Estimating the impact of agricultural support on farm price : an analysis of Swedish farm prices

Abstract: Agricultural land prices in Sweden have been increasing steadily since Sweden joined the EU. At the same time, the common agricultural policy of the EU has changed from coupled support given to specific sectors, to decoupled direct support for basic land maintenance. The need to understand the effects of agricultural policy decisions, how prices are determined and what factors are affecting agricultural land values, are therefore highly relevant and interlinked topics. The aim of this thesis was to analyse how the direct support in the EU’s common agricultural policy affects farm prices in Sweden by presenting a hedonic pricing model which can be used to estimate the effect of the direct support on farm prices. A broad literature review was performed regarding the capitalisation of agricultural support on land and farms and to gain an increased understanding about what factors are most likely to influence the farm price. Factors like the quality of the land, agricultural structure, urbanisation, agricultural policies and residential characteristics were found to be important determinants of the price of agricultural land and farms and were therefore included as independent variables in the analysis. Data were analysed in STATA by multiple regression analysis where both pooled OLS, random effects and fixed effects regressions were used to determine the correlation between the independent variables and the dependent variable, the average farm price per municipality. The results from this study indicate that the decoupled direct payment has a significant positive impact on the farm price. It also suggests that farm prices per municipality are on average 40 – 72 % higher after the introduction of the Single Farm Payment, compared to before the introduction. The prices are however not adjusted for inflation, therefore the results need to be interpreted with caution. The results from the study gives incentives for future research to further investigate the effect of different policy decisions.