Direct payments and rent extraction by land owners: Evidence form New Member States
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Since the accession of the eight Central and Eastern European countries, farmers in these
countries started to receive substantial agricultural subsidies. Agricultural subsidies alter
farmer production incentives and thus factor demand and factor prices. Hence, agricultural
support has an impact on land rents. This paper analyses the impact of the introduction of
direct payments on land rents in the new member states and correlates econometrically land
rental price data with support measures while controlling for other effects. The impact of direct
payments on land rents is not only found to be statistically significant, but also economically
important as 15% of the direct payments are capitalized in land rents in the new member states.