Several new laws have recently been proposed to regulate the agricultural land market. The goal is to prevent market power by limiting high levels of land concentration and to encourage a wider distribution of land ownership. A recent policy brief issued by the DFG-funded research group FORLand looks at whether and to what extent these arguments are actually based on empirical evidence.
Recently, laws have been proposed in several German states to more tightly regulate agricultural land markets. The reasons given for these include preventing dominant market positions and limiting the concentration of land ownership. In a new policy brief issued by the DFG-funded research group FORLand, authors Alfons Balmann of IAMO and Martin Odening of the Humboldt University of Berlin look at the concentration of land ownership and use in German states such as Brandenburg, Lower Saxony and Saxony-Anhalt to find out whether there is actual evidence of market power, how this can be empirically assessed and whether this justifies interventions in the land market.
The authors do not deny that market power can lead to market failure and welfare losses. However, due to the immobility and heterogeneity of agricultural land as well as the multitude of different actors involved, market power on land markets can only be empirically measured locally on the respective decentralised submarkets. In Brandenburg, for example, the radius of purchase and rent transactions indicates an average of around 22,500 ha of agricultural land per submarket. However, such regionally differentiated analyses are neither available for Germany as a whole nor for individual states. The existing indicators of potential market power, such as measurements of the concentration of land ownership and use or its price effects, have so far given no indication that land market power exists on a larger scale. The authors explicitly point out that there is no empirical evidence that the increase in land prices over the last 15 years is due to the current concentration of land ownership and use.
When looking at data or considering the small amount of evidence that exists of the possible implications of high levels of land concentration, it should not be forgotten that land markets and prices fulfil important functions with regard to the development of the agricultural sector, such as price information, value assurance and non-price rationing. Price ceilings to limit market power as discussed in politics, such as the ban on selling or leasing land for more than 1.2 times the guideline value, get in the way of these functions and could further restrict the already narrow purchase market. Accordingly, the question of whether there is empirical evidence of the existence of market power to justify the proposed interventions in the land market must be answered in the negative.
The authors also criticise the extensive use of terms such as “price abuse”, “dominant position”, “unhealthy land distribution” and “wide distribution of land ownership” in the proposed laws and guidelines, which are not adequately defined or justified. As such, there is concern that state institutions could be trying to base decisions on access to land on ideology rather than allowing companies to do so using economic rationale.
The FORLand Policy Brief “Is there empirical evidence of market power and land concentration to justify regulatory interventions in land markets?” is available in German and can be downloaded for free at the following address: http://dx.doi.org/10.22004/ag.econ.310860
Further information
The FORLand research group, funded by the German Research Foundation (DFG) and the Austrian Science Fund (FWF), investigates the efficiency and regulation of agricultural land markets with the participation of the Humboldt University of Berlin, the Technical University of Berlin, IAMO, the University of Bonn, the University of Göttingen and the University of Natural Resources and Life Sciences, Vienna. More information can be found at: www.iamo.de/en/research/projects/details/forland/ and www.forland.hu-berlin.de.
