EMPIRICAL-ANALYSIS OF REGIONAL FARMLAND M ARKETS IN THE NEW-FEDERAL-STATES-OF-GERMANY

This paper tries to contribute to market transparency on local farmlan dmarkets for tenants and landowners in the new federal states of Germa ny. Although this question is relevant for all market participants, tr ansparency is particularly important with respect to the market for na tionalized land in Eastern Germany (which embraces ca. 25 p.c. of all farmland in this part of Germany). According to the ruling regulation this land has initially to be leased to farmers on a long-term basis b y the privatisation agency, the ''Bodenverwertungs- und verwaltungsges ellschaft (BVVG)''. During a second phase of privatisation starting in Oktober 1996 the land will then be sold on the basic of the Compensat ion Act (EALG). An empirical analysis of the market for leased farmlan d is based on data of 13,342 lease contracts of the BVVG, and an analy sis of farmland sale prices is based on 1,050 sale contracts in Sachse n-Anhalt. At the beginning of our paper, we describe how markets for l eased land have come into being and have developped in the period afte r unification. The main results are that markets for leased farmland h ave developped fastest near the former border between the two German s tates as well as for arable land in locations with favourable farming. Further more we explain that determinants of land sale prices differs from those of land rents. To illustrate this, cross-section analyses of price determinants for leased and for sold farmland, based on the a bove mentioned data, are presented. The results of these analyses show that natural productivity of arable land proves to be the main determ inant of land rents. In the regression analysis, 70 to 80 p.c. of the variation of land rents is explained by this variable. On the other ha nd, using arable land sale prices as an endogenous variable, only 20 t o 30 p.c. of the price variation is explained by natural productivity. This result shows that the arable land sale price is more strongly de termined by other factors than by the natural productivity of the land , factors which are responsible for the ha that land sale prices excee d land rents on average by more than 30 times. Furthermore, future dev elopment of farmland prices and rents are discussed under different as sumptions about possible changes of the EC policies. Under optimistic assumptions the level of sale prices and rents for arable land will in crease in the new federal states of Germany, but will probably not rea ch the level of the western part of Germany in the next years. Changes in the EC agricultural policy will certainly influence the price leve l of agricultural land. If subsidies which are at present bound to cer tain land uses may be convened into personal income transfers farmland prices and rents will certainly decrease.