Influence of agricultural support on sale prices of french farmland: a comparison of different subsidies, accounting for the role of environmental and land regulations Laure Latruffe, Laurent Piet, Pierre Dupraz, Chantal Le Mouël To cite this version: Laure Latruffe, Laurent Piet, Pierre Dupraz, Chantal Le Mouël. Influence of agricultural support on sale prices of french farmland: a comparison of different subsidies, accounting for the role of environmental and land regulations. 2013. hal-00939781 HAL Id: hal-00939781 https://hal.archives-ouvertes.fr/hal-00939781 Submitted on 30 Jan 2014 HAL is a multi-disciplinary open access L’archive ouverte pluridisciplinaire HAL, est archive for the deposit and dissemination of sci- destinée au dépôt et à la diffusion de documents entific research documents, whether they are pub- scientifiques de niveau recherche, publiés ou non, lished or not. The documents may come from émanant des établissements d’enseignement et de teaching and research institutions in France or recherche français ou étrangers, des laboratoires abroad, or from public or private research centers. publics ou privés. No. 51, June 2013 Laure Latruffe, Laurent Piet, Pierre Dupraz and Chantal Le Mouël Influence of Agricultural Support on Sale Prices of French Farmland: A comparison of different subsidies, accounting for the role of environmental and land regulations ABSTRACT This paper investigates the determinants of agricultural land price in several regions in France over the period 1994-2011, using individual plot transaction data, with a particular emphasis on agricultural subsidies and nitrate zoning regulations. It found a positive but relatively small capitalisation effect of the total subsidies per hectare. The data revealed that agricultural subsidies capitalised, at least to some extent, but the magnitude of such a capitalisation depends on the region considered, on the type of subsidy considered, and on the location of the plot in a nitrate surplus zone or not. Only land set- aside premiums significantly capitalise into land price, while single farm payments have a significant positive capitalisation impact only for plots located in a nitrate-surplus zone. FACTOR MARKETS Working Papers present work being conducted within the FACTOR MARKETS research project, which analyses and compares the functioning of factor markets for agriculture in the member states, candidate countries and the EU as a whole, with a view to stimulating reactions from other experts in the field. See the back cover for more information on the project. Unless otherwise indicated, the views expressed are attributable only to the authors in a personal capacity and not to any institution with which they are associated. Available for free downloading from the Factor Markets (www.factormarkets.eu) and CEPS (www.ceps.eu) websites ISBN 978-94-6138-318-1 © Copyright 2013 Laure Latruffe, Laurent Piet, Pierre Dupraz and Chantal Le Mouël FACTOR MARKETS Coordination: Centre for European Policy Studies (CEPS), 1 Place du Congrès, 1000 Brussels, Belgium Tel: +32 (0)2 229 3911 • Fax: +32 (0)2 229 4151 • E-mail: [email protected] • web: www.factormarkets.eu Contents 1. Introduction ........................................................................................................................... 1 2. The case study regions and the land price database ............................................................. 2 2.1 The case study regions ................................................................................................. 2 2.2 The land price database ............................................................................................... 5 3. Methodology and other data ................................................................................................. 7 3.1 First stage: estimation of agricultural revenue and subsidies .................................... 7 3.2 Second stage: estimation of the determinants of land price ..................................... 8 4. Results .................................................................................................................................. 10 5. Conclusion ............................................................................................................................ 15 References ................................................................................................................................... 17 Appendix ..................................................................................................................................... 19 List of Figures and Tables Figure 1. Location and main types of farming of the regions studied ......................................... 3 Figure 2. Scatter plot of sale price per hectare and sold area in total sample ............................ 6 Table 1. Descriptive statistics of the case study regions and comparison to France in 2009, 2010 or 2012 ................................................................................................................... 4 Table 2. Descriptive statistics of area sold and land price for all transactions over the period 1994-2011 ........................................................................................................................ 5 Table 3. Descriptive statistics of area sold and land price for transactions of plots with a size equal or above 10 hectares over the period 1994-2011 ..................................................6 Table 4. Descriptive statistics of the explanatory variables used in the land price regression for plots with size equal or above 10 hectares over the period 1994-2011 .................. 10 Table 5. Results of the estimation of the determinants of land price for plots with size equal or above 10 hectares in 1994-2012, using the total subsidy variable .......................... 13 Table 6. Results of the estimation of the determinants of land price for plots with size equal or above 10 hectares in 1994-2012, using the subsidy categories’ variables .............. 14 Table A1. First-stage SUR estimation results ............................................................................. 19 The Influence of Agricultural Support on Sale Prices of French Farmland: A comparison of different subsidies, accounting for the role of environmental and land regulations Laure Latruffe, Laurent Piet, Pierre Dupraz and Chantal Le Mouël∗ Factor Markets Working Paper No. 51/June 2013 1. Introduction The influence of agricultural subsidies on farm land prices is a question that has attracted a large body of research in the economic literature. The main issue is whether, and by how much, the subsidies increase agricultural land prices. A positive influence on price would indeed reveal that part of the subsidies are capitalised into land prices, indicating that land owners are beneficiaries of part of the public support, while it is in general not intended by governments. While this leakage of public funds to potentially non- or former-agricultural stakeholders instead of supporting active farmers’ income is problematic, the increase of land prices caused by subsidies is, in addition, detrimental to young farmers willing to settle. The literature is relatively consistent regarding the empirical evidence of the capitalisation of public subsidies into land prices. For example, Latruffe and Le Mouël (2009) provided a review of the existing empirical studies, and concluded that in the empirical literature government subsidies are major contributors to agricultural land price increases, and are generally found to account for 15-30% of the price of land. This article aims at contributing to the empirical literature about the capitalisation of public subsidies in farm land sale prices, using a unique database of land transactions for several French regions in the period 1994-2011. Our contribution is threefold. Firstly, we provide a recent analysis of the capitalisation of agricultural subsidies into land sale prices in France. With the exceptions of Goodwin and Ortalo-Magné (1992) and Cavailhès and Degoud (1995), no studies have investigated the effect of public support on agricultural land prices in France. Goodwin and Ortalo-Magné (1992) found a positive effect of wheat producer support estimate (PSE) on farm land prices in various regions in the United States, Canada and France (NUTS21 regions Centre and Picardie) over the period 1979-1989. Cavailhès and Degoud (1995) gave evidence of the capitalisation of support from the 1992 Common Agricultural Policy (CAP) reform in agricultural land prices in France. Moreover, theoretical studies such as Dewbre et al. (2001), Courleux et al. (2008), Kilian and Salhofer (2008) or Ciaian and Kancs (2012) consider the rental market of land and not the sale market. ∗ Laure Latruffe, Pierre Dupraz and Chantal Le Mouël are Researchers and Laurent Piet is a Research Analyst at INRA (French National Institute for Agricultural Research). The authors are grateful to Sylvain Cariou for his help in processing the data. 1 The Nomenclature of Territorial Units for Statistics (NUTS) provides a single uniform breakdown of territorial units for the production of regional statistics for the EU. In France, NUTS2 corresponds to the French administrative regions (“régions”), NUTS3 corresponds to the French administrative sub- regions (“départements”) and NUTS4 corresponds to the French administrative districts (“cantons”). France (excluding overseas territories) consists of 22 NUTS2 regions and 96 NUTS3