The Impact of Expectations of the Transfer of Agricultural Land to Other Uses on the Management Scale and Productivity of Rice Cultivation

Author Name SAITO Keiji  (National Institute of Science and Technology Policy) /OHASHI Hiroshi  (Faculty Fellow)
Creation Date/NO. October 2008 08-J-059
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This paper examines the effect of speculative motives in agricultural land on farm size and labor productivity in Japan, by use of the prefecture- and size-level census panel data in the period from 1990 to 2005. When agricultural land is sold for alternative uses, such as for residential land, it is often sold for amounts close to the prices of neighboring residential land. The price of agricultural land intended for such alternative uses tends to be higher than the prices of agricultural land that changes hands for the purpose of agricultural farming. It has been pointed out that, in view of this, farmers do not part with agricultural land because they expect there to be opportunities to sell it later for alternative use, and thus this acts as an impediment to exercising scale economies in the agriculture industry.

The paper employs a discrete choice model in the choice of land size (including exit), and then simulates the model to assess the counterfactual situation in the absence of speculative motives. While it identifies the existence of strong increasing returns, the paper finds that speculative motives in agricultural land do account for why Japanese farm size is small in scale. Our simulation result reveals that in the absence of the speculations, farm size would have become larger by 30 percent and labor productivity increased by more than 20 percent.