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Humboldt-Universität zu Berlin - Faculty of Life Sciences - Department of Agricultural Economics

Current Research Projects

more research projects: research data base of Humboldt-Universität zu Berlin

Price Formation and Agricultural Land Markets

Land is a crucial production factor in agriculture. In developed countries this input factor is usually in short supply and its overall availability shrinks permanently. On the contrary, the increasing demand of growing farms and more recently of non-agricultural investors causes price pressure on the land market. Thus, it is not surprising that land prices increased in recent years. Though the analysis of land markets is a core topic in agricultural economics, many questions are still unanswered. For example, do land prices reflect the price boom for agricultural commodities and bio-energy? Can land prices be fully explained by fundamental factors or are they also driven by speculative bubbles? What is the role of non-agricultural investors? Should land markets be regulated and if so, what are the most efficient instruments?

Against this background the project aims at understanding the recent developments on land markets, particularly in Germany and the EU. The focus will be on quantitative modelling and empirical (econometric) analyses.

Contact: Prof. Dr. Martin Odening, m.odening(at)agrar.hu-berlin.de

Cooperation: Prof. Dr. Silke Hüttel, silke.huettel(at)uni-rostock.de, Universität Rostock

Market integration and border effects in agricultural land markets

The research objective is to empirically investigate the linkages of agricultural land prices across time and space and to infer conclusions on land market efficiency from these findings.

In commodity markets, efficiency is commonly explained using the concept of market integration, either vertically or horizontally. In land markets, however, the concept of market integration through space, so-called spatial market integration, has rarely been applied and thus the question arises as to whether the notion of the “law of one price” of commodity markets is applicable at all in this context. In the context of space, it is important to note that barriers exist in space, i.e. formal and informal borders, which might interfere with the speed and distance of land price diffusion. Consequently, one primary research task is to assess the impact of borders on land market efficiency. Apart from spatial barriers, the adoption of spatial market integration techniques is further hampered by special characteristics of the production factor “land”.

  • First and foremost, land is immobile and hence it is not obvious how trade and arbitrage processes can work.
  • Second, regional market power may exist that prevents land prices in different regions from convergence.
  • Finally, land is an extremely heterogeneous production factor, which complicates price comparisons. Despite these peculiarities, one can nevertheless expect that economic responses to spatial price differentials will take place, since, the mobility of capital and/or farm managers will induce arbitrage processes on land markets towards a spatial equilibrium.

Contact: Dr. Aaron Grau, aaron.grau(at)agrar.hu-berlin.de

Demand and Supply for Crop Insurance in Agriculture

Crop insurance plays an important role in hedging weather risk in agriculture because agricultural production is severely affected by weather conditions. However, worldwide experience shows that it is rather difficult to establish a market for private (non-subsidized) crop insurance. In recent years, numerous studies have examined the causes of market failures and have conjectured that these failures mainly result from the existence of systemic weather risk. Nevertheless, it is still unclear how to model the impact of systemic weather risk on the viability of crop insurance markets.

Against this background, the objective of the research project is to analyze the demand and supply for weather insurance. For that purpose we develop an equilibrium pricing model based on the expected utility maximization of market participants that takes into account the effect of systemic weather risk. Moreover, this study analyzes the necessity and the efficiency of government subsidies in the crop insurance market.

Contact: Dr. Zhiwei Shen, shenzhiw(at)agrar.hu-berlin.de

Liquidity and the Role of Information in Agricultural Commodity Markets

In general, liquidity in agricultural commodity markets is comparatively low. Amongst other factors, it is the asymmetric distribution of information between market participants which is considered to influence the liquidity in a marketplace. The asymmetry of information ultimately becomes apparent through the order arrival process in the order book, which is also providing further insights into the price formation process. Thus, we place the order book and the order arrival process in the focus of these investigations, to understand liquidity and effects of policy measures such as the European Commission’s Directive on markets in financial instruments (MiFID 2) on liquidity in agricultural commodity markets.

Contact: Steffen Volkenand, steffen.volkenand(at)agrar.hu-berlin.de

Testing for Regional Convergence of Agricultural Land Prices

Recent spikes in food prices and the high liquidity on international financial markets have boosted the demand for land. As a result, agricultural land prices have steadily increased over the past decade in many parts of the world. These developments have triggered a debate on whether current legislation is still appropriate or whether there is a need for revision and tightening.

The general objective of this project is to investigate the efficiency of agricultural land markets via spatial market integration. We scrutinize the applicability of the law of one price to land markets while distinguishing between absolute and relative versions of this “law”. Panel data unit root and stationarity tests are applied to land sale prices in the German state Lower Saxony where we detect three main clusters with different price developments. Our results indicate that the law of one price holds only locally due to structural differences among regions.

Contact: Xinyue Yang, yangxiny(at)agrar.hu-berlin.de