Improving the estimates of agricultural land wealth

The World Bank provides an assessment of a country’s economic performance based on gross domestic product (GDP) and wealth, the latter including manufactured capital, natural capital, human capital and social capital. For the valuation of agricultural land, the basic approach is to use information from land sales. This has been widely used in the United States in particular. This approach will be left aside, as land markets and reliable data on land prices are lacking in many countries around the world. The approach we propose could be compared to an approach based on land prices in some case studies where such data is available. The purpose of land valuation is ambiguous because of the necessary distinction between private and social values. It is recognised that land resources produce certain social values that fall outside the scope of either national accounting or the methodology described in the Terms of Reference. It is not clear whether they should be included in estimates of land wealth. As estimating social values is difficult, we focus on private values while offering some ad hoc perspectives on the integration of social values. In particular, we investigate how to better estimate growth rates of land returns and how to include uncertainty. We also examine how to revise rental rates, the parameters used in the net present value of land. Finally, we suggest ways of including the effects of climate change and land degradation. Philippe Bontems’ recommendations: In the short term, modify the World Bank’s methodology to include our suggestions on rental rates. Also carry out a sensitivity analysis on prices. In the medium term, the specifications for the growth rates of future land yields could be modified after carrying out some econometric analyses. At the same time, we could imagine including uncertainty and the infinite time horizon in all the components of wealth in the World Bank’s general methodology. In the longer term, further research and reflection is needed on the inclusion of the impacts of land degradation and climate change.