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Inflation, Cash Flows, and Growth: Some Implications for the Farm Firm

  • Lindon J. Robison (a1) and John R. Brake (a1)

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As farm sector prices continue to increase at rates higher than any since World War II, attention is being given to the cause of the price increases and their structural impacts on the farming sector. Land, a major component of farm assets, has been the focus of many studies examining the effects of inflation. Melichar showed current increases in land prices to be consistent with productivity gains. Lee and Rask illustrated that even though current levels of land prices may be justified, firms may have negative cash flows, especially if loans are repaid on level repayment plans. Current inflationary conditions led Robison to conclude that though current land prices may be justified, the benefits and costs are unequally distributed and that, increasingly, persons who in earlier years made land purchases are more able to afford to purchase more, thereby accelerating the trend toward fewer and larger farms.

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References

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Baker, C. B. and Hopkin, John A.. “Concepts of Finance Capital for a Capital-Using Agriculture.Amer. J. Agr. Econ. 51(1969):1055-64.
Lee, Warren F. and Rask, Norman. “Inflation and Crop Profitability: How Much Can Farmers Pay For Land?Amer. J. Agr. Econ. 58(1976):984–90.
Melichar, Emanuel. “Capital Gains Versus Current Income in the Farming Sector.Paper presented at joint AAEA and WAE A meetings, Pullman, Washington, Aug. 1979.
Nott, S. B.Revised Michigan Crops and Livestock Estimated 1979 Budgets.Agr. Econ. Rep. No. 350 (revised), Michigan State University, Jan. 1979, p. 5.
Robison, Lindon J.Farm Real Estate: How Much Is It Worth-Who Can Afford It?Mich. FarmEcon., No. 436, June 1979.
Robison, Lindon J.Income From Land and Land Values: Is There a Connection?Mich. Farm Econ., No. 439, June 1980.
Robison, Lindon J. and Leatham, David J.. “Interest Rates Charged and Amounts Loaned by Major Farm Real Estate Lenders.Agr. Econ. Res. 30(1978):19.
Robison, Lindon J. and Love, Ross O.. “An Empirical Study of Changes in Farm Mortgage Loan Market Shares.Agr. Finan. Rev. 39(1979):1834.
Tweeten, Luther.A Test of Rational Expectations of Farmland Pricing in an Inflationary Economy.Mimeo., Oklahoma State University, 1980.
U.S. Department of Agriculture. Farm Real Estate Market Developments. CD-82, various issues.

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