Direct Payment Subsidies and the Impact on Farm Land Prices: A Cross-Country Comparative Evaluation
Magnus Rupp, Rosenberg, Germany, defended his thesis, “Direct Payment Subsidies and the Impact on Farm Land Prices: A Cross-Country Comparative Evaluation,” on April 8, 2014. Rupp works for John Deere Company in Germany. He is a spring graduate from Kansas State University with a Master of Agribusiness (MAB) degree.
Agriculture subsidy policies and their effect on farmers around the world are regularly debated. Europe’s Common Agricultural Policy (CAP) is probably one of the most complicated pieces of EU policy, given the differences in farming practices and rural economies across EU member countries. The goals of the CAP are to give incentives to modernize Europe’s agricultural industry, raise farm productivity, maintain rural areas and introduce sustainable farming practices.
For his Master of Agribusiness thesis project Rupp compared wheat farms in Germany and the Czech Republic with U.S. and Australian wheat farms to determine if the CAP has an effect on land values, labor, machinery use, and other farm management decisions.
“My research looked at subsidies in general worldwide, as well as direct payments on a per farm basis. I found that direct subsidies can impact the profitability of a farm operation significantly. It is important to understand, that depending on where the farm is located and based on their cost structure, an operation can be profitable even though it might not produce the highest yields. It was also interesting that there is some evidence direct payments impact the land markets,” Rupp said.
Based on his comparison, he found EU agricultural subsidy policy is geared toward maintaining the rural countryside, as well as securing food production. In contrast, the U.S. policy is focused on crop insurance as a risk management tool. Rupp also noted EU operations show higher costs for labor and machinery, which decrease gains for increased yields. The final take-away from Rupp’s research is that it is difficult to demonstrate a direct impact of subsidies on land value, as value may be affected by the productive capacity of the soil, local climate conditions, and proximity to urban or industrial development, among other factors.
Dr. Mykel Taylor, Assistant Professor of Agricultural Economics and Rupp’s thesis advisor, said, “Magnus’ thesis was focused on the impact of direct subsidy payments to farmers in four countries. The most interesting result was the discovery that even though Germany and the Czech Republic are both EU member countries and pay the same subsidies to farmers, Czech land values are much lower. This may be a result of restrictions and uncertainty of property rights due to political institutions held over from the Soviet era.”
The full thesis publication can be found online on Kansas State University’s Research Exchange at http://hdl.handle.net/2097/17321.