Monday, August 27, 2012

Why do land prices vary so much across the world?

Source: The Economist
I quote:
The price of land in America’s corn belt is ten times greater than in Canada’s main farming provinces, now among the cheapest places in the world to grow grain. In Argentina, the government’s unpredictability has undermined investor confidence. Political uncertainty in Russia and Ukraine (not shown) has also kept farmland prices low, even though those countries are among the world’s most fertile.
One would assume that the price of land should reflect the income that can be generated from the land. At some level, the higher the agricultural yield from the land, the higher the price should be for the land. Land which is improved, for example land supplied by irrigation, also is worth more than unimproved land.

As the quotation suggests, the greater the risk to profit from the land, the lower the price; political risk is one aspect, but climate risk would also be counted by the farmers.

Other factors go into producing crops, such as seeds and chemical inputs and labor. The higher the productivity of labor, all other things being equal, one would assume the higher the value of the land.

It is also the case that markets for products count. If food prices are controlled at low values (e.g. to keep urban consumers happy), then the price of land is likely to be low as well. As transportation costs for grains dropped during the 19th century, the price for locally produced grains fell in England. That led to a drop in the price of farm land in England.

Still one wonders why there should be more than a 30 to 1 ratio between the lowest and highest price of land in the table. Could it be that there is still a lot of agricultural land in the world that is not producing nearly as much food as it might due to lack of investment, lack of use of the proper inputs, lack of mechanization, lack of good management, and poor agricultural policy?

1 comment:

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