Agricultural land rents and factor reallocation in a growing U.S. economy

A Johansen style multisectoral growth model was constructed based on two level constant elasticity of substitution productions, including both the neutral and the biased technological change. A data base is developed from the Detailed Input-Output Structure of the U.S. Economy 1977 (USDC). The objective is to analyze the behavior of agricultural land prices as well as the redistribution of primary inputs between farm and non-farm sectors in the growing economy. The model was tested using the average growth rates for the U.S. economy between 1976-1980 when the supplies of capital and labor were rapidly growing, and the technological change are declining among the non-farm sectors, moderate among the farm and the food processing sectors. The model predicts an 11.6% growth in land price over the period. This is attributed largely to the growth in the export demand and the growth in the total capital stock. Neutral technological change caused a 5.7% annual decline in land price, ceterus peribus. Under a hypothetical stagnant export growth, rapid technological change and lower rate of investment, land prices are projected to decline at an annual rate of 5.2%. This is largely a consequence of the higher rate of technological change (3% per year) in the grain and oilseeds sector. In this case, 0.5% and 0.4% of the farm labor and capital stock are projected to depart agriculture annually. This model is also used to calculate the rate of increase in the set aside acreage, or the rate of increase in the crop export, necessary to stabilize land price. Under the rapid technological change and stagnant export, an additional 1.6% of the land base must be idled each year to offset the downward pressure on land price. Alternatively, 7 million metric tons in grain and oilseeds export must be increased annually. In either situation, the farm sectors pull resources from the non-farm sectors where, in the first case, labor and capital are substituted for the idled acreage