The Effect of Agricultural Policy on Farmland Values

The extent to which agricultural support programs have been capitalized into farmland prices has been examined in this study. A present value land price model was developed which decomposes returns to the land base into its two possible sources (farm production and government subsidies) and allows the discount rates associated with these two income sources to vary. The empirical results indicate that government payments are discounted less than marketbased returns in Ontario. Thus, government payments have been viewed as a more stable source of income to Ontario farm operators during the last half century than market-based returns.