Rural Land Use and Capacity Concepts

Rural Land Use

• Land is a finite resource. Policies that expand the area allotted to one use can limit the land available for other uses.
• Multi-purpose land use is becoming increasingly important.
• Multifunctionality is the concept of multiple uses for a single piece of land.

Land Use Capacity

• Land use capacity is similar to the concept of rent.
• The ability of a unit of land to produce a surplus above the cost of utilization.
• Evaluates the productivity potential of a unit of land for a specific use, considering technology and production conditions.
• It is determined by two factors: accessibility and resource quality.

Accessibility

• Accessibility refers to the ease of access to markets, shipping facilities, and other resources.
• Optimizes transportation, communication costs, and considers time-distance factors.

Resource Quality

• This refers to the ability of a land resource to produce desired products, generate returns, or provide satisfaction.
• Agricultural land: evaluated based on native fertility and its response to fertilizers.
• May include climate advantages and aesthetic considerations, like scenery, presence of trees, or water attractions.
• Urban areas: encompasses factors like functional area planning, neighborhood attractiveness, and architectural styles of buildings.

Highest and Best Use

• The most probable and legal use of vacant or developed property that is physically achievable, supported, financially feasible, and generates the highest value.

Supply of Land

• Land is a durable and permanent asset.
• When land is sold or committed to a specific use, the price alters, not the total quantity available.
• The focus for land supply is not the total quantity but the quantity that can effectively provide specific services.

The supply of land has economic characteristics:

• Fixed or completely inelastic in the long run due to its finite nature.
• Land can be transferred from one use to another, such as residential to commercial, within limits. This is occupational mobility of land.
• Technological advancements like reclamation and high-rise buildings can increase land supply.

Physical Immobility/Geographical Fixing

• Land's location is fixed. services must be utilized on-site.
• Location influences land values because shortage in one place cannot be compensated by surplus in another.
• Land values are determined by the specific location where it is situated.

Land is permanent and relatively indestructible.

Derived Demand

• Land is not required for its own sake, rather for producing goods and services.
• Demand for land increases when the demand for goods and services rises, and vice versa.
• Factors affecting overall demand for land: population changes, changes in preferences, availability of services (roads, water, electricity), availability of facilities, and security of tenure.

Market Imperfection

• Land markets are not perfect.
• Sluggish reactions lead to imbalances.
• Factors contributing to market imperfection: no central market, time lag, inability to adapt to changes, protracted and costly transactions, and tenant farmers raising food prices to survive economic hardship.

David Ricardo

• Critical of the land-owning aristocracy.
• Defined rent as payment for the original and indestructible powers of the soil.
• Explained the high rents due to:
  • Different qualities of land.
  • Limited supply of land.
  • Increasing population.
  • Demand for factors of production (land) is derived from the goods they produce.
  • Rent acts as a 'bounty' for land ownership.
  • Land yielding no produce doesn't receive rent.

Ricardian Theory of Rent

• Ricardo is not the originator of the theory but provided significant insights.

• Assumptions of the model:

  • Land is solely used for agriculture.
  • Land varies in quality, arranged from poorest to richest.
  • Factors of production used with the land are homogenous except for the land itself.
  • Supply of land is limited and finite.
  • Land is cultivated in order of quality, starting with the best.
  • As demand increases, poorer and poorer land is used to produce more.
  • Land yielding no surplus does not earn rent.

• Amount of rent payable is higher with greater land capability.

• Richer land commands more rent, with the highest quality land earning the maximum rent.

• Increased demand for wheat raises earnings for all land, even previously unused land.

Rent Bid Function for 2 Crops

• Steeper gradient indicates a greater likelihood of being situated near the center.
• Different crops have varied technical production requirements, impacting prices and transport costs.
• The steeper rent bid function indicates a higher market price for the crop.
• Crops with gentler slopes are less affected by distance.
• Producers closer to the market have higher initial returns, but they decline faster due to higher transportation costs.
• The steeper rent bid function's outward margin of cultivation is closer to the market.
• Crops with flatter slopes can have higher returns beyond the market, due to lower transportation costs.
• Land occupation around the market is determined by the bid power of each producer.
• Land near the market is occupied by producers with steeper slopes (higher prices), and further out, producers with gentler slopes dominate.

Rent Bid Function for More Than 2 Crops

• Multiple zones arise based on varying bid powers.
• Market location denoted by 'M'.
• Zones defined as O to L, L1, L2, etc.

Rent/Value Gradient

• The rent gradient forms the rent value gradient.

• The rent value is the present value of income expected from the land or the net yield from its produce.

• Agricultural land value is highest near the market center and declines steadily as distance increases.

• Von Thünen identified seven zones in his model of agricultural land use.

Explore the fundamental concepts of rural land use, including multifunctionality and land use capacity. Understand how accessibility and resource quality impact land's productivity potential. This quiz will test your knowledge of effective land management strategies.