3 New Trends and Drivers for Agricultural Land Use in Germany
51
Value marginal productivity
Land [VMP L ],
Ground rent [g]
land [L]
VMP L
2
g2
g1
L1
VMP L
1
Value marginal productivity
nitrogenfertilizer [VMP N ],
Factor price [r]
nitrogen [N]
VMP N
2
r1
N2
N1
VMP N
1
Supply land
Supply nitrogen
fertilizer
Land market
n
e
g
o
r
t
i
N
fertilizer market
Fig. 3.8 Impact of rising commodity prices on factor markets (Source Own compilation.)
supply is shown as a totally inelastic supply curve in the figure whereas nitrogen
supply is supposed to be totally elastic. Hence, the commodity price increase results
in a high increase of the land price with no impact on land use whereas nitrogen use
increases with a constant nitrogen price. Consequently, nitrogen intensity, defined as
nitrogen use per hectare, increases.
The importance of commodity prices for land prices (and agricultural intensification) has been broadly discussed in the literature. The EU’s protectionist agricultural
policy of the past has certainly contributed to higher land prices as compared to
free trade conditions whereas the liberalization of this policy during the last two
decades would have had the opposite effect under the historical framework conditions. However, this framework has changed and the major factors for a new increased
demand for land relate to the introduction of direct payments, tied to land, and
increasing world market prices. Today, with liberalized EU markets and domestic
prices driven by world markets and no longer by a protectionist policy framework,
international agricultural prices and their changes have a crucial impact on land prices
in the EU and Germany.
International agricultural prices have, in fact, been going up in recent years with
a well-known price boom in 2007–2008. Whereas a long-term decreasing price
trend could be observed on international agricultural markets in the past (Tyers and
Anderson 1992, p. 49), this trend seems to be reversed for the future (European
Commission 2011, p. 49). The Food and Agriculture Organization’s (FAO) food
prices index shows a clearly increasing trend in the new millennium and the Organization for Economic Co-operation and Development (OECD) and FAO expect
stable and even increasing price trends for agricultural commodities in the future
(OECD/FAO 2016).
Figure 3.9 shows the average producer price index for German farmers from 2000
to 2018. After the liberalization of the EU’s CAP agricultural prices in the EU are
widely determined by international prices. This is visualized by the price trend in
51
Value marginal productivity
Land [VMP L ],
Ground rent [g]
land [L]
VMP L
2
g2
g1
L1
VMP L
1
Value marginal productivity
nitrogenfertilizer [VMP N ],
Factor price [r]
nitrogen [N]
VMP N
2
r1
N2
N1
VMP N
1
Supply land
Supply nitrogen
fertilizer
Land market
n
e
g
o
r
t
i
N
fertilizer market
Fig. 3.8 Impact of rising commodity prices on factor markets (Source Own compilation.)
supply is shown as a totally inelastic supply curve in the figure whereas nitrogen
supply is supposed to be totally elastic. Hence, the commodity price increase results
in a high increase of the land price with no impact on land use whereas nitrogen use
increases with a constant nitrogen price. Consequently, nitrogen intensity, defined as
nitrogen use per hectare, increases.
The importance of commodity prices for land prices (and agricultural intensification) has been broadly discussed in the literature. The EU’s protectionist agricultural
policy of the past has certainly contributed to higher land prices as compared to
free trade conditions whereas the liberalization of this policy during the last two
decades would have had the opposite effect under the historical framework conditions. However, this framework has changed and the major factors for a new increased
demand for land relate to the introduction of direct payments, tied to land, and
increasing world market prices. Today, with liberalized EU markets and domestic
prices driven by world markets and no longer by a protectionist policy framework,
international agricultural prices and their changes have a crucial impact on land prices
in the EU and Germany.
International agricultural prices have, in fact, been going up in recent years with
a well-known price boom in 2007–2008. Whereas a long-term decreasing price
trend could be observed on international agricultural markets in the past (Tyers and
Anderson 1992, p. 49), this trend seems to be reversed for the future (European
Commission 2011, p. 49). The Food and Agriculture Organization’s (FAO) food
prices index shows a clearly increasing trend in the new millennium and the Organization for Economic Co-operation and Development (OECD) and FAO expect
stable and even increasing price trends for agricultural commodities in the future
(OECD/FAO 2016).
Figure 3.9 shows the average producer price index for German farmers from 2000
to 2018. After the liberalization of the EU’s CAP agricultural prices in the EU are
widely determined by international prices. This is visualized by the price trend in