We investigate the spatial capitalization of the expanding biofuels market in farmland values using parcel-level farmland sales data from 2001 to 2010 for a 50-county area within Ohio’s Corn Belt region. We construct two instruments by exploiting the spatial competition among agricultural markets to address the non-random ethanol plant site selection process. Our results reveal a positive capitalization of $19 per acre for each mile closer a farmland parcel is to the nearest ethanol plant post-construction. This translates into a $380 ($570) per acre premium—roughly 7 (10) percent of the average sales price—for parcels 20 (30) miles closer to ethanol plants than comparable, but more distant, parcels. The effect of proximity to grain elevators became a positive and significant determinant after the ethanol market expansion, conveying an added value of $57 per acre with every mile closer to a grain elevator. In contrast, the effect of proximity to agricultural terminals diminished over 30 percent, from an average of $48 to $30 per acre per mile, providing evidence of changing spatial competition among local agricultural market channels.
Q15, Q16, Q13
Original Release Date: June 2017
Department of Economics, Iowa State University
Zhang, Wendong and Irwin, Elena G., "The Expanding Ethanol Market and Farmland Values: Identifying the Changing Influence of Proximity to Agricultural Market Channels" (2017). Economics Working Papers: Department of Economics, Iowa State University. 17042.