The Capitalization of Area Payments into Farmland Rents: Micro Evidence from the New EU Member States

This study investigates the impact of the Single Area Payment Scheme (SAPS) on farmland rental rates in the New EU Member States. Using a unique set of farm level panel data with 20,930 observations for 2004 and 2005 we are able to control for important sources of endogeneity. According to our results, the SAPS has a positive and statistically significant impact on land rents in the EU. However, the estimated incidence is smaller than predicted theoretically. Land rents capture only 19 cents of the marginal SAPS EUR, and around 10% of the SAPS benefit nonfarming landowners through higher farmland rental prices. As the share of rented land is higher in corporate farms than individual ones, family farms benefit more from the SAPS than corporate farms do.