Revisiting the Relationship Between Farmland Prices and Soil Quality

This paper aims to examine the relationship between soil quality and farmland prices over time. Soil quality is often used as an explanatory variable for farmland prices in hedonic price models. However, the agricultural land market has shown an enormous price increase over the last decade. Therefore, revisiting the relationship between soil quality and farmland prices over time is of high relevance. This study aims to analyze farmland price time series in Germany. The series are aggregated within soil quality intervals and within parcel size intervals, treated as panel units. The fully modified ordinary least squares (FMOLS) panel group mean and the dynamic ordinary least squares (DOLS) panel group mean estimators are applied within a cointegration regression approach to estimate the relation of the time series. We found that soil quality causes a relative farmland price difference within an identified long-run relationship.