Implications of Divergence in Sources of Returns in Agriculture

Abstract

Over the short run, resource prices affect the level and mix of inputs and outputs and deter-mine the distributive share to the factors of production. Over the longer run, resource prices impact on the structure ofcontrol in all sectors of the economy. In this paper attention is focused on structural implications of rapid changes in U.S. farmland prices. Land price increases are hypothesized to stimulate con-solidation of land control (ownership) with an attendant shift in income and wealth positions within agriculture and perhaps between ag-riculture and other sectors. Alternative future scenarios are sketched as a means of consider-ing implications and available policy alterna-tives are suggested. Ownership Expansion Potential The changing distribution of farm size is a result of the differential rates of growth among farms. Individual ownership expansion is lim-ited by equity and cash flow considerations. Current income contributes to equity and/or cash flow. Asset price increases provide a base for expanded credit finance, but do not satisfy cash flow requirements. The potential land ownership expansion rate, based on land appreciation equity, de-pends on the rate of land price increase and equity requirement. Land price increases can only increase the cash equity requirement for land acquisition for the nonowner. Land pur-chase potential, based on earnings, depends on the level of earnings, the income tax brack-et, the rate of change of land prices, the pro-portion of earnings available for investment, and the cash equity required. The marginal tax rate affects the potential rate of expansion very little but the cash equity requirement has a major impact. James S. Plaxico is a professor of agricultural economics at Ok-

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