Publications
Measuring the Capitalization of Income Transfer Programs Into Agricultural Asset Values - Technical Paper #4-95
The transfer efficiency assessment of a support program is usually measured by its effectiveness in distributing benefits within the agri-food sector. A framework for assessing transfer efficiency was recently presented in a Deloitte & Touche study entitled How Governments Affect Agriculture. This framework outlined the flow of program benefits among administration costs, consumers, processors, input suppliers, holders of farm assets, and ultimately net gains to farmers. The entire agri-food sector can be affected by government intervention due to market responses. The increase in the value of assets used in agricultural production are mentioned in the Deloitte & Touche framework as one of the important outflows from government support payments. However, such capital gains are not explicitly modelled despite the fact that it can have significant impact on the agri-food sector. The current report was commissioned by Agriculture Canada to measure the extent to which income transfer programs of the government are capitalized into agricultural asset values by Canadian producers.
This report first reviews studies which examine movements in aggregate farmland prices. Most studies have focused on the demand forces which determine equilibrium prices. The basic premise has been that an income earning asset should follow the present value model in which net returns to the asset is the only variable that needs to be considered. However, the assumptions of the capitalization model have recently been questioned and other variables have been proposed to explain changes in farmland prices. These include explosive expectations, capital gains considerations, credit market constraints, non farmland returns to land, non farmland investment opportunities, and macroeconomic considerations. Thus, a definitive model of farmland prices has not yet been determined.
For more information on this publication, please e-mail: Econ_Research@agr.gc.ca.
Note: Due to the technical nature of this publication, it is only available in the language of the author (English).
Measuring the Capitalization of Income Transfer Programs Into Agricultural Asset Values - Technical Paper #4-95 (PDF version, 425 KB) - Help on PDF