Land costs. Regional Training Course on Agricultural Cost of Production Statistics November 2016, Daejeon, Republic of Korea

Transcription

1 Land csts Reginal Training Curse n Agricultural Cst f Prductin Statistics Nvember 2016, Daejen, Republic f Krea 1 Land: a special type f asset The service life f agricultural land is indefinite ( t capital and variable inputs): it can maintain its physical characteristics thrugh time Land cannt be depreciated: it des nt strictly qualify as a capital asset In practice, land quality varies vertime (+ r ), depending n several factrs such as: Nature and intensity f its use fr crpping, pasture r ther Changes in climatic cnditins and in the envirnment (physical and nn physical) A plt f land has a fixed gegraphical psitin Land use and cver vary vertime: cnversin f agricultural t nnagricultural land fr example

2 2 Why valuing land csts Land is an essential prductin factr fr crpping activities: as any prductin factr, it has t be valued t measure prfitability A range f csts are attached t land wnership and use Fr the land wner, the selling r rental value f his land can represent a significant share f its revenues Fr the farmer renting land, rental csts usually represents a significant share f its ttal prductin csts Land values are als used fr fiscal purpses Land values affect and are affected by many factrs, amng which input prices, net agricultural margins, etc. > it is therefre key fr plicy purpses t prperly measure land values and csts 3 Land tenure types Owned land cmprises: Land wned by the farmer Land wned by a grup f persns, in the case f cmmunal land Land under cncessin, whereby an authrity gives a persn r grup f persns the right t carry ut farming activities fr a predefined and ften lng perid f time Rented land implies that: The farmer pays a mnetary rent in exchange f the use f the land The farmer gives the land wner a share f its harvest in payment fr the use f the land The farmer prvides gds r services t the land wner in exchange f the use f the land: labr t harvest the plts f the land wners, machinery, etc. Land tenure type is ften nt frmalized by a title f prperty r a rental cntract => challenge fr a prper valuatin

3 4 Value f land: definitin and drivers Land value = market value f the land resurces used fr agricultural prductin (including livestck), irrespective f the land tenure type Infrastructure nt directly related t land resurces, such as husing r warehuses, have t be valued separately The value f the land depends n a multitude f factrs, related t: Its assumed prductivity, such as: sil acidity level, tpgraphy (slpe, etc.) r rientatin The infrastructures that imprve land quality, such as: drains, embankment r access t water (wells, etc.) Its lcalizatin: distance t the main markets, prximity t rads r urban centers, existence f cnflicts in the zne The status f the land: private, cmmunal, state wned, religius The land regulatins: fiscal, land wnership structure and rights 5 Land: expenses, investment, capital Expenses assciated t agricultural land cmprise: Cst f the regular maintenance f the land, such as cleaning, clearing r embankment refectin Csts related t the use f the land, such as taxes r access rights t water Investments are expenses that aim at: Increasing land resurces: purchase f new agricultural land Imprving the quality f the land resurces: cnstructin f drainage systems, rads, creatin f terraces r earthmving wrks Land capital: value f the stck f agricultural land resulting frm the flw f investments made n and fr the land

4 6 Land csts: definitin Land csts cmprise: Expenses assciated with the agricultural land The cst f using the land fr agricultural purpses: Rental price if the land is rented Imputed cst if the land is wned Land csts exclude: Investments made n the land Expenses assciated with farm infrastructure nt directly related t the land resurces (husing, strage facilities, etc.) Expenses assciate t farm land but nt agricultural land: maintenance and repair f warehuses, sils, etc. 7 Land rental csts (1/2) Recmmended apprach Use the rental price effectively paid by the farmer as stipulated in the rental cntract If the rent crrespnds t a share f the harvest, the cst is estimated by valuing the quantities at the prducer price The rental price is the best measure f the pprtunity cst f the land. It cmprises by cnstructin: The cst f using the land, including taxes, permits and ther expenses assciated t the value/quality f the land The cst f maintaining the land The implicit value f the land, reflected in the yield which it generates

5 7 Land rental csts (2/2) Alternative apprach If the rental price is unknwn (infrmal cntract, nn respnse): The cst has t be imputed using standard market rates in the lcality Given the spatial variability f the land rental prices, it is necessary t chse lcality specific rates If rental markets fr agricultural land are t thin r inexistent, market rates cannt be used. Pssible alternatives are t: Use fficial rates, where these exist, which ften prvide flr prices Impute an rental cst based n the parameters f a hednic equatin Estimate an pprtunity cst based n the value f the land 8 Cst imputatin fr wned land (1/4) Recmmended apprach (frm a theretical perspective): Determine the pprtunity csts (OCC) fr the farmer assciated with the wnership f the land: the flw f revenues that wuld have been generated had the farmer invested an amunt equivalent t the value f his land in an alternative asset The pprtunity cst is estimated as fllws: Step 1: determinatin f the market value f the land Step 2: determinatin f the annual return f the alternative investment (ften, lng term bnd rates are chsen) Step 3: OCC = market value f the land x annual return Limits: Value f the land? Alternative investment?

6 5 Cst imputatin fr wned land (2/4) Alternative apprach (recmmended frm a practical viewpint): Impute a fictive rent t the land wner: the rental price that he wuld have received had he chsen t rent his land rather than using it Lcal rental rates can be used fr plts with similar characteristics, if a representative rental market fr agricultural exists This apprach implicitly assumes that the cst fr the wner f using his land is equivalent t what he wuld have received as a payment fr renting the land (pprtunity cst / ratinality principle) This apprach implicitly assumes that imputed rent is actually an upper bund f the net returns prvided by the land: if the net revenues assciated with the wnership and use f the land fr agricultural purpses are higher than rental revenues, the wner wuld be better ff chsing the latest ptin 5 Cst imputatin fr wned land (3/4) Rental rates fr farming land may be subject t lcal r natinal regulatins, specifying: Ceiling rates, and Flr rates (less ften s) Using this administrative infrmatin makes an ecnmic sense nly if these rates are effectively used by a significant prprtin f farmers Regulated rates may be used t impute missing data, if ther auxiliary infrmatin is missing It is a gd practice, when the estimatins are made using regulated prices, t present verall results with and withut these estimatins Practical prblems (which rate t chse) and cnfidentiality issues (will the farmer accept t respnd?) arise when effective rates differ frm legal rates, expsing a lack f enfrcement f the regulatin

7 5 Cst imputatin fr wned land (4/4) Hednic regressins It is used t prvide mre accurate estimatins f land values and rents Methd : infers land values (r rental rates) frm a number f characteristics assciated with the land and crrelated t its price: Step 1: The parameters (ex: effect f crp type n land price) are estimated r calibrated n the basis f a sub sample f farms and updated regularly Step 2: Land characteristics gathered in the CP survey are then cmbined t these parameters t estimate the price/rent Limits: Existence f a detailed database allwing t crrelate prices/rents t bserved characteristics f the land The estimatin f the parameters requires technical knw hw 6 Presenting data n land csts Land csts are presented in a separate line in CP tables Imputed csts fr wned land and rental csts are generally presented separately Many cuntries present the ecnmic indicatrs with and withut imputed land csts, due t: The high uncertainty affecting the estimatin f land csts The lack f rbustness f these estimatins (strng variatins depending n the methd used) Including imputed csts may smetimes lead t presenting strngly negative returns

8 7 References AAEA Task Frce n Cmmdity Csts and Returns (2000). Cmmdity Csts and Returns Estimatin Handbk. United States Department f Agriculture: Ames, Iwa, USA. Glbal Strategy t Imprve Agricultural and Rural Statistics (2016), Handbk n Agricultural Cst f Prductin Statistics, Handbk and Guidelines, pp FAO: Rme. Canada Statistics: x/ /t002 eng.htm