The Incidence of EU Per-Hectare Payments on Farmland Rental Rates: A Spatial Econometric Analysis for German Farm-Level Data

This article analyses determinants for 2001 farmland rental prices from 3,819 farms in Germany. Based on specification tests we estimate a general spatial model to account for both spatial relationships among rental prices of neighbouring farmers and spatially autocorrelated error terms. Depending on the choice of instrumental variables, a €1 per hectare higher rental price in a farmer's neighbourhood coincides with a €0.64 to €0.74 higher rental price the farmer pays. The marginal incidence of EU per-hectare payments paid for eligible arable crop acreage amounts to €0.48 to €0.95 for each additional € of premium payments. Regional livestock density, which is indirectly influenced by different policies, is also a major determinant for rental prices. Consequently, German farmland rental rates are heavily influenced by agricultural policy instruments and therefore, these policies exhibit substantial distributional effects.