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Tuesday, September 11, 2007

Farm subsidies increase land rental rates?

BEEF Stocker trends points to this survey of agricultural land rental rates. I grabbed the limited data reported in the original article (which measures average dollars per acre per month) and added the size of the state (in square miles) and the level of agricultural subsidies awarded to the state as reported here.

I think economic theory would suggest that the bigger the state, the lower the rental rate and the higher the level of agricultural subsidies, the higher the rental rate (although this effect might actually be ambiguous).

Limiting myself to ten minutes or less, here are the results:


Source | SS df MS Number of obs = 26
-------------+------------------------------ F( 2, 23) = 9.59
Model | 1200.7171 2 600.358551 Prob > F = 0.0009
Residual | 1440.40289 23 62.6262127 R-squared = 0.4546
-------------+------------------------------ Adj R-squared = 0.4072
Total | 2641.11999 25 105.6448 Root MSE = 7.9137

------------------------------------------------------------------------------
rent | Coef. Std. Err. t P>|t| [95% Conf. Interval]
-------------+----------------------------------------------------------------
size | -.0001349 .0000344 -3.92 0.001 -.0002061 -.0000638
subsidies | .0043158 .0015043 2.87 0.009 .0012039 .0074277
_cons | 25.05961 3.270103 7.66 0.000 18.29489 31.82433
------------------------------------------------------------------------------

For every additional 1000 square miles of land, the average rental rate on agricultural rental rates drop by thirteen cents per acre per month. On the other hand, for every ten million dollars in agricultural subsidies awarded in the state, rental rates increase by four cents per acre per month. The former seems like an economically significant effect whereas the latter seems to be less important in an economic sense.

However, here are the sample means:

. sum

Variable | Obs Mean Std. Dev. Min Max
-------------+--------------------------------------------------------
rent | 26 18.6 10.27837 2 40
size | 26 82120.96 47543.11 39594 261797
subsidies | 26 1070.365 1087.005 26.8 3760

The average level of subsidies is just over $1 billion (in the twenty six states in this sample). In a state like Iowa, which receives $3.7 billion in agricultural subsidies, and where rental rates are $39 per acre per month (in comparison to acreage in Texas with a rental rate of $8.3 per acre per month), the ag subsidies might account for $16 per acre per month or 41%!!

Okay - the previous paragraph probably takes the regression results a little too far; there is not enough information in the limited sample I have gathered to make such strong conclusions. However, this doesn't mean that subsidies do not increase farm acreage rental rates. It would be interesting to pursue this idea further with a much larger sample and more explanatory variables.

[Stata Data File]

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