Tweet Post to Your Wall.

Knowing Subsidy Payments Is Important When Setting Cash Rents

New research suggests landowners capture just a quarter of the value of government farm program payments in cash rents.

This finding stands in contrast to the prevailing assumption by economists that competition by farmers enables landowners to capture the entire subsidy, notes researcher Barrett Kirwan, an assistant professor at the University of Maryland in College Park, who authored the study.

The most plausible explanation for this discrepancy is that the farmland rental market is imperfect. That is, in a market with many landowners and fewer—but larger—farmers, landlords are sharing subsidy payments to attract tenants.

Nearly half of all U.S. farmland is rented—almost all of it from nonfarmer owners. And more than 60% of rented farmland is paid for with cash; another 11% with cash/share combination leases.

Income support payments are paid to farmers growing any of seven crops—wheat, corn, sorghum, barley, oats, rice and cotton. Government subsidy payments are based on a national subsidy rate multiplied by the yield assigned to the acreage.

Kirwan's research shows that landowners in the Heartland region— which is concentrated in corn and soybean production—capture a slightly higher portion of government payments though cash rents than other regions. In addition, larger farms are believed to be better skilled at negotiating lower rental rates, and thus, keeping a larger share of crop subsidies.