Interregional Competitive Impact of Urban Influenced Farmland Prices

The paper's hypothesis is that the farmers using land with urban influenced prices are at a competitive disadvantage because their land input cost exceeds it calitialized earning power while land prices for other farmers are based on earning ability. This hypothesis was investigated by comparing rates of return to land in Massachusetts and two non-urban dairy regions in Wisconsin. Both areas have low rates of return compared to contemporary market interest rates with Massachusetts rates somewhat below those in Wisconsin. When additional factors are considered, the hypothesis is weakly supported, at best. The literature on interregional competition in agriculture has compared regional differ-ences for a great variety of production and transportation cost factors. For the land input, which is judged by the USDA to be 24 percent of all inputs (Cobb), the price of land and real estate taxes have often been compared to measure regional competitive advantage (Babb; Bauer and Wells; Greig; Zepp). Nowhere in the literature have regional dif-ferences in the earning capacity of the land used for agriculture in relation to its market price been examined. The objective of this paper is to examine this source of competitive difference with particular reference to land with and without urban influenced prices. The hypothesis on which the paper is based suggests that market prices of farmland within the range of urban influence will be created by the interaction of non-agricultural market forces (Phipps). Farmers may buy and sell land at these prices but the earning capacity of farmland will have little influence on price since other market forces will push price well above the level farmers would pay in the ab-sence of these other forces. The increment in addition to agricultural value is an extra cost of farming in an urban influenced area com-pared to areas where the value of land for agriculture dominates the land market. In the latter case, the earning capacity of the land will support the price paid for the land while i