evolution of farm programs and their contribution to agricultural land values

This article presents an extension of the capitalization model enabling the estimation of the proportion of agricultural land values generated by farm program payments and crop returns. As expected, the results of the empirical application to forty-eight states in the United States for 1940-2002 indicate a positive and significant relationship for expected real crop receipts and farm program payments, while risk and real interest rates are negatively related to real agricultural land values. If this article's estimated proportion of agricultural land values in accurate, there are several policy implications. One is that, although real per acre government payments have been increasing over time, it appears that their distorting effects upon land markets have diminished with time. If true, then future efforts to reduce net subsidization of agriculture would not be expected to have the catastrophic effect upon land prices, as would have been the case in the 1960s or 1970s.