The Incidence of EU Per-Hectare Payments on Farmland Rental Rates: A Spatial Econometric Analysis of 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. A euro1 per hectare higher rental price in a farmer's neighbourhood coincides with a euro0.72 higher rental price paid by the farmer. The marginal incidence of EU per-hectare payments paid for eligible arable crop land on rental rates amounts to euro0.38 for each additional euro1 of premium payments. Regional livestock density, which is indirectly influenced by different policies, is also a major determinant of rental prices. Results are confirmed by sensitivity analyses. Consequently, German farmland rental rates are heavily influenced by agricultural policy instruments and therefore, these policies exhibit substantial distributional effects.