EU Land Markets and the Common Agricultural Policy

80 | LAND SALES MARKETS IN THE EUIn Italy, uncertainty about future policy developments tends to makeparticipants cautious and conservative with respect to land purchases. Anumber of related results of the reform, which are not primarily concernedwith the land market, include extensification in some areas or a reductionof cultivation in marginal areas (but with good practices); additional effectscan be discerned from decoupling on livestock, tomato and fruit farming.The shift to the SPS changed approaches to the land market, becauseof the background of uncertainty about policy. It is difficult to estimate theprofitability of a land investment in the long run and hence the number oftransactions remained stable, as did agricultural land prices for the mostpart. What has emerged, however, is segmentation in the market for landwith and without entitlements (INEA, 2008).Compared with Emilia Romagna, in Puglia the land market seemsmore clearly influenced by agricultural factors, including policy, ratherthan non-agricultural ones. The shift to the SPS has had a marked butvague impact: the experts tended to note the importance of the paymentsfor land profitability, rather than a specific, isolated effect of the SPS onincreasing land prices. The connection between the SPS and land varieswidely for cereals, vegetables and olive production. In most cases, the SPScauses small changes in transactions and the farm production structure;entitlements are connected to land property ownership or rental, and farmstrategies are mostly oriented towards keeping the property and usingrelated assets. In the case of tomatoes and vegetables, the situation isdifferent, with significant changes brought by the SPS leading toentitlements becoming detached from land property and rental.In the Netherlands, the effect of introducing the SPS is difficult toquantify as other factors dominate land prices. The real option value, forinstance, accounts for at least half of the extremely high (in the Europeancomparison) Dutch land prices. Robust growth in the prices for agriculturaloutputs and the pressure caused by high revenues from receiving manurehave further reduced the share of land values related to subsidies. Theimplementation of the European Nitrates Directive has probably had ahigher impact on Dutch farmland prices than the move towards SPS, as itcreated a new source of cash flows for both landowners and renters.Still, because of data limitations it is impossible to conclude that therehas been no effect of the SPS on land values. Further research based onmicro data is needed to discern the exact impact. Aggregated data cannotprovide the answer, as only two years of observations are available.