Capitalisation of government support in agricultural land prices in the Czech Republic

The recent implementation of CAP area payments (the Single Area Payments, SAP) in the New Member States of the EU raises the question of whether a quick capitalisation of these payments is expected. Evidence of capitalisation of public support to agriculture into land prices indicates that benefits are partly transferred toward landowners rather than toward the targeted population (the producers). This distributional aspect is of particular importance in countries where a large proportion of land is farmed by producers who do not own this land, such as in the Czech Republic where corporate farms and large individual farms cultivate most of the agricultural area of the country, but rent more than 90% of it from millions of private landowners. This study investigates the influence of several types of support on Czech agricultural land prices from private transactions between 1995-2001. The results show that only direct payments have been capitalised into land prices. This capitalisation occurred in spite of the payments’ low level and of an imperfectly functioning land market, suggesting that such type of support is most easily transferred to land values. If the rate of capitalisation of such payments continues or even increases in the future (the SAP are relatively high compared with what Czech farmers used to receive before accession), this might threaten the farming activity in this country, as farms are almost only tenanted. And because most of the landowners live in towns, there is a risk of an extreme leakage of support not only outside the farming sector, but also outside the rural sector