This CAE working paper considers the impacts of the farm bill on the value of farmland. The market for farmland in the United States is influenced by a variety of different forces including location, factors influencing crop growth and public policy. With the change in federal commodity payment programs brought about by the Federal Agricultural Improvement and Reform Act of 1996, there will be a concurrent influence on land values. The authors measure the current impact of direct government payments on Midwest cropland value to provide insight into the potential impact of the FAIR Act. Two different methodological approaches, an Ordinary Least Squares Regression and a more advanced nonparametric regression technique called average shifted histogram which uses Geographic Information System data, are used to establish the extent which direct government payments are capitalized into cropland values. The OLS regression results suggest that total elimination of direct government payments will lead to a 19 percent decrease in average Midwest cropland values. The nonparametric regression model predicts an 11 percent decline in cropland values with the largest effects in the Northern Plains region. The decline in values will probably be gradual and will variable across the Midwest. This information should be especially useful in the formation of rural development policy. [Note: Dr.Barnard et al.'s paper was presented as part of a CAE Symposium "Competition for the Land: A Workshop on the Effects of Public Policy on the Market for U.S. Farmland."
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