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A Cautionary Reply for Farmland Preservation

By
Tom Daniels,
Professor of Geography and Planning
University at Albany, State University of New York
Albany, NY 12222
tdaniels@cnsunix.albany.edu

Note: For nine years, Daniels was Director of the Lancaster County, PA farmland preservation program.



A CAUTIONARY REPLY FOR FARMLAND PRESERVATION

Peter Gordon and Harry Richardson presented the cornucopian argument against farmland preservation in their article "Farmland Preservation and Ecological Footprints: A Critique." The cornucopians, in the tradition of Julian Simon, believe there is no shortage of farmland, that the land market is capable of efficiently allocating land resources among competing uses, and that technological advances will continue to generate more food even as human populations increase.

I agree that the alarmist claims of impending threats to food supplies appear unwarranted. From a national standpoint, it is hard to claim that there is a shortage of farmland. Food is relatively cheap and abundant. Chronic overproduction and low commodity prices are the main farm problems, even while federal farm programs are idling over 30 million acres (Daniels and Bowers 1997, p. 83).

Land Markets and Regulation

Farmland protection is a fascinating example of the problems of identifying land prices that send accurate signals of value now and over time. Land is not a homogenous commodity. It is fixed in location, and it varies according to quality (slope, soils, and parcel size). Location, in the form of access to amenities, transportation, and utilities, together with quality and land use regulations determine the land's use capacity (Barlowe, p. 16). Value, in turn, comes from buyer demand and the price at which a seller will sell.

Land markets, like other markets, are not self-regulating. Moreover, regulation does not supplant market forces. Consumer demand, labor markets, and capital markets are still important factors (Kuttner, p. 226). Rather, regulation, when done well, constrains market imperfections and abuses. When done poorly, regulation exacerbates market failures.

In a perfect land market, the private market price of land is equal to the social market price, and social economic welfare is maximized (see Hufschmidt et al., 1983, pp. 28-31). When private market price is not equal to social market price, the land market fails to allocate land in socially desirable ways. Market failure is a necessary, but not a sufficient condition for government intervention in the land market. That is, a government program may not produce a more efficient or socially-desirable result. The example of this "government failure" is the often-cited situation of governments "throwing money" at a problem.

Because of government subsidies for development, through the mortgage interest deduction, roads, and sewer and water lines, the private market price of development land is distorted to a level below the social market price. Because developers and home buyers do not bear the true full costs of development, they are in effect paying a lower price for land than if there were no subsidies.

Zoning, which generally constrains development potential by reducing supply is one way that local governments attempt to raise the private price of development land to the social price which includes the negative environmental externalities of land development.

Similarly, in the market for farmland, the private market price of farmland is generally lower than the social price. The private price does not include the public good aspect of farmland, those environmental services such as open space that society values but may not pay for.

In an attempt to raise the private price of farmland to the social price, governments offer preferential property taxation for farms which is capitalized into higher land values, the purchase of development rights, and crop subsidies--though most of these will end in 2002.

The private market price for development is usually greater than the private market price for farmland, because the private market considers development a "higher and better use." This is why a decline in acres farmed will continue. Farmland conversion is effectively irreversible when farmland is put to asphalt, houses, shopping malls, office parks, and factories. But the important issues from a social perspective are: 1) the rate of farmland conversion; and 2) where farmland is being converted.

The challenge is how to have the benefits of economic growth with a pleasing environment. Economist Joseph Schumpeter called this process of economic growth "creative destruction." Farmland in some areas should continue to be developed: the example Gordon and Richardson cite of turning the Santa Clara Valley fruit region into Silicon Valley and thus increasing economic growth is valid (see Daniels, 1999, p. 2). But farmland preservation has a role to play as well.

The Cautionary View: Be Strategic, Aim for Balanced Growth

Highly productive agricultural regions are strategic resources of national importance (Batie and Healy (1980). In these places, the rapid conversion of farmland to suburban and ex-urban development can pose fiscal and environmental problems for growth management and threaten the future of local and regional agricultural industries.

Farmland preservation needs to be done strategically, using an integrated set of techniques (see Daniels and Bowers, Chapter 13). National and state farmland preservation funds should be targeted at the most viably productive areas. The expenditure of public funds to preserve suburban open space and calling it farmland preservation will do little to curb sprawl and even less to protect future food supplies. For example, I am much more concerned about preserving farmland in California's Central Valley than in suburban Boston. And by analogy, federal and state governments do not spend mass transit money in rural areas, so why should farmland preservation funds be spent in suburban areas where the cost of development rights exceeds $5,000 an acre (e.g. over $2.5 million to preserve 500 acres)?

To be effective and efficient, farmland preservation must meet the following regional goals (Daniels, 1990):

1. The protection of a critical mass of farmland to enable the continuation of commercial farming and to enable support businesses to survive.

2. Affordable land prices are crucial for farm expansion and for the entry of new (young) farmers.

3. The long-term reliability of a protection program is crucial to gain the support of farmers as well as the public who are asked to provide financial support.

4. The benefits of farmland protection must equal or exceed the costs.

The popularity of farmland preservation programs should not be underestimated. Nineteen states and several local governments have spent nearly $1 billion for purchasing development rights to over 590,000 acres of farmland (American Farmland Trust, 1999). Voters have indicated their willingness to pay for farmland preservation. In November of 1998, voters nationwide passed 172 ballot measures involving $7.5 billion for land preservation and "smart growth" projects. In New Jersey, voters approved $500 million for farmland preservation over the next ten years (Farmland Preservation Report, 1998).

I suggest that caution on the side of farmland protection is prudent, given the trend of Americans consuming more land per person (Daniels, 1999, p. 12), and the Bureau of the Census projection that there could be as many as 393 million Americans by 2050 (U.S. Department of Commerce, 1997). Also, what if the drought of 1999 repeats itself every few years?

As Robert Kuttner explains:

"A still broader goal is to vouchsafe the environment to future generations, or to achieve high living standards at lower overall environmental cost. These are civic goals that myopic markets cannot identify." (p. 282)

In the end, only time will tell whether the cornucopians, cautionaries, or alarmists were right about farmland preservation. But it is a good debate, one well worth having.

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