UC Davis Agricultural and Resource Economics

Aaron Smith, University of California, Davis
Seunghyun Lee, University of California, Davis

Who Benefits from High Farm Revenue

Date and Location

Thursday, March 11, 2021, 4:10 PM - 5:30 PM
Online Meeting, Zoom

Abstract

US crop farmers experienced a large increase in crop revenue from 2007-13 due to high prices caused in large part by strong demand for corn from ethanol producers and for soybeans from China. Revenues have dropped since that time, although high government payments have cushioned the decline. How much of these high revenues flows to farmers, landowners, other factor owners, and the broader community. Using county data, we estimate that a 10% increase in crop revenue raises net farm income by about 10% in the current year and by 5% in the ensuing two years. Production expenses, especially fertilizer and seed increase by 2.5% in the current year and about 1.2% in the subsequent two years, implying significant returns to factor owners. Using data on Iowa farmland values we find that a 10% increase in crop revenue raises farmland values by 2.5% in the current and ensuing two years. We find similar, but less precise effects on land rental rates. Outside of agriculture, we find that increases in crop revenue have insignificant negative effects on non-farm income in the county. To obtain our estimates, we develop a novel instrumental variables approach to identify exogenous price shock using temperature and precipitation shocks.

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