Determinants of agricultural cash rents in Germany: A spatial econometric analysis for farm-level data

We empirically analyse the determinants of cash rent levels for agricultural land in Lower Saxony, Germany. We are the first to apply a spatial econometrics approach that accounts for two types of spatial dependence simultaneously to cash rent data at the farm-level. Our empirical results underline the usefulness of such an approach. Farm characteristics which serve as a proxy for the marginal value of rented acreage for the tenant as well as variables which represent local competition on the land market are significant. Among the farm characteristics, operating revenue per hectare, share of high-value crops, soil quality, share of rented acreage, share of arable land relative to rented acreage, and animal density are significant while, ceteris paribus, neither labour nor machinery/buildings per hectare nor farm size are significant. In particular, animal density at the regional level increases the cash rent, underlining the importance of local competition on the land market. The analysis also shows that subsidies which foster competition among farmers for rented land boost landlords’ incomes. Thus, evaluation of set-aside programs or evaluation of public support for investment in pig or poultry production or renewable energies has to take such side-effects into account.