In this lesson, we develop a simple way to allocate land uses across a landscape, based on economic characteristics and relative location.

Question:  Can we expect the market to allocate land rationally among the many competing uses for land?
Answer:  Yes, if we allow the various users of land to compete by offering land owners as high a rent as each user can afford.

This will mean that any differences in land quality or accessibility will be reflected in the rent paid for the land.  The rent paid because of the quality or accessibility of land is the economic rent.

economic rent:  "the price paid for a good or service minus the cost of providing the good or service" [Hanink, p. 32],

which is very analogous to Stutz & deSouza's definition:  “the monetary return from the use of land after the costs of production and marketing have been deducted”  [Stutz & deSouza, p. 563] — higher for more productive land, higher for land whose output is easier to market.  If there is positive economic rent, there must be some aspect of the good or service that is scarce.

[Note that the purchase price of land is merely the current value of all the rent payments it could receive over time.  Also note that landowners who are also land users are assumed to want to use the land to get as much profit as possible, or to rent it out to someone who will pay as high a rent as possible].

Let’s assume that all farmers in a given area must get their products to a central market before they can receive any money for their farm products.  They will pay more for land near the market, because their transport costs would be less.
[Note that we must be talking about commercial agriculture, since subsistence agricultural products are consumed by the grower, not marketed]

Land that is farther from the market can still be useful, until the cost of transporting the product to market exceeds the profit from growing and selling the product.
The Hanink text gives a very clear explication of this process, with respect to agricultural land use, pages 33-41;
See Figures 2.3 and 2.4.
The Stutz and deSouza text illustrates this in Figure 5.25.

Note the key assumption:  competition among farmers for land near the market center drives up the rents demanded for this land, until the rents are as high as farmers can pay and still pay for the costs of production and transportation.

The rent payment (or purchase price) which can be attributed to the transportation savings over a more remote location is called the location rent:

• "economic rent earned from a location" [Hanink, p.481]
• "the advantage of one parcel of land over another because of location" [Stutz & deSouza, p.568]
• the price premium that a parcel of land can command based solely on the desirability of its location [Harrington, Geog. 207].

This also determines the rent paid for growing different crops, as a function of the

•  land intensity of the crop (how much is grown per acre),
•  value of the crop (how high a price it will fetch at market), and
•  bulkiness or perishability of the crop.

What is this equation saying?
(p - c) is the profit to be made per ton of output, in $/ton.
Q (p - c) is the profit to be made per unit of land, in (ton/acre)($/ton) = $/acre.
Qfk is the cost to transport the output from the given point to the market, in (ton/acre)($/ton-mile)(miles) = $/acre.

Note that it is a linear equation, in the form Y = a - bX.  Also note that Q (p - c) is the y-intercept of the rent gradient we draw in our rent diagrams, and that  - Qf  is the slope of the gradient.

The equation is saying that the economic return from farming that is attributable to the location of the farm equals the difference between (a) the profit to be made per acre of land, before transport costs and (b) the cost of transporting the product to market.
This is the same thing as Hanink's Figure 2.3 and Stutz and deSouza's Figure 5.25 are saying.

 

example:  LR= location rent per unit of land  Q = output per unit of land  k = distance to the market  p = market price per unit of output  c = production cost per unit of output (including labor and basic profit)  f = transport rate per unit of distance and output  Thus, if we assume that a wheat farmer 20 kilometers from the market obtains a yield of 1,000 metric tons/km2, has production expenses of $50/ton, transport expenses of $1/ton-km, and receives a market price of $100/ton at the central market, the location rent accruing to 1 square kilometer of the farmer's land can be calculated as follows:  LR = 1000 tons/km2 ($100/ton - $50/ton) - 1000 tons/km2 ($1/ton-km) 20 km  LR = $50,000/km2 - $20,000/km2 LR = $30,000/km2

Note that the economically rational landowner will rent to the highest bidder.  Note that the bids of some farm uses will overshadow the others, but that this situation varies with distance from the market.

Note that, at some distance from the market, there are no crops (or animals) that are so land-extensive and so easy-to-transport that it is profitable to grow (or raise) them.  This is the spatial margin of agricultural production.
(In reality, there may well be another market that results in increasing rents, beyond this point).

Note that this idea works for the same crop or production, grown at different intensities.
Also note that the point of transition is where the two bid-rent curves cross (not where a given land-use’s curve goes to zero).

Note that we have totally ignored localized differences in the agricultural suitability of land.  The simple way to account for this in this framework is to recognize that Q may differ across the landscape:  some subareas may have better soil or climate for a particular crop than other subareas.

• How does technological change affect agricultural production and location?
• How do technological innovations spread (or diffuse) across geographic space?

The framework above obviously assumes

• that land is owned by individuals,
• that individual landowners can use their land for whatever they want or rent/sell it to whomever they want, and
• that landowners will want to do whatever brings the maximum economic benefit.

Think about alternative scenarios:

What if land is owned by a collective -- jointly by everyone in a given territory?
What if land uses are determined by government?
What if land uses are determined by tradition?
What if economic returns are only one of many objectives of landowners?

1) Identify key characteristics that distinguish economic activities or sectors:

• intensity of land use,
• types of inputs used,
• degree of distance decay in markets,
• transportation intensity.

• distance from a point of maximum accessibility,
• distance from a central market,
• location of key inputs.