms – the main dairy producers- positively affected by drought event. This effect is potentially associated with drought‐induced higher milk prices. The positive impacts of drought are no longer identifiable once the model control for milk prices. Whereas sheep/beef farms' gross income and profit were negatively affected by droughts across most sheep/beef farming regions. The analysis also reports that there is no relationship between the persistent impact of drought events and farms' income and profits, on average, over three years. </p><p>The third manuscript estimates the Ricardian approach to examine how climate differences affect farmland values in New Zealand. This study applies the spatial first differences (SFD) method that compares climate differences to land value differences between adjacent neighbours to eliminate the omitted variables bias. This work estimates the effect of climate on overall rural land-uses and various land-uses between 1993 and 2018. The SFD estimation shows that warmer conditions are associated with higher capital values. There is also a positive relationship between farmland values and dryer soils. These relationships are likely due to causal effects of factors tied to climate such as agricultural productivity, the value of land improvements (tied to climate), and amenity values associated with residential uses. </p>

The impacts of interest rate changes on US Midwest farmland values

PurposeThis paper quantifies the effects of recent Federal Reserve interest rate changes, specifically recent hikes and cuts in the federal funds rate since 2015, on Midwest farmland values.Design/methodology/approachThe authors apply three autoregressive distributed lag (ARDL) models to a panel data of state-level farmland values from 1963 to 2018 to estimate the dynamic effects of interest rate changes on the US farmland market. We focus on the I-states, Lakes states and Great Plains states. The models in the study capture both short-term and long-term impacts of policy changes on land values.FindingsThe authors find that changes in the federal funds rate have long-lasting impacts on farmland values, as it takes at least a decade for the full effects of an interest rate change to be capitalized in farmland values. The results show that the three recent federal funds rate cuts in 2019 were not sufficient to offset the downward pressures from the 2015–2018 interest rate hikes, but the 2020 cut is. The combined effect of the Federal Reserve's recent interest rate moves on farmland values will be positive for some time starting in 2022.Originality/valueThis paper provides the first empirical quantification of the immediate and long-run impacts of recent Federal Reserve interest rate moves on farmland values. The authors demonstrate the long-lasting repercussions of Federal Reserve's policy choices in the farmland market.

Natural disasters, land and labour

We study the behaviour of farmers living under the threat of the Tungurahua Volcano in Ecuador. Recent eruptions have caused significant damage, including crop loss, death of livestock and destruction of dwellings. We collected a unique data set after a major eruption in 2016. We interviewed 222 farmers in the area affected by the eruption and 260 in a nearby control zone to understand why they choose to remain in the risky zone despite the existence of public programmes aimed at relocating them to safe zones. We examine land and labour, which are farmers’ primary productive assets. First, we investigate the capitalisation of volcanic hazards in farmland values and find a negative price premium of 21 per cent compared to the control zone. Second, we explore non-farm labour in response to volcanic risk. Finally, we argue that repeated ash fall events increase the illiquidity of farm household assets, such as farmland, and that agricultural human capital is difficult to convert into non-agricultural capital. Our results convey important information for public policies aimed at supporting adaptation and resilience of people living under the threat of volcanoes and other natural disasters.