Effects of the EU Common Agricultural Policy and U.S. Farm Policy on Agricultural Land Markets

Agriculture in many industrialized countries is heavily subsidized.1 The Common Agricultural Policy (CAP) of the European Union provides subsidies in a variety of ways. They include agricultural producer price support (by means of import restrictions, export subsidies, domestic production quotas, minimum producer prices, and the like) and direct payments, which are to a large degree decoupled from production. Likewise, U.S. farmers receive subsidies through Loan Deficiency Payments as well as other support mechanisms. Economic theory stipulates that agricultural subsidies are capitalized to a large extent into the purchase and the rental price of agricultural land. This is so because the supply elasticity of land is lower than the demand elasticity. Thus, it is the landowners rather than the farm operators who are often the main beneficiaries of EU and U.S. farm policies....